In our latest Liberty Update, we highlight an eye-opening new study confirming how drug price controls…
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AEI's Michael Rosen: "Omicron Variant Sows Chaos but Doesn’t Move Needle on Patent Waiver Debate"

In our latest Liberty Update, we highlight an eye-opening new study confirming how drug price controls kill pharmaceutical investment and innovation at the worst possible time, when America and the entire world depend upon them more than ever.

In similar vein, American Enterprise Institute (AEI) Adjunct Fellow and healthcare expert Michael Rosen nicely illustrates how the omicron variant of Covid has paused the destructive global effort to suspend enforcement of patent rights belonging to lifesaving vaccine developers:

But the new omicron variant of the virus has intervened, shelving the planned WTO meeting and throwing into continued contrast the supposed haves and have-nots of vaccine protection...  But the EU has held firm in resisting the vaccine waiver, and rightly so."


December 06, 2021 • 12:20 PM

Liberty Update

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Congressional Drug Price “Negotiation” Proposal Would Cost Lives, Defy Voters Print
By Timothy H. Lee
Thursday, November 04 2021
There’s a straightforward reason why the effects of a drug price “negotiation” scheme would prove so catastrophic and immediate.

Just like in 1994 and 2010, voters this week sent an unmistakable signal to Congressional Democrats on their radical legislative agenda:  Pump the brakes.  

Former Obama shaman David Axelrod certainly got that message, lamenting on CNN as the votes rolled in that they’d be wise to reconsider their pending multi-trillion-dollar social policy proposals:

“If you’re a Democrat sitting on Capitol Hill, and you’re from one of these swing districts in suburban areas, are you rethinking tonight your vote on this reconciliation package?  Are you thinking maybe it’s best we shouldn’t do it?  If I were sitting in the White House, if I were sitting in the leadership of the… in the Democratic councils in the Congress, I’d be worried about that.”  

Instead of internalizing voters’ message to pump the brakes and correct their course, however, Senators Chuck Schumer (D – New York), Ron Wyden (D – Oregon) and other Democrats stubbornly appear more inclined to floor the accelerator.  

Specifically, they’re attempting to cement agreement on provisions that would empower the federal government to begin “negotiating” drug prices with manufacturers and imposing draconian penalties upon providers that don’t play ball.  

That constitutes a scheme to bring price controls to American healthcare, with catastrophic effects, according to analyses from both the non-partisan Congressional Budget Office (CBO) as well as the University of Chicago.  

For its part, the CBO finds that similar price control schemes would “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).”  

The University of Chicago findings trigger even more cause for American voters’ alarm:  

[P]rice 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.

Although this gets a bit into the intellectual weeds, it’s worth noting that the University of Chicago study explains why the CBO actually understates the potential danger of Congressional Democrats’ proposal:  

[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.

There’s a straightforward reason why the effects of a drug price “negotiation” scheme would prove so catastrophic and immediate.  Here in the U.S., we impose fewer artificial price controls on pharmaceuticals.  Consequently, America accounts for an incredible two-thirds of new drugs introduced worldwide.  In turn, we enjoy significantly higher availability of new life-saving and life-improving drugs.  To illustrate, consider that out 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.  

Moreover, proponents of this scheme should know that it employs methods unpopular with the American public.  

According to a recent CFIF survey, an overwhelming 72%-28% supermajority of voters believe that the federal government’s role should be to provide oversight and incentives to health care providers, prescription drug companies and health insurers, not setting prices for health care services and prescription medicines.  Additionally, 76% of Americans oppose any scheme that causes delays in access to new drugs (as the CBO and University of Chicago studies show would occur), reduces access to new cancer medicines for seniors, results in fewer new medicines or triggers the loss of biopharmaceutical sector jobs.  

Proponents of the drug price control scheme contend that it will only hit a select number of drugs that have been on the market for a substantial number of years.  Of course, Americans were told similar things about the income tax when it was instituted in 1913, with a 1% tax on incomes over $83,000 in today’s dollars and 3% on incomes over $500,000.  Nothing knows “mission creep” like a federal program.  

Members of Congress should therefore think long and hard in light of this week’s election results whether it’s wise to double down on a radical social change agenda that voters are unequivocally rejecting.  Especially when the cost would be measured in lives lost due to fewer available lifesaving drugs.  

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