SMART Prices Act Deserves a Failing Grade

Sen. Amy Klobuchar of Minnesota recently introduced legislation called the SMART Prices Act, short for Strengthening Medicare and Reducing Taxpayer Prices.

Unfortunately, her cleverly named proposal isn't "smart" at all. In fact, by accelerating and expanding the drug pricing provisions in last year's Inflation Reduction Act,  the legislation would usher in a medical Dark Age for patients.

What lawmakers in favor of the bill fail to grasp is that any short-term benefits of capping prices for existing medicines are quickly swamped by the rapid decline in new drug development that ensues. A lifesaving new drug -- no matter the price -- is always better than no drug at all.

According to a new study by health research firm Vital Transformation, if the bill is passed, the Food and Drug Administration would approve about 230 fewer new treatments than it normally does over a decade, with the impacts heavily felt in rare disease, neurology, and cancer treatment.

Common sense implies that government price setting has a chilling effect on pharmaceutical research. Drug development is expensive and risky. Each new FDA-approved medicine requires an average investment of more than $2 billion, and the process can take more than 10 years.

The prospect of price controls at the end of that lengthy process sends a message to drug companies that they won't be able to generate sufficient revenues to justify such a large, uncertain investment. That will often leave them little choice but to cut back on research. Lawmakers often criticize the price of successful FDA-approved drugs, but they fail to understand that these "winners" have to fund the roughly 90% of drug candidates that never reach the market.

The Inflation Reduction Act -- which doesn't go nearly as far as the SMART Prices Act would go to set drug prices -- has already started to impact the industry. Novartis recently announced it is curtailing research efforts on promising new cancer medicines because of the act's price-setting provisions. Eli Lilly also cited the act when it scrapped plans to work on a new blood cancer drug. And Alnylam Pharmaceuticals paused a clinical trial for its drug candidate vutrisiran, which is designed to treat a rare eye disorder. Many other pharmaceutical companies have made similar announcements.

My own research suggests how this will play out over time. A colleague and I modeled a price control scheme very similar to the one in the Inflation Reduction Act. We calculated that research and development spending would likely decline by 18% through 2039, resulting in 135 fewer new drug approvals -- and more than 330 million life-years lost.

In another paper, I found that the Inflation Reduction Act could result in cuts to cancer research that are nine times greater than the amount by which President Joe Biden seeks to increase cancer research under his Moonshot initiative.

The SMART Prices bill would cause even more damage to patient health.

The Inflation Reduction Act guarantees that new medicines will not be subject to price controls for at least nine years following FDA approval, and limits the number of drugs that can be targeted each year. But the proposed bill would reduce the exemption period to just five years, with no limits on how many drugs can be subject to price controls.

The SMART Prices legislation would cause around 223,000 job losses in the biopharmaceutical industry and up to 1.1 million across the economy. Many highly-skilled workers would be forced to leave lifesaving industries, and patient health would surely suffer. In addition, many labs would close nationwide, drastically weakening our ability to deal with another public health emergency.

These dire projections apparently haven't given progressive lawmakers any pause. Democratic House members recently introduced a companion to the SMART Prices Act, known as the Lowering Drug Costs for American Families Act. The bill would go even further than the SMART Prices Act by extending innovation-killing price controls to private health insurance plans. This could jeopardize access for almost 200 million Americans while forcing biopharmaceutical firms to make even steeper cuts to R&D.

In the end, the result of these misguided bills would be to increase healthcare spending overall. Innovative new drugs help patients avoid surgeries, long hospital stays, and complications. With that pipeline slowed down, more patients would need expensive and lengthy medical interventions.

Lest we need further evidence, we can look abroad to gauge the impact of price controls on drugs. When price controls gained popularity across Europe, patient access to new medicines plummeted. Today, American patients have access to 87% of all new medicines, whereas patients in Japan, Canada, and France can access just under half.

The lawmakers pushing the SMART Prices Act and the new House bill may believe they're helping patients get a better deal. A closer look suggests serious negative side effects that will harm those same patients. For the American people, passing the SMART Prices Act or similar legislation is not the smart choice.

Tomas Philipson, an economist at the University of Chicago, was a member of the White House Council of Economic Advisers, 2017-20, and its acting chairman, 2019-20.

https://www.realclearhealth.com/blog/2023/07/31/the_smart_prices_act_deserves_a_failing_grade_969722.html