Congress just voted on the “Inflation Reduction Act,” the latest version of Democrats’ signature Build Back Better legislation. This misguided legislation will harm patients, taxpayers, and the economy.
The Inflation Reduction Act will offset billions in new spending by allowing the federal government to set prices for a number of brand-name drugs covered by Medicare. But this misguided policy wouldn’t even start generating “savings” until 2026.
These price controls will stymie healthcare innovation by creating additional risk for potential investors. About 90% of drugs that enter clinical trials fail to gain FDA approval. Because of this high failure rate, it costs approximately $3 billion, on average, to develop a single successful new drug. If the government can step in and set artificially low prices — and thus cap the financial returns on the rare medicine that turns out to be a blockbuster — investors will hesitate to fund critical research in the future.
That’d have real — and devastating — impacts on patients’ access to new treatments and cures. Tomas J. Philipson, a University of Chicago economist and former chair of the White House Council of Economic Advisers, predicts that government price controls like those in the Inflation Reduction Act would lead to 135 fewer drugs by 2039 while reducing research and development investment by $663 billion. Such an outcome would be catastrophic for U.S. patients, particularly those who live with illnesses for which there aren’t reliable treatments.
The proposed legislation is also a nightmare for taxpayers. It will levy over $300 billion in new taxes on businesses, many of which invest in early-stage innovation and research. The bill’s proposed 15% corporate tax minimum could further chill early-stage research by disincentivizing tax-deductible capital investments. In practice, this could mean that the U.S. tax code no longer rewards a biotech startup for building a new research lab or manufacturing facility.
Lastly, the Inflation Reduction Act isn’t even an accurate name. The legislation’s projected impact on inflation is “statistically indistinguishable from zero,” according to a recent analysis from the Wharton School at the University of Pennsylvania.
This bill will be a disaster, both for the fragile U.S. economy and for millions of vulnerable patients around the country. Members of Congress would be wise to consider these consequences and change course before it is too late.