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House Democrats Miss the Mark on Drug Pricing

09/15/2021

The Big Picture

This week, the House Committees on Energy and Commerce (E&C) and Ways and Means (W&M) marked up their portion of the reconciliation package for fiscal year 2022. Beyond expanded federal funding and tax credits for clean energy and broadband, both E&C and W&M's pieces of the so-called “Build Back Better Act” also includes several damaging healthcare provisions.

Most significantly, W&M decided to tuck H.R. 3 into the budget. This bill -- a priority for House Democrats -- would, among other things, require the Department of Health and Human Services (HHS) to implement price controls on the most common pharmaceuticals. House Democrats are also seeking to expand Obamacare, Medicare, and Medicaid. In spite of federal caps, the result of these provisions is likely to be higher costs for consumers and less innovation in healthcare markets that have driven the improvements in health outcomes for all Americans.

The Details

H.R. 3

  • H.R. 3, the deceptively named Elijah E. Cummings Lower Drug Costs Now Act, should be more aptly named the “No New Cures Act.”
  • H.R. 3 would require HHS to implement price controls on the most common pharmaceuticals by pegging the maximum price of certain pharmaceuticals to the average price in Australia, Canada, France, Germany, Japan, and the United Kingdom.
  • Many of these countries have either single-payer healthcare or significantly subsidized pharmaceuticals, meaning that American companies would be forced to sell pharmaceuticals for below-market rates.

Obamacare, Medicare, and Medicaid

  • In spite of the fact that the Medicare Trust Fund will be insolvent by 2026, House Democrats want to expand benefits to include dental, vision, and hearing coverage.
  • The E&C package builds upon Obamacare by “closing the gap” and expanding Medicaid eligibility to four million Americans, costing taxpayers millions of dollars.

Tax Hikes

  • The House E&C Committee is not the only body targeting healthcare: W&M is also seeking to add new tax burdens on pharmaceuticals.
  • A recent report by the Congressional Budget Office showed that this new system of taxation, in addition to the mandates imposed by H.R. 3, will result in a 15 percent to 25 percent decrease in revenues for pharmaceutical companies. This will dramatically decrease investment in innovation of new cures.
  • As the old saying goes, if you tax something, you get less of it. Increasing taxes on pharmaceutical companies will simultaneously cause prices to increase as the tax burden is passed onto consumers and will decrease innovation by taking resources that would otherwise have been used for research and development.

Why It Matters

Exorbitant costs for pharmaceuticals is an ever-present problem for millions of Americans. Something must be done to help low and middle-income individuals and families afford the medicines they need. However, addressing this issue is a balancing act. Strict federal mandates and price controls are likely to exacerbate this issue rather than solve it, leaving many Americans to shoulder the burden of even higher prices.

One thing that remains unclear about the House Democrats’ proposals on drug pricing is whether or not these policy changes can be implemented through reconciliation. An important rule known as the Byrd Rule prohibits the Senate from considering anything that is extraneous to the budget in the budget reconciliation process. It is very likely that the Senate parliamentarian will determine that these changes are not budgetary, and therefore out of order in reconciliation.

Price controls hurt the very Americans they are intended to help, and the passage of this package could have a disastrous impact on the development of new and innovative cures. Despite the presumably good intentions of progressives, big-government policies have no place in medicine.