Healthcare is a major focus of the Inflation Reduction Act, a $740 billion spending bill enacted recently by President Joe Biden and congressional Democrats. And a provision aimed at giving the federal government more bargaining power over prescription drug prices is drawing fierce debate over whether it will really work.
The act, signed into law by Biden after favorable votes in the House and Senate along party lines, makes reality a long-cherished Democratic goal of allowing the federal government to negotiate prices for some of the drugs that Medicare spends the most money on. Until the act became law, the U.S. government was explicitly prohibited from engaging in price negotiations with drugmakers on behalf of the Medicare population.
The new law essentially establishes a process whereby the Health and Human Services secretary proposes the government’s offer price for certain drugs.
“The IRA builds on the success of the Affordable Care Act and will make health insurance more affordable for those in the individual market,” said Arielle Kane, director of healthcare at the Progressive Policy Institute. “The drug pricing provisions start out small but can be expanded over time to make a real difference in the cost of drugs for seniors and the Medicare program.”
Companies that refuse to comply with the negotiations would be subject to an excise tax on prescription drugs as high as 95%. The law also prohibits reviews of new powers given to the Department of Health and Human Services by federal agencies and courts.
“That being said, there is work left to do — people in Medicaid nonexpansion states were left out of this deal — but it’s important to take the wins where you can get them and to keep building on that success to make sure that every American has access to affordable healthcare,” Kane said.
But HHS’s new power to negotiate with drug companies may create more problems than it solves, said Markus Bjoerkheim, a post-doctoral research fellow at the Mercatus Center at George Mason University. The bill’s negotiation clause is just a different word for price control, Bjoerkheim said.
“The problems with price controls are well understood, and we are, thankfully in my view, reluctant to use them,” Bjoerkheim said. “In this case, I’m concerned the drug-pricing provisions will reduce the incentive to invest in research and development and set a precedent that increases the uncertainty surrounding the payoff to producing the next blockbuster pharmaceuticals.”
Bjoerkheim added, “Research suggests investments in pharmaceuticals average less than $3,000 per life-year saved, cheap compared to many other healthcare services.” Additionally, Bjoerkheim said, “I worry that the selection of which drugs that are negotiated will become politicized and encourage unproductive lobbying.”
The act also prolongs the Affordable Care Act expansion through 2025, magnifying access to federal healthcare subsidies for those who buy health insurance through the ACA marketplace by eliminating the cutoffs if the person earned more than 400% of the federal poverty limit. The premium tax credits were extended for another three years, initially set to expire in 2023. Expansion of the subsidy makes it more likely it will become permanent and used more often by employers.
