Senate Democrats are moving forward with a falsely advertised drug pricing plan. Liberals, and even maverick Sen. Joe Manchin (D-W.Va.), claim their newest plan will help lower drug costs for seniors and even drive down inflation. As always, however, the fine print says something else. In fact, the scheme would be a disaster for the development of life-extending, life-improving medicines and medical devices.
Start with the money. The details show their proposal is more about raiding Medicare than it is about lowering their prescription drug costs. There is a $300 billion cut to the Medicare program, much of which would be immediately spent to extend expiring COVID-era emergency ObamaCare subsidies that went to higher-income earners.
That might be helpful to insurance companies seeking to sell more ObamaCare policies to a bigger, newly eligible customer base, but it certainly does not help lower seniors’ drug costs.
As for the supposed lower drug costs they claim seniors will benefit from, most of those would not materialize for at least three to five years — providing no immediate relief — until the drug pricing provisions have time to take effect. Even beyond this irresponsible “spend now, save later” approach, seniors could find themselves subject to new access restrictions to certain medicines.
And here’s the kicker: According to the Congressional Budget Office (CBO) and studies from the University of Chicago, patients and families will see fewer new cutting-edge treatments come about as private sector research and development investments dry up.
It’s also important to look at how Democrats are attempting to define “savings.” First, they would fully eliminate a significant Medicare reform that was approved by the Trump administration but has been purposely delayed by President Biden. Centered on negotiated rebates secured — and often kept — by pharmacy benefit managers (PBMs), the so-called rebate rule would have required big discounts on drugs to go directly to seniors enrolled in Medicare almost immediately.
Furthermore, these discounts would have been applied directly at the point of sale (i.e., local pharmacies, etc.) when individual seniors paid for their prescription medications. However, no new government programs or corporate middlemen would have been needed, so liberal Democrats naturally opposed it. Instead, Biden, House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Chuck Schumer (D-N.Y.) want a government-run program that identifies or “negotiates” potential savings so that they, not seniors, can collect the discounts and decide how to spend the money. That should not be a comforting prospect for seniors.
Next, Democrats have marketed their plan as a simple process by which the federal government will use its power to negotiate lower drug prices for Medicare beneficiaries. In reality, it is a price-control scheme no matter how it is advertised and will have the same devastating impacts price controls always do: diminished supply of the products in question. Worst, the creation of vital new drugs and treatments would whither. It typically costs $3 billion dollars and 15 years or so of development time to bring a drug to market.
In the Democrats’ plan, government bureaucrats would set a price and tell drug developers to take it or leave it. If they don’t accept Medicare’s offer, they could be subject to as much as a 95 percent excise tax on total sales of a particular medication. That is not negotiation. That is not a counter negotiating tactic, as Democrats suggest. That’s basic economics.
Because of our free market system, the United States is by far the world’s leading developer of new drugs. Pharmaceutical companies have the opportunity to make a return on investments from their discoveries. Without such a system, we would be without a host of the recent breakthrough discoveries for chronic and rare diseases brought forth over the past decade, including our ability to develop vaccines for COVID-19 in record time.
American patients have better access to beneficial drug treatments as a result of our pharmaceutical policies, particularly cutting-edge therapies for cancer and other life-threatening diseases. For example, cancer patients in the U.S. are able to access 96 percent of all cancer medications, while Canadian patients have access to less than 60 percent of them. In many European and other developed nations, breakthrough drugs for cystic fibrosis and other debilitating diseases available for U.S. patients are not made available at all because governments refuse to pay for them.
Although new drugs often can be expensive, due to costly and lengthy development processes, competition in the U.S. continues to drive increased availability of generics, which collectively save patients over $330 billion per year. In fact, about 90 percent of all U.S. prescriptions are for generics, more than in other countries, and they are cheaper here than overseas, about 16 percent less on average. And even more savings on generics are coming about due to innovative enterprises such as Mark Cuban’s Cost Plus Drug Company that cut out the corporate middlemen to lower prices for generics well below what insurers charge.
The Democrats’ price-setting plan is just as bad now as it was when it was part of President Biden’s failed spending plan and Nancy Pelosi’s failed price control plan before that. It is more a means to raise revenue for liberal politicians than it is an effective way to lower drug costs for seniors. It’s both dishonest in how it is being presented and harmful to the long-term health of Medicare. Liberals in Congress are making a risky bet by siphoning off and spending seniors’ Medicare money first in the unrealistic hope of extorting some savings later. A wise move for vulnerable Democrats would be to fold.
Steve Forbes is chairman and editor -in-chief of Forbes Media. Follow him on Twitter @SteveForbesCEO.