Inflation Reduction Act is a typical Washington, D.C., healthcare solution
Editor’s note: Dr. Bradley Allen is a pediatric heart surgeon and a Republican candidate for Congress in California’s 24th District, which includes Santa Barbara County. Dr. Allen resides in Summerland.
Do you want to suffer more? Die sooner? Pay higher healthcare costs?
If you answered yes to any or all of these questions, you must be a fan of the so-called Inflation Reduction Act just signed into law by President Joe Biden. The bill is exhibit No. 2,597,331 for the way career professional politicians lie their way into making your life worse by promising to make it better, when really all they’re doing is enriching themselves financially and politically.
The IRA, we were told, would, among other things, reduce the cost of prescription drugs by allowing Medicare to dictate prices.
But by ignoring any of the reasons for high drug prices, and the disastrous consequences of price controls, it will do to our healthcare what these same professional bureaucrats did for us at the gas station and supermarket.
As a doctor, I never want to make the cure worse than the disease. It appears career politicians don’t have these concerns.
University of Chicago economist Tomas Philipson found that over the next 17 years, the IRA drug price controls will reduce drug industry research and development by about $663 billion, resulting in 135 fewer new medicines and a seven-year delay in medication approval. This will result in a loss of 330 million life-years, which is about 30 times the loss of life-years from COVID-19 to date. He also estimates a 3.7% increase in spending for medical services due to the decline of new drug approvals to treat diseases.
A 2005 study came to similar conclusions. It found that drug price controls would have led to 198 fewer new drugs in the U.S. market from 1981 to 2000, at a societal cost of about $20 trillion, or more than 28 times the estimated savings from these price controls.
So while the IRA drugs may be cheaper, you will pay more in healthcare costs for the privilege of suffering more and dying sooner.
And if you doubt these studies, you need only look at what happened to drug development in Europe after the introduction of price controls. Europe went from leading the U.S in new drug development in 1990, to late-stage venture capital funding being just 3% of the level in the United States by 2019.
Between 1990 and 2017, R&D investment in Europe grew 4.5 times, while in the U.S., it multiplied by more than 800%, As a result, far more U.S. pharmaceuticals are being developed now than ever before. In just the last 17 months, 79 new drugs have been approved, 29 of them for cancer. In 2018, the National Academies of Sciences found that two-thirds of new drugs in the past decade and more than 80 percent of the drugs in the world’s biopharmaceutical pipeline today emerge from the United States.
And if this wasn’t enough, the bill doesn’t even address any of the fundamental reasons why drugs are expensive. As a doctor, I have learned that the most effective way to solve a problem is to first determine the underlying cause. For example, if you have pain from a broken arm, the problem is your broken arm, not your pain. You need your arm fixed; not pain pills, which only makes the underlying problem worse.
But professional politicians find it far easier to let Medicare dictate prices (prescribe pain pills) than to actually solve the problem.
There are numerous ways to reduce prescription drug prices without causing the consequences inherent with price controls. For example, the cost of Generic drugs has declined by almost 40% since 2014. But this bill does nothing to make it easier to bring generic drugs to the market.
As a start, Congress could:
— Increase market competition among generic medications by allowing more players to participate.
— Increase oversight of antitrust laws to prohibit anticompetitive business practices that delay or prevent the introduction of generic medications.
— Facilitate the importation of off-patent generic drugs approved by comparable foreign regulatory agencies to provide confidence in the drugs safety, while offering additional competition.
It can take 12-15 years to bring a new drug to market, and the cost has increased from $802 million in 2003 to $2.6 billion in 2018. Furthermore, the chance of approval has gone from about 23%, to less than 12%. This helps explain why brand name drugs are expensive.
But again, there are ways to help reduce these costs. For example, the government could:
— Institute regulatory reform to minimize the amount of data for approval.
— Reform differences in regulatory standards for submission and approval between the United States and Europe so that a new drug only needs to qualify in one to be accepted in both.
— And discourage approval of drugs with clinically insignificant benefits.
History shows that price controls like the ones in the IRA almost never work and usually result in less of something. As economist Harold Demsetz stated years ago, “using price controls is like responding to cold weather in Winnipeg by breaking the thermometer.”
Breaking a thermometer doesn’t cause the temperature to rise. Controlling prices doesn’t cause drug costs to fall. But it’s worse than that. When a government controls prices, it usually leads to supply issues, meaning drug shortages and less innovative drug development.
But simply breaking thermometers is usually what happens when we let professional bureaucrats “fix” healthcare. Amazingly, the career politicians are already on the campaign trail, telling you that if you send them back to Washington, they will do more of the same, as though none of these consequences exist. They rely on the public’s ignorance to let them continue lying. If I practiced surgery like that, I would be out of business.
So why do we let them run our healthcare, or for that matter, our lives in general? Why do we keep voting for the same people who got us here?
We need to remember what President Ronald Reagan called the nine scariest words in the English language: “I’m from the government, and I’m here to help.”
