Drug price controls lead to higher costs and less choice | COMMENT

The Biden administration announced its first round of prescription drug price caps last week, with Democrats calling it a victory for patients. However, neither the price controls nor other drug provisions in the Inflation Reduction Act of 2022 are cause for celebration.

The primary goal of the IRA drug provisions was to save the federal government money for other priorities. The politicians who drafted the law also touted it as a means of making drugs more affordable. But the real result was higher costs for patients and the promise of a future with less innovation and fewer new treatments.

Furthermore, the law does nothing to address the real causes of the high cost of prescription drugs: the industry's middlemen known as Pharmacy Benefit Managers (PBMs).

When President Joe Biden signed the IRA, the White House and its allies told Americans it would lower Medicare costs for seniors. They had a plan: The law caps prescription drug copayments at $2,000 a year and caps annual increases in Part D drug coverage premiums at 6 percent.

Despite these assurances, seniors' out-of-pocket costs are rising precisely because of IRA regulations, which also limit the choice of available drug insurance plans.

Independent studies are warning policymakers and patients about rising premiums. For example, the Kaiser Family Foundation found that premiums for stand-alone drug plans have risen 21 percent this year and could skyrocket again next year. In a June study, healthcare consultant Milliman predicted that out-of-pocket costs for the 3.5 million American seniors who use the Medicare Part D program will rise 12 percent in 2026. Those predictions are starting to come true, and policymakers are unlikely to change course.

Making matters worse, there are fewer and fewer available Part D plans. When Medicare prescription insurance was introduced in 2006, there were more than 1,400 plans available. Today, the program offers fewer than half that. Last year, nearly 100 plans disappeared, leaving retirees with fewer options. The situation is especially dire for low-income enrollees, for whom the availability of no-premium plans has dropped 34 percent since last year.

Added to this is the loss of innovation, which endangers the future health of everyone.

The new price caps reduce drug developers' income, leaving them with less money to reinvest in the search for cures – and driving away the investors who are essential to launching new life sciences companies. A University of Chicago study of a price control law very similar to the IRA found that the number of drugs coming to market over the next 15 years would fall by 135.

High drug prices are the fault of PBMs, organizations that negotiate with pharmaceutical companies on behalf of insurers. They make part of their income from percentage discounts and rebates from drug manufacturers. This creates a perverse market structure that encourages PBMs to push higher-priced drugs on insurers and patients. And it puts upward pressure on drug prices as PBMs demand ever-higher discounts. Policymakers could increase drug affordability for patients by targeting PBMs.

The IRA promised to reduce the cost of prescription drugs. Instead, it increases budgetary spending, reduces the choice and number of remedies available. Lawmakers owe Americans a better option.

Peter J. Pitts is president of the Center for Medicine in the Public Interest. He wrote this for InsideSources.com.