Non-unique – IRA lowered pharma innovation. They’re taxed into the ground.

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.

In many countries, the government is the sole purchaser of pharmaceuticals. For a new drug to be used, the government must buy and distribute it. If the government declines, the drug won’t be available. These governments negotiate with a take-it-or-leave-it attitude. Drug companies often take it, because once research and development costs are covered, some money is better than no money.

Except in rare cases, pharmaceutical companies develop drugs for the U.S. market. For drugs that make it in America, potential sales in Europe, Japan, Canada, China and elsewhere are gravy. Drugs that can’t make it in the U.S. are scuttled. Probable success in America is a necessary and sufficient condition for the development of new drugs. There are four main reasons for this:

First, the U.S. is a relatively large country. Second, the U.S. is a wealthy country; Americans are 46% richer than the British, 59% richer than the French, and 36% richer than the Germans as measured by per capita gross domestic product. Third, negotiating prices with government bureaucrats takes time, resulting in one to two years of lost sales. Fourth, prices in the U.S. are somewhat more influenced by market forces and, until the Inflation Reduction Act, weren’t determined by negotiations with the government.

Where CMS is concerned, “negotiations” is a “Godfather”-esque euphemism. If a drug company doesn’t accept the CMS price, it will be taxed up to 95% on its Medicare sales revenue for that drug. This penalty is so severe, Eli Lilly CEO David Ricks reports that his company treats the prospect of negotiations as a potential loss of patent protection for some products.