Democrats are on a dangerous path with drug pricing

The passage of Democrats’ sweeping economic package — which is designed to combat climate change, address health care costs and reduce the deficit by raising taxes on corporations — is a major win for President Biden’s agenda.

Further, Democrats’ push to pass a $35 insulin cap for non-Medicare patients was the right move both practically and politically — even though it was ultimately unsuccessful — as they forced Republicans to either side with them or to go on record voting against a policy that would cut costs for millions of Americans with diabetes.

Democrats’ final legislation makes a historic investment in clean energy, which will help the U.S. cut greenhouse gas emissions by 40 percent by 2030. It also extends expanded subsidies under the Affordable Care Act and realizes the party’s long-sought goal of allowing Medicare to “negotiate” prescription drug prices directly with pharmaceutical companies.

Proponents claim that enabling Medicare to negotiate prices will lower the cost of prescription drugs for the nearly 64 million Americans who are currently on Medicare, and more specifically for the 1.4 million beneficiaries who spend more than $2,000 per year on their medications.

Regrettably, this is a misguided assessment that fails to consider how this policy will actually decrease both the affordability and accessibility of prescription drugs in the long run.

Democrats’ drug pricing policy won’t improve the problem that it is designed to address — making prescription drugs more affordable for Medicare beneficiaries — and it will end up limiting Medicare patients’ access to certain medications. Moreover, it will discourage pharmaceutical innovation, and worst of all will drive costs up for the 220 million Americans with private insurance.

Indeed, this policy will raise drug costs and health care premiums for the 220 million Americans with private health insurance. If drugmakers are forced to give Medicare significant discounts on certain drugs, these companies will make up for this lost revenue by raising prices in the commercial market, as “The Wall Street Journal’s” Editorial Board argued in their column earlier this week.

If hundreds of millions of Americans with private insurance are paying more for their medications — as well as for their hospital and physician services — Democrats’ “Inflation Reduction Act” will do nothing of the sort and could end up exacerbating the problem.

While Democrats did attempt to include a broad-based rebate if drug prices increase at a faster rate than inflation, the Senate parliamentarian struck this provision down, and Sen. Majority Leader Chuck Schumer (D-N.Y.) went forward with the bill anyway.

In addition to driving costs up for the majority of Americans, the policy won’t provide relief for most Medicare recipients. The bill’s $2,000 out-of-pocket cap for Medicare Part D patients will help just a small fraction of beneficiaries and doesn’t even take effect until 2026. Even then, the policy will begin by addressing only ten of the most expensive drugs on the market.

The policy’s focus on big drug manufacturers, who make brand-name medications, will also inject uncertainty into the market and engender perpetual monopolies. It will make it harder for lower-cost generic drugs — which make up almost 90 percent of all filled prescriptions in the United States — to gain entry and compete in the market, driving up prescription drug prices for all Americans over time.

Furthermore, this policy will ultimately limit Medicare patients’ access to life-saving treatments. It gives drug manufacturers impossible requirements to meet — namely, if a manufacturer does not agree to sell at the government’s mandated price, they will be forced to either pay a 95 percent tax on the sales or pull their medication off the market.

In the long run, this reform will also stifle medical and pharmaceutical innovation, curtailing all Americans’ access to life-saving drugs, especially seniors.

Continuing research following a medicine’s approval — or rejection — allows researchers to understand if a medication works at a different stage of an illness or for a different condition. This is especially important when it comes to treating cancer — as nearly 60 percent of oncology medications approved a decade ago received additional approvals for different types of cancer in the years to follow.

The Senate’s bill takes away the incentives that are necessary to encourage the continual investment in new cures by setting the price of medication before these advancements can be made. This will hurt seniors the most, as it disincentivizes drug makers from constantly investing in researching drugs that fall under Medicare coverage.

In order to more effectively minimize costs and maximize access, Democrats should be focused on promoting drug pricing reforms that eliminate inefficiencies and foster competitiveness in the marketplace.

This would involve cracking down on pharmacy benefit managers (PBMs), which are third-party administrators of prescription drug programs, who reap the benefits of rebates instead of American patients. Oftentimes, PBMs receive more money from insurers than was paid for the medicine.

By cutting out these middlemen — PBMs — Americans would be able to purchase prescriptions straight from the supplier, eliminating markups or unnecessary price hikes. This approach has been successfully undertaken in the private sector, as billionaire Mark Cuban’s venture — Cost Plus Drugs — offers more than 100 generic drugs at affordable prices by removing pharmacy benefit managers from the equation.

While there are many helpful reforms in the Democrats’ economic package, their drug pricing policy, unfortunately, misses the mark. All Americans will bear the brunt of increased prices and decreased access, ironically, seniors will be hit the hardest.

Douglas E. Schoen is a political consultant who served as an adviser to former President Clinton and to the 2020 presidential campaign of Michael Bloomberg. He is the author of “The End of Democracy? Russia and China on the Rise and America in Retreat.”