Familiar complaints and distortions with little merit from the pharmaceutical industry

Senior executives of major pharmaceutical manufacturers published a letter attacking the prescription drug provisions of the Cut Inflation Act 2022. The letter contains a collection of lies and exaggerations to undermine a policy that will benefit taxpayers, premium payers, seniors/people with Medicare and other prescription drug consumers with at most minimal impact on the availability of new remedies.

The opening salvo of the letter asserts that the law represents an attack on innovation and claims credit for the rapid development of products to combat COVID-19 for the industry. This success happened because of government involvement in prices, sales and science. The government has long invested in the research that underpins the Moderna and Pfizer vaccines. Additionally, the government guaranteed sales at a negotiated price that made Americans healthier and gave developers big profits. The case for developing a COVID vaccine is Exhibit A of how government-industry negotiation can work.

The letter also claims that the number of new drugs will decrease and “breakthrough therapies will begin to disappear.” The Notes from the Congressional Budget Office that over the next 30 years, we can expect about 1,300 drugs to hit the market. The impact of the law would be to reduce that number to 1,285, a change of about 1% over 30 years and only a reduction of two over the next decade, five over the following decade. This is the result of the innovation protections contained in the law. They include the exclusion of small biotechnology companies, the source of most new products; exemption from negotiation for products during the first 9 to 13 years on the market more than enough time for new cures to recoup their investments; and the exemption of biosimilar products to strengthen this new market.

The letter states that there would be a potential loss of 100 drugs over 20 years. This number is based on a selective “synthesis” of the research literature on how the number of new drugs responds to increasing pharmaceutical company revenues. Rather than reanalyze the data and replicate the studies and the project, the authors made their own projection. The results contrast sharply with the CBO results who used much of the same research to make their projection. It also goes against to research which replicated previous results on the impact of income changes and involved modest new product reductions and showed that there was very little effect on the supply of new cures.

Finally, the letter omits many provisions of the Act that would benefit consumers and industry. In the consumer benefit assessment, the letter highlights the reimbursable limits for Medicare beneficiaries as the only source of improved affordability. Yet the letter ignores the impact on future prices resulting from limits on price increases, increased affordability of reduced prices due to negotiationand the cap on reimbursable costs for insulins for beneficiaries of health insurance. These ignored provisions will put hundreds of millions of dollars back into the pockets of consumers. Finally, the letter fails to mention how all of these provisions will drive demand for prescription drugs that will also generate new revenue and profits for drugmakers.

The Inflation Reduction Act strikes the right balance between savings for consumers and taxpayers and protecting incentives for innovation. We must not allow ourselves to be influenced by a self-serving set of lies, exaggerations and confused analyzes when considering the advances offered by the law.

Richard Frank is director of the USC-Schaeffer Initiative on Health Policy at the Brookings Institution and former assistant secretary for planning and evaluation at HHS.