Small Price Cuts, Big Impact on Development of New Medicines

What happened: On October 4th, the Congressional Budget Office (CBO) published a report titled Alternative Approaches to Reducing Prescription Drug Prices which found that several policy recommendations to reduce the costs of medicines would have only a marginal impact and translate into almost no savings for consumers.  

The findings: CBO examined seven policy approaches to reduce the net prices of retail prescriptions medicines in the U.S. The policies fall broadly into two categories:

• Policies to cap the price of medicines or limit price growth; and
• Policies to promote price competition or affect the flow of information in the market.

CBO assessed that most of these approaches would have “small or very small effects on prices” but would “dampen the incentives” for life science manufacturers to invest in research and development. Notably, CBO found that proposals to curtail biopharmaceutical IP or other exclusive rights would not appreciably reduce pharmaceutical prices.

Small Price Cuts, Devastating Impact: The CBO’s study reinforces the Chamber’s long-standing warning: national price controls and cost-containment measures on medicines will have disastrous downstream effects. A 2023 U.S. Chamber study, From Innovation Oasis to Research Desert: The Impact of Price Controls on Clinical Research and Development, highlights how these actions could undermine many of the key incentives to invest and innovation in biopharmaceutical R&D, including a:

• 70% cut in battling the obesity epidemic: With over 40% of U.S. adults affected, obesity-related clinical trial research is facing a 70% cut.
• 12% drop in the fight against heart disease: A drop in cardiovascular research and development in the U.S., where heart disease is the number one killer of Americans each year, will impact many and risk tens of thousands of lives.
• 60% decline in pioneering cancer and biologics research: These cutting-edge treatments for complex diseases like cancer could experience a nearly 60% drop in early-phase studies.

Yes, and: Even in areas like cardiovascular diseases, where research is projected to decrease less, the number of affected patients and trial participants is significant. With heart disease causing around 695,000 deaths in the U.S. in 2021, even a slight reduction in the rate of clinical research and R&D could impact many patients.

The bottom line: The CBO’s report weakens the arguments for price controls as a solution to the costs of medicines. CBO’s data indicates that these proposals would result in only a minor reduction in prices while significantly hindering medical innovation. Policies that lead to fewer treatments and cures aren’t policies that any lawmaker should support.  

About the authors

John Manchester