Once again, your tax dollars are at work. But they are harming you, not helping you.
Let me explain…
Last August, President Biden signed into law the Inflation Reduction Act (IRA).
According to the president, $740 billion of government funds – that’s YOUR money – will be used to “lower the cost of prescription drugs and health care for families.”
Sounds good… But how?
By allowing the Department of Health and Human Services (HHS) to “negotiate” the price of some medications directly with pharmaceutical companies.
The word “negotiate” is in quotation marks for two reasons:
1. Between October 1, 2022 and January 1, 2026, “negotiate” means that drug manufacturers will be required to pay rebates to Medicare if the costs of certain drugs rise faster in a year than the inflation rate for that year.
For example, if the cost of a medication rises 6% from one year to the next, but the inflation rate is only 4%, the manufacturer will be required to pay a 2% rebate on the cost of that drug. The rebate doesn’t go to you, the consumer. It goes back to the government. And it doesn’t matter why the price rose faster than the inflation rate – and there is no provision in the law for an appeal.
2. Beginning on January 1, 2026, “negotiate” means the Department of Health and Human Services (HHS) will determine the price it’s willing to pay for a specified medication.
The manufacturer is allowed to make one counteroffer, but if HHS doesn’t accept the counteroffer, the manufacturer must accept the HHS price. Otherwise, the IRA law empowers the IRS to charge the manufacturer a “noncompliance” excise tax of up to 1,900% of the medication’s daily U.S. revenue until the manufacturer either caves in and sells the drug at the HHS price – or takes the drug off the market.
All of this additional government control of the pharmaceutical industry will require – according to the Centers for Medicare and Medicaid Services (CMS), the HHS agency responsible for administering the new law – six new divisions within CMS and 95 new federal employees.
Although the IRA rules currently apply only to a relatively small number of high-priced medications, the draconian authority being given to an unelected HHS bureaucracy sets a far-reaching and dangerous precedent.
Last October, HHS released a report stating that the price of 1,200 drugs rose faster than the rate of inflation between July 2021 and July 2022. The average price increase was 31%.
Medicare purchases more than 30% of all prescription drugs sold in the U.S. – spending roughly $130 billion annually.
Drug companies have little recourse even if they can demonstrate that the prices HHS wants them to accept are below their manufacturing cost.
The law includes several provisions that stifle free market competition and discourage the entrepreneurship required to research and develop new products:
- It prohibits judicial or administrative review of whether a drug is even eligible for negotiation.
- It imposes fines of up to $1million per day if a drug company fails to provide HHS with any information it demands.
- If a company “knowingly” provides inaccurate information to HHS, it can be fined up to $100 million.
- Drugs that treat only one rare disease are exempt from IRA price negotiations. But if, during or after clinical trials, a drug is found to be effective for two diseases, the manufacturer could be forced to sell it at a loss.
The only way a manufacturer can avoid the IRA “negotiation” rules is by withdrawing all of its products from being purchased by Medicare and Medicaid – a financially ruinous move.
Cory Andrews of the Washington Legal Foundation, a free-market advocacy group in Washington, D.C., calls the IRA pricing rules radical and unprecedented in American history.
“Apart from one or two wartime exceptions,” he says, “due process requires that a party deprived of property must have the opportunity to be heard. The IRA’s bar on administrative or judicial review is an unprecedented deprivation of due process.”
Creating an unconstitutional law that arbitrarily price-fixes prescription drug costs and abrogates the right of due process for drug manufacturers seems to be the punishment politicians are determined to impose on drug manufacturers in order to rein in Medicare spending.
Government interference over Medicare drug pricing was mostly forbidden until the passage of the IRA.
In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act was passed, which created Medicare Part D, the prescription drug benefit program.
This legislation prohibited HHS from interfering with the price negotiations between drug manufacturers and pharmacies. The purpose of the prohibition was to preserve market competition within the Medicare program, which helps keep prices down.
In 2007, House Democrats approved the Medicare Prescription Drug Price Negotiation Act of 2007, but it died in the Senate and failed to become law. Those who opposed the legislation did so because private healthcare insurers and their pharmacy benefit managers were already negotiating large discounts from the drug manufacturers for Medicare beneficiaries.
Reducing total Medicare spending – including spending on prescription drugs – is a worthy goal. According to the Congressional Research Service, Medicare has $103 trillion in unfunded liabilities – a staggering figure that is three times more than the national debt!
But the way to reduce spending isn’t to implement price controls on prescription drugs – or on any other healthcare cost.
Free market competition – not government regulatory restrictions – always produces not only the lowest prices, but also the best products.
A plethora of reforms in the healthcare industry are needed to significantly reduce Medicare costs – including deregulation, an end to professional lobbying, an end to large corporate political donations, health insurance industry reforms, medical tort reforms, and more.
Government control by bureaucrats… central government planning and price controls… are your worst nightmares.
What do you think? Email me at [email protected].
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