In August 2022 Congress passed President Biden’s signature “Inflation Reduction Act” without a single Republican vote in either the House or the Senate. There were several reasons for this purely partisan vote, one of which was that the legislation included a mechanism for a major tax increase on many prescription drugs used mainly by Medicare enrollees for treatment of certain cancers, heart conditions and diabetes.
Already flush with the 87,000 new employees authorized by the very same Inflation Reduction Act, the IRS is drafting regulations to start collecting the prescription drug “excise tax,” which can virtually double the market price for the medications.
To win the Senate votes — including hold-out Democratic Sen. Joe Manchin of West Virginia, who switched his vote in favor of the bill at the last-minute following secret parleys with Majority Leader Chuck Schumer — Biden presented the proposed excise tax as a way to reduce the cost of many common, Medicare-covered prescription drugs, rather than what it really is — a measure that will lead to shortages and increased prices.
What Biden and the Democrats actually did was impose price controls on Medicare-covered prescription drugs, disguising them as “negotiated prices” between Uncle Sam and the drug manufacturers. This sleight-of-hand might sound reasonable, even perhaps positive, except for the fact that refusal by any of the manufacturers to “accept” Washington’s proposed prices, would result in a mandated tax on the final, consumer cost of the drugs that would in short order reach 95% — effectively doubling its price.
Moreover, while disguising an “excise tax” as a “price negotiation” may sound great, it does so only until you realize that such government-mandated price controls always come at a cost down the road.
Whether Democrat leaders like it or not, prescription drugs are products that are sold in the real world, where something known as the “marketplace” works to set production, demand and prices. Like virtually every other product, prescription drugs are available only so long as the manufacturers can afford to produce them and consumers afford to pay.
Once Uncle Sam steps in and mandates an artificially lowered or stable price for a drug, things may appear to work fine for a while, but sooner or later the manufacturer will be forced to make adjustments. This means either cutting back production of the price-controlled drug and making it scarcer for consumers, or making cuts elsewhere, in research and development of other, newer and better drugs. Either way, it is the prescription drug consumers who wind up paying the price.
As explained recently by Jerry Rogers in Real Clear Health, mandated price controls on prescription drugs “will make it more expensive (and risky) [for drug companies] to invest science and resources into cutting-edge research, treatment, and new cures.” His conclusion that the Inflation Reduction Act’s heralded plan to reduce prescription drug prices is “bad medicine,” is supported by the history of government price controls which, as noted by analysts at Americans for Tax Reform, “always fail” as a result of scarcities caused by companies forced to manufacture products below their production cost.
In early October, Biden proudly announced that manufacturers of the first ten drugs mandated by the Department of Health and Human Services in August to be sold at their “negotiated” prices, had agreed to the mandate rather than increase the prices up to the 95% decreed by the legislation. (In the coming months, the Centers for Medicare and Medicaid Services will announce more of the 60 drugs allowed to be “negotiated” under terms of the Inflation Reduction Act.)
The announcement by Biden is at best a temporary and hollow “victory” that in the months and years ahead will give rise to shortages of the very drugs sought to be made more readily available for Medicare recipients. Once this happens, you can bet that the Administration and those in Congress who supported this legislation will blame not themselves, but “Big Pharma” for creating shortages, and who then will call for further government interventions.
Thus continues the cycle of price-control market manipulation, this time with seniors relying on drugs vital to their health and survival paying the price.
Bob Barr represented Georgia’s Seventh District in the U.S. House of Representatives from 1995 to 2003. He served as the United States Attorney in Atlanta from 1986 to 1990 and was an official with the CIA in the 1970s. He now practices law in Atlanta, Georgia and serves as head of Liberty Guard.