WASHINGTON — Critics of the climate change, health and tax law enacted this week have seized on a provision addressing high drug prices to make inaccurate claims.
The law fulfilled a long-held goal of Democrats: to empower the federal government to negotiate drug prices for Medicare patients. That has come at a cost to Medicare and innovation, some Republican lawmakers and members of the pharmaceutical industry contend.
Here’s a fact check of their claims.
What Was Said
This is misleading. The law empowers Medicare to negotiate prices for prescription drugs, resulting in savings for the federal government. But the law does not cut benefits, as Mr. Scott’s Twitter post may imply. On the contrary, many Medicare enrollees will see their benefits improve.
“No provision in the I.R.A. directly reduces benefits for Medicare enrollees, and several increase benefits,” said Rachel Sachs, a law professor at Washington University in St. Louis and an expert in drug regulation. “The goal of the Medicare drug price negotiation provision is not to reduce benefits for enrollees: It’s to pay less for the same drugs that we’re currently purchasing, in doing so saving money.”
The law also includes a number of cost-saving measures for Medicare beneficiaries. It limits to $2,000 the amount enrollees would have to pay out of pocket for medication, caps monthly costs for insulin at $35, eliminates cost sharing for vaccines and expands eligibility for low-income subsidies. The Kaiser Family Foundation estimated that these provisions could reduce costs for more than four million older Americans.
The Congressional Budget Office projected in July that an earlier version of the drug price legislation would reduce the federal deficit by $288 billion over 10 years — what Mr. Scott was referring to.
About $102 billion of that reduction in spending comes from the government’s negotiating and paying manufacturers lower drug prices.
Another provision requires manufacturers to rebate Medicare if they raise drug prices at rates higher than inflation. The budget office estimated that this would save the government about $62 billion over a decade. (Those savings are likely to be smaller because the completed law was more limited in scope after a top Senate official ruled that the rebate could not take into account medications sold in the private market.)
Another $122 billion in spending reduction comes from the repeal of a Trump-era rule on drug pricing that would most likely have had mixed effects for Medicare beneficiaries. But that regulation has been repeatedly delayed and was not scheduled to take effect until 2027 — leading some to characterize the rule’s repeated inclusion in legislation as a budgetary gimmick. Furthermore, the final law did not repeal it entirely but rather pushed enactment to 2032. In other words, about 40 percent of the “cuts” to Medicare that Mr. Scott cited refer to further delaying a regulation that has never been enforced and has had no effect on beneficiaries.
What Was Said
“C.B.O. and the University of Chicago have both found that hundreds of cures will never come to market under the legislation before us today.”
— Representative Tom Cole, Republican of Oklahoma, in a congressional hearing in August
This is misleading. Many Republican lawmakers have cited a working paper written by economists at the University of Chicago to claim that the drug negotiation provisions in the law will cause the loss of hundreds of medications over the next three decades. But that research estimated the effect of drug pricing legislation that is more expansive than the Inflation Reduction Act. The budget office has also projected a much smaller impact on drug development.
The paper estimated that under a 2019 House bill on drug pricing, the pharmaceutical industry would reduce its spending on research and development by 29 to 60 percent from 2021 to 2039, “which translates into 167 to 342 fewer new drug approvals during that period.” The budget office, for its part, had estimated a more muted effect of 38 fewer drugs over two decades.
The 2019 House bill would have enabled the government to negotiate the prices of up to 250 commonly used drugs and required the manufacturers to offer the same prices to private insurers. Under current law, the government will be able to negotiate the prices of up to 60 drugs by 2029.
In an updated analysis, the authors of the working paper estimated that an earlier version of the current law would reduce drug development spending by 18.5 percent and result in 135 fewer drugs through 2039. That is also far more than the budget office’s estimate of five fewer drugs over two decades under that initial version and seven fewer drugs under the current law.
Discrepancies between the two models can be attributed to a few factors. The budget office’s model, for example, takes into account an increase in demand for drugs as prices decrease and Medicare benefits are expanded, said Rena Conti, a health economist at the Questrom School of Business at Boston University.
While it is plausible that the law will reduce spending on research and development, experts said that claims that it would drastically impair the industry’s ability to produce new, lifesaving treatments were hyperbolic.
That is because a vast majority of new products approved by the Food and Drug Administration are not breakthroughs, but rather new iterations of existing products. The law also specifies that Medicare can negotiate prices for drugs that cost the program a significant amount of money and have been on the market for at least nine years. Under this narrow criteria, breakthrough medications, which typically treat rare diseases, would simply not be considered as candidates for negotiation because they are both new and affect small population sizes.
“It’s intended to focus on long-lived drugs that should have gone generic or gone biosimilar anyway, and for whatever reason haven’t,” Professor Conti said. “The drugs that are there are producing significant spending in the Medicare population.”
Professor Sachs also pointed to remarks in 2018 by Alex M. Azar, a former pharmaceutical executive and President Donald J. Trump’s health and human services secretary. The industry issued similar warnings that drug price controls the Trump administration had proposed that year would lead to a huge loss in innovation. In a speech that September, Mr. Azar called such talking points “tired” and “mathematically unbelievable.”