The Biden’s administration recent announcement regarding the Inflation Reduction Act (IRA) reveals a concerning approach to pharmaceutical pricing.
While proponents argue that the IRA will revolutionize American healthcare, a closer look suggests that the act’s price-setting provisions may have severe consequences for both innovation in the pharmaceutical industry and the accessibility of crucial medications for millions of Americans.
Biden’s Pharmaceutical Policy
Under the IRA, the manufacturers of the first 10 targeted medicines have engaged in what critics deem a “negotiation scheme.” However, the administration’s silence on the punitive measures for non-compliance is alarming.
Manufacturers resisting these negotiations face an exorbitant federal excise tax of up to 1,900 percent on their U.S. sales of the selected drugs, a move that has been labeled as strong-arm tactics.
The purported benefits of the IRA are overshadowed by the potential harm it poses to innovation. By relying on command-and-control mechanisms tantamount to price controls, the act risks causing shortages of vital medicines, some of which are life-sustaining. Historically, such controls have failed, distorting the allocation of resources and leading to either shortages or surpluses, as economist Hugh Rockoff points out.
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Healthcare Landscape Under Scrutiny
A study from the University of Chicago projects a staggering loss of $660 billion in medical research and development (R&D) by 2039 due to the IRA. This equates to a potential loss of 130 new treatments and 330 million collective years of life. Already, drug manufacturers are scaling back research efforts on certain treatments, foreshadowing the negative impact on medical progress.
The repercussions of the IRA are particularly concerning for lower-income, minority, and underserved communities.
The COVID-19 pandemic highlighted existing barriers to quality care in these communities, making them vulnerable to the fallout of misguided policies. As drug manufacturers face obstacles in R&D, the IRA threatens to exacerbate healthcare disparities, disproportionately affecting those who can least afford it.
In the pursuit of price control, the administration may inadvertently sacrifice the progress of groundbreaking treatments and compromise the health of millions of Americans.
As the IRA unfolds, the delicate balance between affordability and innovation hangs in the balance, prompting a critical examination of the long-term consequences of these measures on the nation’s healthcare landscape.
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