H.R. 3 Will Kill U.S. Drug Innovation, University of Chicago Finds Print
By Timothy H. Lee
Thursday, September 16 2021
When unanimity exists among such diverse organizations on the impact of drug price controls, Americans had better pay attention.

Americans understandably tune out ongoing political battles in Washington, D.C.  According to two separate and devastating new studies from the University of Chicago and the non-partisan Congressional Budget Office (CBO), however, Americans had better pay attention to H.R. 3, Nancy Pelosi’s healthcare price control legislation.  

According to the new studies, whose findings are almost incomprehensively grave, H.R. 3’s likely consequences are literally a matter of life and death.  

To understand why, it’s important to understand what the proposed bill attempts to do.  

Compared to other nations, the United States imposes fewer artificial price controls on pharmaceuticals.  As a direct result, American consumers enjoy far greater access to new life-saving and life-improving drugs.  Advocates of price controls never bother to mention that, because it makes no difference what something costs if it’s not even available at all to you because of government price controls.  

Consider that of 270 new medicines introduced in the U.S. since 2011, only 52% were made available in Canada, 53% in France, 64% in the United Kingdom, 67% in Germany, 48% in Japan and just 41% in Australia.  Also consider that the United States, which accounts for approximately 4% of the world’s population and approximately 25% of the world’s economy, accounts for an incredible two-thirds of new drugs introduced worldwide.  So we’re obviously doing something right.  

The Biden Administration, however, in alliance with Pelosi, would jeopardize our international advantage by imposing a drug price control regime through H.R. 3.  Their plan would force pharmaceutical innovators to negotiate the prices they could charge under compulsory conditions with the federal Department of Health and Human Services (HHS).  A draconian 65% to 95% tax would be imposed upon the gross sales – not net profits – of any company that refused to play ball.  As the University of Chicago study noted, that makes “the requirement largely equivalent to mandatory price controls.”  

Their bill would also bring foreign price controls to America by empowering HHS to set prices based on those allowed by designated countries.  So instead of importing our superior market model to other countries, Biden and Pelosi seek to impose their regimes on Americans, who will pay the price in the form of fewer available new drugs.  

That’s precisely the finding of the University of Chicago study:  

We calibrate that the price controls implemented in the United States would lead to a 29.2 to 60.0 percent reduction in R&D from 2021 to 2029.  This equates to $952.2 billion to $2.0 trillion in lost R&D spending and 167 to 342 fewer drug approvals during this period.  This means annual new drug approvals will be 11.7 to 24.0 percent lower per year from 2021 to 2029, and 45.0 to 92.4 percent lower from 2030 to 2039…  Our estimates are conservative, as the entire evidence base is considered, and not only the evidence base for the more R&D sensitive U.S. market.  

That finding accords with CBO’s own report released last month:  

CBO describes an updated version of the model used to inform estimates of the effects of H.R. 3 on the number and timing of new drugs entering the U.S. market…  That policy is estimated to lead to 2 fewer drugs in the first decade (a reduction of 0.5 percent), 23 over the next decade (a reduction of 5 percent), and 34 fewer drugs in the third decade (a reduction of 8 percent).  

It’s worth pointing out that to the extent the CBO study understates the impact anticipated by the University of Chicago’s study, the latter study explains why the CBO likely erred:  

[T]he CBO study underestimates the company revenue impact by assuming companies will be able to set their price at the high end of the allowed price range, and that companies will be able to increase their non-U.S. price.  Both assumptions may not be true due to the uncertainty around behavioral responses in negotiations.  Further, for the loss-of-revenue impact on R&D, CBO extrapolates price control effects from smaller markets, and they do not account for the larger impact on targeted disease groups most impacted by the policy like rare diseases and oncology.  CBO’s analysis relies on Dubois et al (2015) to estimate the effect of H.R. 3 on R&D, but CRA notes that this estimated effect is smaller than most of the other literature, too dependent on specific assumptions, and may not be as relevant to a policy of H.R. 3’s magnitude.  

Other analysts’ estimates of the impact of the price controls introduced in H.R. 3 show a considerably larger impact on global revenues and R&D than assumed by CBO…  This fall in earnings when fitted to past data would have lowered new approved drug therapies in their sample from 68 new drugs to 7 new drugs, an 89.7 percent decline from 2010 to 2019.  

Translation:  The CBO’s already catastrophic projections on the negative impact of H.R. 3 aren’t catastrophic enough.  

It’s also worth noting that even the United Nations World Health Organization reached the same conclusion on the impact of price controls:  

Every time one country demands a lower price, it leads to lower price reference used by other countries.  Such price controls, combined with the threat of market lockout or intellectual property infringement, prevent drug companies from charging market rates for their products, while delaying the availability of new cures to patients living in countries implementing those policies.  

When unanimity exists among such diverse organizations on the impact of drug price controls, Americans had better pay attention.  H.R. 3 would lead to hundreds of fewer new drugs in coming years, and catastrophic drops in R&D.  We simply cannot allow the Biden Administration and Pelosi-Schumer Congress to rush through this destructive, hyper-partisan bill.  Our lives literally depend upon it.