Fact of the Week: Artificial Price Controls Could Lower the Number of new Drugs by 3 to 5 Percent Over the Next Decade

Source: Congressional Budget Office, “Effects of Drug Price Negotiation Stemming From Title 1 of H.R. 3, the Lower Drug Costs Now Act of 2019, on Spending and Revenues Related to Part D of Medicare,” October 11, 2019.

Commentary: In response to increased public pressure, both Congress and the Trump Administration have recently promoted efforts to reduce the price of prescription drugs in the United States. Several other countries have already imposed measures of their own. A recent ITIF report examined the large body of academic research showing that lowering prices and revenues today will hamper future research and innovative drug development. This is because the pharmaceutical industry reinvests a large portion of its revenues back into the next generation of drugs. A recent legislative analysis by the Congressional Budget Office (CBO) backs this up. CBO examined the potential impact of H.R. 3, which would require drug companies to negotiate lower prices with the government, and its preliminary conclusion was that reducing manufacturers’ revenues by between $500 billion and $1 trillion over the next decade could result in 8 to 15 fewer new drugs coming to market over that time, out of about 300 that would otherwise be expected.