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Freezing Innovation


By Grace-Marie Turner, The Galen Institute

The Biden administration issued its guidance last week to explain how it plans to implement price controls on pharmaceuticals, per the so-called “Inflation Reduction Act,” and it is even more outrageous than the law itself.

The Centers for Medicare and Medicaid Services (CMS) released its first list of 27 drugs it will target for government price controls.  Companies the government determines raised prices more than the rate of inflation will face a “price-increase penalty” in the form of a rebate.  Companies that don’t pay could face a penalty that is 125% of the rebate amount.

What good will all of this do?  The American Action Forum took a deeper dive into the impact of the measure President Biden sold as “substantially reducing drug costs for a wide swath of Medicare beneficiaries.”

  • The AAF study finds that fewer than 6 million beneficiaries – less than 10% of enrollees – will benefit at all.
  • For those who do benefit, savings are typically modest – 69% of those with any saving will save less than $300. 

And for this, the Biden administration appears willing to decimate one of the strongest industry sectors in the U.S. and erode our status as the world leader in pharmaceutical innovation.

The U.S. biopharmaceutical sector directly employs more than 900,000 workers and supports a total of nearly 4.5 million jobs in all 50 states.  These are high-paying jobs with everyone from scientists to truck drivers working to create and deploy medicines that will save lives.

The guidelines the administration released last week:

  • Will freeze innovation: CMS provides no incentives for companies to continue to improve a drug and find new disease applications, the source of the majority of cancer drugs. It basically freezes today’s innovation in place.  
  • Paperwork, not pills:  The sheer volume of data that will be required for the federal government to determine the “appropriate price” for a drug will require drug companies to deploy armies of people to gather the data—a huge amount of work that does nothing to create a single new drug.
  • Gag Order: Companies must sign the “agreement” with the government before the price-control “negotiations” can begin and must remain silent about the discussions, even if the government offers to pay them $1 for their product that may have cost $2-3 billion to develop. There’s no such gag order for the government negotiators, however.  

Companies must comply with the price the government sets or have their drug dropped from Medicare’s formulary.

Judicial review of the government’s price decision is not allowed. CMS did not even go through the normal rule-making process of notification and inviting public comment on its guidelines.  It simply issued its 91-page memo and declared it “as final, without a comment solicitation.” 

The impact on patients desperately hoping for treatments and cures for rare diseases is perhaps the most tragic as company executives are forced to pull promising drugs from the research table.

Congress is expected to hold hearings and surely can find a way to inject some reason into this process.


Grace-Marie Turner runs the Galen Institute, a public policy research organization providing an informed debate over free-market ideas for health reform.