The Biden Administration’s Budget Proposal Aims to Increase Drug Price Controls

President Biden’s Proposed Budget for FY 2025 and Drug Price Controls

The new proposed budget put forward by President Biden for Fiscal Year 2025 includes an extension of the drug price controls enacted in the Inflation Reduction Act (IRA). These controls are expected to result in shortages, increased costs for other drugs, and a disincentive for companies to enter the market. In healthcare, shortages and lack of innovation can have fatal consequences.

Impact of Price Controls on Medicare

Aside from other changes to Medicare, the IRA granted the Health and Human Services Secretary the power to “negotiate” prescription drug prices on behalf of Medicare, which essentially allows the Secretary to set prices deemed acceptable and impose a tax of up to 95 percent on companies charging more. Beginning in 2026, 10 drugs will be subject to price controls under Medicare, affecting approximately 16 percent of Medicare enrollees who used these drugs in the previous year. The number of drugs subject to price controls will increase to 15 in 2028 and 20 in 2029.

Expanding the Policy in Biden’s Budget

President Biden’s budget aims to expand this policy by accelerating the negotiation process and implementing price controls on drugs sooner after their launch. These changes are expected to raise the cost of innovation for drug manufacturers, giving them less time to prepare for negotiation and recoup their research and development costs before potential price controls come into play.

Consequences of Price Controls

Under current law, the price control provisions are projected to significantly reduce research and development activity, resulting in 135 fewer new drugs and a loss of 331.5 million life years in the United States. This loss exceeds the impact of the first two years of the COVID-19 pandemic.

Challenges Faced by Drug Manufacturers

Several drug manufacturers have expressed concerns over the impact of price controls on their development programs, leading to program terminations or potential future closures. Increasing the cost of innovation could have devastating effects on the industry, which already faces high risks and substantial investment requirements for drug development.

Risks of High Drug Development Costs

Drug development involves significant financial risks, with an average investment of $2.6 billion and 11.5 to 15 years spent on research and development. The failure rate of drug development programs is high, with only a small percentage of drugs making it to clinical trials and even fewer gaining FDA approval. Despite the high costs and risks, the majority of new drugs fail to generate profits that cover their research and development expenses.

Policy Impact on Innovation and Patient Care

Implementing additional policies that increase the financial burden on drug manufacturers could hinder innovation and limit the availability of life-saving medications. By disregarding the consequences and complexities of pricing policies, the Biden Administration risks a significant loss of life years due to reduced innovation and drug development.

Learn more about the impact of pricing policies on healthcare innovation.