An op-ed in the Wall Street Journal today says that Joe Biden's plan to have Medicare negotiate drug prices via the Inflation Reduction Act is a disaster. Tyler Cowen links with the following comment: "It is worth noting this kind of academic research has not been effectively rebutted, rather what you usually hear in response is a bunch of snarky comments about Big Pharma and the like."
I don't have the PhD necessary to credibly rebut academic research, but I'm going to take a crack at this anyway, entirely free of snark. First, with apologies, here's a fairly long excerpt from the op-ed:
The law’s price controls are likely to raise annual out-of-pocket costs for 3.5 million Medicare beneficiaries who take price-controlled medicines, according to an analysis commissioned by the Pharmaceutical Research and Manufacturers of America.... Its mandated changes [have] already reduced the number of Medicare drug plans from which seniors can choose and increased the average premiums they pay. This year, the number of stand-alone Part D plans available to seniors dropped by 11%.... That drop is 25% since Donald Trump’s final year in office. In addition, premiums for Part D plans are up 21%.
....The law’s price controls will also deter companies from developing new medicines. A study I co-authored estimated that 135 fewer drugs will come to market through 2039 because of the Inflation Reduction Act.
....Dozens of life-sciences companies have announced cuts to their research and development pipelines because of the 2022 law. These announcements have come in earnings calls and filings with the Securities and Exchange Commission—where deliberate misstatements would expose executives to civil and criminal penalties—so they can’t be chalked up to political posturing.
And now for the rebuttal:
- The Pharmaceutical Research and Manufacturers of America—PhRMA—is an industry lobbying group. It's not snark to say that their estimates can't really be taken seriously.
- The number of standalone Part D plans is indeed down, but that's because seniors have defected in droves to Medicare Advantage plans:
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- Likewise, it's true that premiums are up in standalone plans—though by less than the amount Social Security is up—but premiums in MA plans are both lower and decreasing:
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- Negotiation of drug prices doesn't begin until 2026. It's implausible that it's had any effect yet.
- In any case, drug companies already negotiate prices in virtually every country in the world and also with private insurance companies in the US. The addition of very limited and modest price negotiations for Medicare is, perhaps, more than a drop in the bucket, but not a lot more. It's really not possible to rigorously forecast how this is going to affect drug introductions into the far future.
- IRA also penalizes firms that raise certain drug prices by more than inflation. However, the penalty for the vast majority of drugs is zero, and the remainder are almost all less than 1%.
- The author of the op-ed is Tomas Philipson, a dedicated longtime movement conservative who was chair of the CEA under Donald Trump. Before IRA even passed, he warned that it would produce "losses" of nearly $4 trillion per year. That's 15% of GDP! This is implausible in the extreme and speaks poorly of Philipson's other claims.
- The idea that CEOs are super honest on earnings calls due to fear of criminal penalties is—I promised not to be snarky, didn't I? But this is just laughable. Come on, man.
- Objective estimates of pharma R&D show it climbing through 2023 and projected to keep climbing for the next five years.
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Philipson is an accomplished economist, so it's vanishingly unlikely that any of this is an accident. He failed to adjust premiums for inflation. He failed to mention Medicare Advantage. He took PhRMA and CAHC data at face value instead of citing academic studies. He failed to explain how much drug price negotiation was likely to affect worldwide pharma revenue. He made a laughable claim about how virtuous pharma CEOs are on earnings calls and ignored serious evidence about R&D spending.
There's just nothing here. It's a sodden stew of exaggerations, cherry picking, ideology, and a few outright lies. This is, unfortunately, par for the course for the Journal editorial page.
I will never understand why so many liberals are ga-ga for Tyler Cowen.
Relative to online Lefties, I'm right-wing economically. (Our nonbinary kid is a PhD Economist.) But Cowen is ... not as bad as many, but I still don't get the affection for him. Russ Roberts is much better, IMO.
What even would right-wing economics mean? Because it always seems to just be straight up false like this.
Well, if they told the truth, everyone would be appalled. So, lies it is.
Also, never listen to Tyler Cowen.
Totally agree.
Like once-upon-a-time George Will, he very much wants you to know he knows way more than you ever will. But he doesn’t. See his dopey comments on Kant.
George Will should have been banished from journalism —and polite company — after it was revealed that he briefed Reagan for a debate then wrote about what a fantastic job Reagan had done in that debate without revealing his own role. That was the debate that the Reagan campaign had used a stolen copy of Carter’s debate prep book. (Maybe Will didn’t know about that but I doubt it.) In contrast when Gore’s campaign received a copy of Bush’s debate prep book they returned it immediately and the person who stole it went to jail.
george will should have stuck with his sports machine.
Oooh, now I'm curious. As an old phil major, what did Will have to say about Kant?
Same here. Kant isn't an easy one to understand.
Will is a pompous, faux intellectual who inadvertently helped lead us down the dangerous path we're on now. He even lacked basic understanding of the very party he tried to defend – he didn't see it coming.
Cowen is bad at economics but his restaurant recommendations are spot on. I agree with him about Elephant Jumps in Merrifield.
It's such a horrible personality trait to care more for wealth than health.
Thanks Kevin, for pointing out the WSJ's pitiful betrayal of what's really important. How did they get so callous?
As they say, if conservatives didn't have bad faith arguments -- or really just lies -- they would have no arguments at all. WSJ op-eds aren't meant to be taken seriously, they're clickbait meant to be bandied about the xittersphere by like-minded wingers in order to sow doubt about progressive policies.
The WSJ op-ed page has been bonkers for decades. They not only pushed the bogus Whitewater, Filegate, Travelgate and Chinagate “scandals” but went all in on the insane, vicious lie that the Clintons had murdered their close friend Vince Foster. However back then there was a real firewall between that and the journalism. that wall was torn down when Rupert Murdoch bought the WSJ.
Oh, look, I can simply copy and paste a comment that I made on a different post here yesterday:
So, the Wall Street Journal reported easily-refuted CEO excuse-making as fact.
Also, the sun rose in the east this morning.
I just used Mark Cuban's Cost Plus Drug thing and was pretty happy with both the price and service. CVS lost a customer after they doubled the price of my prescription.
It drives me crazy when people say that Big Pharma would not have enough money for R&D if we cut prices. First they spend a very small percentage of those profits on R&D but if they really had a shortfall they can just raise prices when they negotiate with other countries instead of expecting us to pay insanely high prices while other countries pay far less.
Precisely.
At least some drugs are developed in Europe, a lot of the basic research is done at universities, and they spend more on advertising than development. This stuff has been gone through a million times already, for years. And there is no reason for US consumers to pay two, three, or four times as much just to "fund research" for the whole rest of the world even if none of that was true.
The US and I think New Zealand are the only countries that permit advertising of prescription drugs.
i have asthma; advair is around $250/month; some generics are $130/month
advair is a steroid, fluticasone proprionate
flonase is a steroid, fluticasone proprionate
so for the past 10 years i've been buying flonase, use a dremel to remove the crimped-on metal cap, and use a dropper to put it into a nebulizer along with some diy sterile tonic saline
so it's a little more work than using the dry inhaler, but instead of $250 or $130/mo, it costs me about $5/mo (not a typo)
i've never seen anything on the web suggest that what i'm doing is even a possibility for people who can't afford their asthma meds
(btw, the price differential tells you something about the profit margins on asthma meds)
For a truly eye-opening moment, look up the story of how Big Pharma companies lobbied to have their own versions of fluticasone inhalers declared illegal. Why? Because the patents were about to expire, and a generic version would have come onto the market to compete with their new proprietary products.
I know this sounds like a paranoid leftist's conspiracy theory (like cars that run on water), but it's well documented. I've been lucky enough to have good health insurance throughout my adult life, which covered my asthma prevention meds at an affordable cost, but millions of others got screwed by the Pharma Industrial Complex and their enablers in Congress.
It actually worked at least once. You used to be able to get inhaled cortizone and inhaled serevent as 2 different inhalers. Then advair came out and by an amazing coincidence research appeared showing that Serevent taken not in combination with a cortico-steroid could result in death so serevent goes off the market and the only way you can get it is by buying patent protected advair. Turns out, 20 years later when those patents have expired, research shows that it makes no difference whether or not serevent is combined with a steroid, it can still have adverse consequences.
yeah, that's why i actually prefer the flonase since it doesn't have the salmeterol
and the generic inhaler without salmeterol is actually more expensive than the formulation that has it; go figure
apparently using salmeterol makes the albuterol rescue inhalers less effective which is not good
plus with the nebulizer i can control the dose to find the minimum effective dose
i think that was part of the laws eliminating cfc's which were used in the inhalers at the time
originally there was a loophole for inhalers, then the drug companies lobbied to get that eliminated
that was also why primatene mist was off the market for years; yet another source of competition they wanted off the market
Yes, exactly that. (Although I hadn't known about Primatene -- thanks!)
The number of Medicare Supplemental plans were certainly less this year than when I applied for Medicare a few years ago, so that my carrier is no longer writing new policies in my zip code. No issue at all finding Part D (prescription drug plan) plans, and no increase in cost that I could see.
Lets see, an OP Ed written by MAGA stooge, based on a study done by a pharma industry lobbying entity. What could possibly be biased about that. I assume that we in the US pay more for drugs than most of the EU, UK, or Canada, but what the hell, can't have lower profits for big pharma.
Having worked in the industry for many years, alongside very many almost uniformly dedicated and intelligent medical professionals, and as an enthusiastic proponent of pharmaceuticals and the freaking astounding benefits they have brought to peoples' health routinely over decades, I believe I can credibly say that the WSJ is, as usual, full of shit.
Thanks -- made me laugh!
As a rule, economists employed by GMU -- including Tyler Cowen -- should not be taken seriously. The Koch family basically owns GMU's economics department.
Read anything that comes out from the GMU economics department with the same skeptical eye that you'd read something from the Cato Institute, which is also part of the Kochtopus.
The fewer drugs coming to market will most likely be due to it no longer being worth the money to relaunch the same drug with a slight change to keep generics off the market, not actually new therapies being developed.
Exactly... patenting the stereo isomer and the making sure the generic falls off the market is rampant.
The rules were changed a long while ago now to promote single stereomer products, which is a good thing. Companies game the system to extend patent protection until, well, forever if they could. Then you had the pharma bro corner market on off patent drugs and just ramp up costs because high price of entry keeps other players out. It's not really a "free" market.
My wife and I have MA and have done well with it.
But as we retired I did some study and found that Washington state has a rather extensive network of state recommended and paid MA specialists. We both went through a comprehensive interview to check current medications, prior issues, family history, etc. Very comprehensive.
About two weeks later we each got separate reports with 4-6 MA providers that were good matches with what we were likely to need. Worked nicely, and when we moved north after retiring, we used the service again for our new area in Bellingham. Also has been working nicely (helps to have a couple of doctors willing to say: "What part of seriously allergic to the medicine you want to prescribe her do you not get!")
Gave up on Tyler the C when I heard him say that crypto was sure to be a big hit because so many smart people were working on it. Talk about giving away your worldview…
... And your IQ.
“ —I promised not to be snarky, didn't I? ”
Nothing wrong with snarky mr drum. Snarky soothes the soul. Shake well and apply as directed.
It's funny how these people (and certainly conservatives in general) suddenly lose faith in the basic pricing mechanisms of the free market.* Why should the pharmaceutical industry be different from companies in other market segments that also require substantial R&D investment to remain competitive? If anything, the absence of drug price negotiation in the US skews the pharmaceutical market and is the very thing which allows all other buyers throughout the world to negotiate such low prices, even for newer medications.
* When it pays to, obviously.
Costs for Medicare Advantage are going down, Kevin says. I don't care. My wife and I signed up for one about 3 years ago. We are back on traditional Medicare with part D and Medigap plans. expensive--but we get good care. Medicare Advantage is a scam. In order to make a profit they need to be stingy with services, the more goodies they promise the less care will you get when it counts. Our primary care doctor was hardly more than an overworked gate keeper. You'd probably have to assault his office to get seen in person--oh, I forget, he didn't practice at the address we were given.
Do not fall for this and stay on traditional Medicare!
Sorry, this is not exactly on topic but it is necessary for people to be told. I do not say every MA plan is this bad but beware. Talk to someone who has a serious medical issue and is on a plan you are considering before joining.
If you believe that high drug prices are necessary to fund future drug research, then you can't deny that the US with its high prices is the primary funder and subsidizing drug prices around the world. You'd think Trump would be making hay with this and insist on US drug price negotiation and requiring companies that import US patented drugs to pay more.