Legislators should monitor mission creep at CMS’s flush price control center  

Section 11004 of The Inflation Reduction Act allocates $3 billion to the Centers for Medicare & Medicaid Services over the next decade to execute the legislation’s drug-price negotiations. That’s an excessively large amount of funding, far beyond any reasonable costs the agency could possibly incur.  

For the 100 drugs to be negotiated the coming decade, the spending amounts to an astonishing $30 million per negotiated drug. Compare this to the Institute for Clinical and Economic Review (ICER), a private organization also in the business of so called “evaluating” drug prices, innovation be damned. It operates under a fraction of the cost, its website’s publicly available 2021 IRS records show it has spent $650,000 per report produced, representing about 2 percent respectively of the new CMS center’s budgeted costs. 

Wildly excessive funding given to CMS could end badly. Handing the agency $3 billion over the next decade to solve a series of questions that could be answered in a matter of hours with the help of an Excel spreadsheet is asking for trouble. Therefore, it is critically important for Congress to monitor the program to ensure that the idle time of personnel doesn’t spill over into mission creep, further harming U.S. innovation and patient health as it creates uncertainty for innovators in the U.S. life sciences industry. This is why oversight lawmakers on Capitol Hill will need to keep a watchful eye on CMS’s activities. Bureaucrats innately seek ways to expand their role. In this case, they’ll likely look for back doors to create even broader price controls.  

The flush new drug price negotiation group is currently hiring staffers. Those bureaucrats will soon begin to “negotiate” the price of commonly used medications purchased by Medicare.  

These will be negotiations in name only — the IRA dictates that the “maximum fair price” for any selected drug cannot exceed 75 percent of the price paid by commercial insurance plans, with that percentage dropping to 40 percent over time. Any drug makers that refuse to accept the government’s offer would face ruinous taxes. The price controls will take effect on 10 drugs by 2026, with that number rising to 100 by 2031. Because the legislation targets the drugs that Medicare spends the most on, the blockbusters that fund the inevitable failures in the FDA pipeline will be attacked.   

However, the law doesn’t specify any lower bound on these prices. And rather than simply selecting the medicines with the highest Medicare spending that meet the other parameters for inclusion in the price control program, imposing an across-the-board price cut, and calling it a day, CMS officials are somehow planning to spend $3 billion on drawn-out, uncertainty-inducing deliberations.  
Already, the agency is showing worrisome potential for conflicts of interest. It’s begun filling 95 new roles to carry out the price control mission. With their enormous budget, those staffers could have every incentive to offer lush private contracts and congressional oversight staff will need to keep close tabs on activities. 

In their oversight role, members of the House should also ask tough questions of the new price-control chiefs, whose backgrounds suggest a strong anti-industry bent. One of the program’s top staffers comes from Arnold Ventures, an activist group that has consistently worked to undermine intellectual property rights and cap drug prices. Several team members have given credence to controversial methods of analysis — including quality-adjusted life years (QALYs), which are banned by the IRA — to be used to justify rationing health care for the elderly, people with disabilities, or those otherwise considered too “costly” to treat.  

Perhaps not surprisingly, we’re already seeing CMS activity outside the bounds of the Inflation Reduction Act that echoes prior work by Arnold Ventures and the private analog of ICER. For instance, a division within CMS recently unveiled a proposal that would slash how much the government will pay for cutting-edge medicines approved under the FDA’s accelerated approval pathway. The proposal comes on the heels of unprecedented Medicare coverage restrictions on promising new Alzheimer’s medicines.  

Lawmakers need to ask CMS why it is increasing uncertainty for investors and innovators, rather than reducing uncertainty through a simpler approach to implementing the IRA. Oversight will also mean asking CMS hard questions about use of the excessive funding as well how price controls and coverage policies will impact seniors’ access to new drugs in the long-term, and by extension total Medicare spending. Such spending often falls when new drugs lower other forms of health care spending.  

For example, my own research suggests that breakthrough Alzheimer’s treatments could save the American health care system up to $1.8 trillion over 10 years by delaying the onset of symptoms, with savings coming from reduced health care spending and reduced burdens on caregivers. But these treatments will never reach patients if the government drives manufacturers away with arbitrary price caps and prohibitive coverage policies. 

It is unlikely Congress will reverse the IRA for the next two years. But legislators still wield power through their constitutional oversight duties. In this role, they may be able to prevent mission creep and curtail the new unit’s excessive budget — and thus mitigate some of the damage caused to patient health by the law’s price controls. 

Philipson is an economist at the University of Chicago who served on the White House Council of Economic Advisers as a member and acting chairman, 2017-20.