Pharmaceutical Firms Seek to Block Price Negotiations with Medicare

The New York Times has an excellent piece (23/24 July) on the drug industry's efforts to derail drug-pricing negotiations with Medicare that are authorized by the Inflation Reduction Act. As the deadline for starting negotiations nears, lawsuits have been filed by Johnson & Johnson; Bristol Myers Squibb;  Astellas Pharma; the National Infusion Center Association (NICA), the Global Colon Cancer Association (GCCA), and the Pharmaceutical Research and Manufacturers of America (PhRMA) (read here); and Merck. 

As the Times piece points out, the policy arguments for and against  price negotiations focus on (1) how much of a financial hit the firms will take as a result of lower prices for drugs covered by Medicare and (2) the impact of those reductions on R&D and ultimately on the number of new drugs that will not get to market over the next decade:

A study released last month that was funded by the Biotechnology Innovation Organization . . . warned that the pricing provisions would discourage innovation, resulting in as many as 139 fewer drug approvals over the next 10 years.

But that assessment is at odds with an analysis by the [nonpartisan] Congressional Budget Office, which estimated that the law would result in only one fewer drug approval over a decade and about 13 fewer drugs over the next 30 years. 

The calculations are actually quite difficult to nail down. Consider, for example, that we don't know which drugs will be included in future negotiations (and therefore what the projected savings to Medicare will be). And then there's the spillover effect. Most if not all the most expensive drugs whose prices will be negotiated have competitors, and there is likely to be an effect on the competitors' drug prices. Modeling all these variables can account for much if not all of the difference between the two estimates, but I will take any estimate from a pharma trade group with a large dose of salt.