Last year, Democrats included provisions in their inaptly named Inflation Reduction Act that they said would bring down patients’ spending on prescription drugs. On one level, the law is having its intended effect – but as with most liberal schemes, it has brought unintended consequences as well. In some cases, patients are spending less on prescription drugs because they can’t get access to those drugs at all.
Recently, the American Cancer Society issued an alert noting that chemotherapy drugs “are increasingly in short supply and have returned to the list of top-five drug classes affected by shortage.” The society added that the shortages will prove particularly harmful for some patients, as some cancer drugs don’t have effective alternatives, meaning that doctors and hospitals will have no choice but to ration care by placing patients on waiting lists.
Drug shortages preceded the law that Democrats passed last summer. But it isn’t a coincidence that the number of shortages hit a five-year high by the end of last year. And unfortunately, provisions in the new law will likely exacerbate the problem in years to come.
Those provisions require companies that raise their prices by more than the rate of inflation every year to provide rebates to the federal government. What sounds like a good idea in theory could end up having harmful effects.
For starters, the Congressional Budget Office believes that the inflation rebates will prompt pharmaceutical companies to set higher launch prices for new prescription drugs. As CBO put it last August: “Manufacturers would have an incentive to launch new drugs at a higher price to offset slower growth in prices over time.”
Price controls on generic drugs have unintended consequences
But the inflation rebates also will apply to older, generic drugs, where many of the shortages now lie. Some of these shortages result when generic manufacturers have quality-control issues.
Because many of these older drugs are produced by only one or two companies, if a manufacturer has to shut down production for any length of time, the drug supply will suffer.
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As many generic prescriptions are manufactured overseas in places like China and India, it might make sense – for both the safety of our drug supply, and for national security reasons – to move manufacturing back to the United States. But the new law makes it difficult for companies to raise prices, even if such increases would lead to a safer and more secure prescription drug supply for the United States.
As a mother of a daughter with cystic fibrosis, I know what it means for a loved one to be dependent on pharmaceuticals to survive and thrive. For example, a drug that my daughter is taking daily, albuterol, is facing a shortage, and many CF parents like myself are having difficulties obtaining it.
Effects of price controls will get worse over time
A price hike of 10%, or even 20%, on a generic drug costing $10 would not raise overall health spending by a significant amount. And in this hypothetical case, if raising prices could ease the manufacturing problems leading to drug shortages, most Americans would consider the slightly higher prices “worth it.”
But because the Democrats’ law forbids price hikes of this nature, the shortage problems are likely to persist and could well get worse.
Other provisions of the Inflation Reduction Act will also reduce the number of prescription drugs available to patients. Language allowing the federal government to “negotiate” – in this context, the word really means “dictate” – the prices of a select number of drugs has already resulted in fewer investments in potential new cures.
The effects of these price controls will only grow over time, as the pipeline of novel treatments slows to a trickle, stifled by lack of spending on new drug development.
American patients deserve affordable drugs, but they also deserve to be able to access those drugs in the first place, and Democrats’ new legislation is standing in the way.
Mary Vought (@MaryVought) is the founder of Vought Strategies and a senior fellow at theIndependent Women’s Forum.