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Sally Pipes (2019), writing for Fox News, predicts a MCA system will reduce physician’s incomes because Medicare’s payments are 40% lower than private insurances for the same treatment. She also predicts a reduction of students enrolling in medical schools, that many physicians will retire early, and many younger physicians will discontinue medicine for another field.

Ms. Pipes assumes the primary reason for choosing medicine, and remaining in the field, is for monetary gain. She offers no data in support this claim.

As they respond, America's hospitals and other facilities have not been spared the supply chain challenges that many faced leading up to the holidays. One less visible but very serious aspect of our service should concern everyone: making sure we have the necessary workforce to care for patients.

Millions of American workers have either quit or changed jobs in recent months. It's been called the Great Resignation or the Big Quit, and it is affecting many employers, including the healthcare field.

We’ve already gotten most of the benefit from pharmaceutical discovery that we are ever going to get. It doesn’t matter if the flood of new drugs slows to a trickle. Few of them will have much impact on health and lifespan. Access is a bigger problem than innovation.

We’ve all seen this graph or one like it.

Part of Angela Sandlin’s job as a pharmacy director has been to keep a list of the drugs that are in short supply, which, over the years, have run the gamut — from contrast agents used for X-rays and other scans, to blood pressure medications and antibiotics.

But the shortages lately have gotten worse and pharmacists are “trying to walk a tightrope,” Sandlin said.

Innovation policy involves trading off monopoly output and pricing in the short run in exchange for incentives for firms to develop new products in the future. While existing research demonstrates that expected profits fuel R&D investments, little is known about the novelty of the projects funded by these investments. Relying on data that describe the scientific approaches used by a large sample of experimental drug projects, we expand on this literature by examining the scientific novelty of pharmaceutical R&D investments following the creation of the Medicare Part D program. We find little evidence that the positive demand shock implied by this program prompted firms to undertake scientifically novel R&D activity, as measured by whether the specific scientific approach had been used before. However, we find some evidence that firms invested in products involving novel combinations of scientific approaches. These estimates can inform economists and policymakers assessing the tradeoffs associated with marginal changes in commercial returns from newly developed pharmaceutical products.

Drug makers claim high prices are necessary to support new drug development and innovation, but research shows that public investment in drug research and development combined with large industry profits leaves manufacturers room to lower prices while continuing to innovate.

Drug manufacturers have brought new vaccines to market in record speed to stop the spread of COVID-19. That notable achievement was made possible by massive financial investments from the public. More than $19 billion in government funding has been invested in the research, development, manufacturing, and distribution of COVID-19 vaccines. In total, the United States has guaranteed purchase of 900 million doses for a population of approximately 330 million and assumed financial risk so manufacturers don’t have to.

Large pharmaceutical companies oppose legislation being considered by Congress to lower the prices of prescription drugs. Reducing their revenues, they contend, will reduce their investment in drug development and the discovery of new medicines, and thus lead to a decline in drug innovation.

If that argument is credible, there should be evidence to show that the large pharmaceutical companies are responsible for discovering innovative new drugs.

Finding 2: The IRA may reduce discovery of new uses for existing drugs.

New applications of existing drugs often can be efficiently developed since repurposed medications already have built up extensive portfolios of knowledge concerning human pharmacokinetics, bioavailability and toxicology.23 This breadth of information leads to reduced development timelines—typically3-12 years compared to 17 years for new molecules24,25—and development costs that are 85% less than the cost of developing new drugs.26 Governments have also partnered with pharmaceutical firms to explore the potential for repurposing existing drugs to treat new diseases. Examples include the “Discovering New Therapeutic Uses of Existing Molecules” initiative by the National Center for Advancing Translational Sciences in the U.S. and the Medical Research Council partnership with AstraZeneca in the UK.27,28

Dana Goldman 23, PhD, Economics, USC; et al., 4-13-2023, “Mitigating the Inflation Reduction Act’s Adverse Impacts on the Prescription Drug Market”, USC Leonard D. Schaeffer Center for Health Policy and Economics White Paper Series, https://healthpolicy.usc.edu/research/mitigating-the-inflation-reduction-acts-potential-adverse-impacts-on-the-prescription-drug-market/, BEJJP-ATJ [6-22-2023]

Adverse Effects of the IRA on Innovation and Plans

History often repeats itself, and the pharmaceutical industry’s current “innovation gap” is one they’ve seen before — the world’s largest companies find themselves in the precarious position of needing to make big new bets before their once reliable cash cows stumble.

The innovation gap, also called the innovation deficit, is happening as companies watch some of their bestselling products of the last decade approach the end of patent protection — and with biosimilar competition on the horizon, revenues are bound to erode. R&D pipelines aren’t likely to make up the difference in time without some major overhaul, experts say.

Democratic lawmakers in the U.S. Senate advanced drug pricing legislation today that would drastically alter the Medicare program. Dr. Michelle McMurry-Heath, President and CEO of the Biotechnology Innovation Organization (BIO), released the following statement:

“The misguided legislation, which is largely similar to a proposal floated last year, includes risky medical price control tactics that will ultimately harm the very patients and seniors that lawmakers claim to be helping.

The Inflation Reduction Act has eight provisions intended to reduce future drug prices. Some observers were surely pleased that Congress gave the Centers for Medicare and Medicaid Services new powers to negotiate with pharmaceutical companies. They shouldn’t have been. The Inflation Reduction Act won’t noticeably reduce inflation and it will do little or nothing to lower the cost of healthcare. Forcing drug companies to charge lower prices will likely lead to fewer new drugs.

Virtually no products are more valuable than the modern medicines produced by the biopharmaceutical industry. They cure diseases and extend lives. We’ve all heard that Americans pay higher drug prices than people in other countries. That’s true, but only when comparing retail prices of brand-name drugs. Very few Americans pay retail prices; most pay a fraction—a copay dictated by their insurance plan. Most country-to-country comparisons also leave out generics. Nine of 10 prescriptions in the U.S. are filled with generic drugs priced lower than in most other countries.

The Covid pandemic could have been the moment for China’s drug companies to shine. President Xi Jinping’s administration in 2015 made biotech one of the 10 key sectors to build up under its Made in China 2025 state industrial strategy. The government went on to streamline regulation and attempted to align standards with those of the Western world, aiming to make its drugmakers more competitive so they could eventually challenge Pfizer Inc., AstraZeneca Plc and other pharma giants.

As a result, venture capitalists, private equity funds, investors in initial public offerings and others have poured more than 1.5 trillion yuan ($216 billion) into the Chinese biotech industry since 2015, according to Bi Jingquan, the former head of China’s drug regulator. Chinese companies accounted for 7 of the world’s 10 largest biopharma IPOs from 2018 to 2020, according to McKinsey & Co., and the combined market value for the industry soared from $3 billion in 2016 to more than $380 billion in 2021.

The idea that wage‐​price spirals cause inflation – that higher prices lead to higher wage demands, which beget further higher prices and then higher wages again and again – is a long‐​standing myth, and a dangerous one given it can lead to such misguided policy.

There may be good economic reasons for real pay restraint for rail workers, given technological developments and the collapse in rail demand following the pandemic. Rising inflation is not one of them.

The truth is that most workers cannot simply demand higher wages in response to inflation. Consider the difference between two hiring scenarios: wage posting and wage bargaining. Under wage posting, a worker must accept a posted wage for a job (i.e., take it or leave it); under wage bargaining, they can negotiate with their employer over their wages. Research has found that low-income workers facing better job prospects elsewhere aren’t able to bargain for higher wages in their current job — they either stay at a lower wage or they quit. (High turnover from workers quitting has high costs for companies too.) Only workers in the highest quarter of the wage distribution appear to be able to negotiate for higher wages in their current jobs.

This matters for the wage-price spiral story because higher-income workers save more of their income as their salary increases. Meanwhile, lower-income workers comparatively see their demand as consumers increase along with wage increases. (Economists chart this as the marginal propensity to consume: how much of each additional dollar is used for consumption versus savings or investment.) So even where workers can bargain for higher wages, we’d expect it to have a lesser impact any upward pressure on prices.

Amid past periods of high inflation, economists have worried about a wage-price spiral: the idea that as workers seek higher wages to deal with inflation, employers pass these higher wages on to consumers in the form of higher prices, forcing workers to demand further higher wages, which creates a vicious cycle. However, there remains little to no evidence that workers’ wages are causing today’s high inflation. Looking at recent price and wage increases by industry makes it clear that there is no correlation between the acceleration in price inflation in any particular industry and the acceleration of wage growth in that industry. (see Figure 1)

Figure 1

Nominal wage growth since early 2021 has been rapid if one only compares it with its own growth over the past two decades. However, atypically fast nominal wage growth in the past 15 months has not been a significant driver of inflation. To explain why, it helps to draw on previous work that examined nominal wage growth targets that would be consistent with the Fed’s 2% long-run inflation target.

Essentially, if the Fed wants 2% inflation, this implies that nominal wages can grow in the long run at roughly 3.5–4%. This is because 2% inflation means that all per-unit costs (including wages) can grow by 2%. But ongoing growth in productivity—output produced in an hour of work—allows the same costs to be spread over more output, which will drive down costs per unit produced. Add in 1.5–2% trend productivity growth, and nominal wages can grow at 3.5–4% annually with prices growing 2% annually.

Many CEOs, investors and economists had penciled in 2023 as the year when a recession would hit the American economy.

The thinking was that the US economy would grind to a halt because the Federal Reserve was effectively slamming the brakes to squash inflation. Businesses would lay off workers and inflation-weary Americans would slash spending.

Importantly, different cost assumptions under the PWBM model would yield different results from the ones presented here, particularly over the long run.15 PWBM also finds that financing an expanded traditional Medicare program – which, unlike Medicare for All, would include some premiums and cost sharing – would have a much smaller economic impact. PWBM estimates that financing expanded traditional Medicare with a payroll tax would reduce GDP by 5.3 percent in 2030, deficit financing it would reduce GDP by 4.4 percent, and financing it entirely with premiums would actually increase GDP by 1 percent.16

Health reform as labor market policy: Key effects for workers

Fundamental reforms like M4A could greatly aid labor market outcomes for U.S. workers. The most obvious benefits would be higher wages and salaries, increased availability of good jobs, reduced stress during spells of job loss, better “matches” between workers and employers, and greater opportunity to start small businesses.