Pharmaceutical Price Controls and the Marshmallow Test
14th November 2023
In Washington-speak the “Inflation Reduction Act” requires HHS to “negotiate” drug prices for Medicare Part D and Part B to establish a maximum “fair” price. In reality there is no negotiation–firms who refuse to negotiate are hit with huge taxes. The “negotiation” if you want to call it that is “your money or your life” and fairness has little to do with it. The IRA also requires very costly inflation rebates, i.e. a price control/tax. In essence, the IRA is a taking; for drugs with a large Medicare market it is similar to abrogating patents to 9 years for small molecule drugs and 13 years for biologics. For the included drugs there will be a significant reduction in revenues. Moreover, we don’t yet know whether the plan will be extended to more and more drugs. There is significant uncertainty affecting the entire market. What will be situation in 10 years? Will the US be like Europe?