Opinion: Capping pharmaceutical prices does not harm medication development

We would hope that our politicians would place the interests of their constituents over party. Utah’s congressional delegation opposed a provision in the Inflation Reduction Act (IRA) allowing Medicare to negotiate the price of prescription drugs. The act will save money for 427,600 Utah seniors, in addition to reducing the costs of Medicare. Insulin, for example, costs patients an average of $400/month prior to the IRA. It is now capped at $35/month. Other medications beginning in January 2026 will include Januvia, a drug used by diabetes patients; Farxiga, another drug used to treat diabetes; and Stelara, used to treat Crohn’s disease. Januvia will fall from $527 to $113, Farxiga from $556 to $178 and Stelara from $13,836 to $4,695.
Back in 2003, a provision in the Medicare Prescription Drug, Improvement, and Modernization Act prevented Medicare from negotiating prices. While expanding the safety net for senior citizens, Congress allowed pharmaceutical companies to charge whatever they wanted. Profits soared.
A study appearing in the Journal of the American Medical Association found that between the years 2000 and 2018, the pharmaceutical industry received revenues of $11.5 trillion, resulting in a gross profit of $8.6 trillion, earning a gross-profit margin (profits divided by revenues) of 76.5%. In contrast, the S&P 500 earned a gross-profit margin of 37.4%.
In July, the Ways and Means Committee of the US House of Representatives held a hearing in Salt Lake City attended by Utah’s congressional delegation. Kelvyn Cullimore, CEO of BioUtah, testified that the IRA will create a “chilling effect on research and development in the pharmaceutical field.” An organization called Seniors 4 Bettercare agreed, encouraging readers to write to their congressional representatives contending that a provision in the IRA hurts seniors. How? By inhibiting the ability of the pharmaceutical industry to create life-saving drugs, inhibiting the development of new drugs and reducing part-D Medicare plans.
Senator Mike Lee appears to agree. “Mandating fixed prescription drug prices will ultimately result in the shortening of American lives,” he said.
The Congressional Budget Office, however, estimates that over the next 30 years, 1,300 new drugs will come online, anticipating that the provision will reduce new medications by 13. With regard to Part D, the IRA significantly lowers the out-of-pocket maximums from between $3,300 and $3,800 to $2,000 beginning in 2025. For many patients with limited incomes, the Act will substantially increase access to critically important drugs.
The claims of Seniors 4 Bettercare raised our suspicions. Seniors 4 Bettercare is an offshoot of Americans for Prosperity, an organization whose “primary purpose is to advocate for legislative and regulatory policies that advance economic prosperity in America.” Those policies include lower taxes, lower deficits and free markets. According to Americans for Prosperity, lower deficits should come by cutting spending, not by cutting corporate welfare. Americans for Prosperity is funded by the Koch Industries, known for promoting free-market causes.
There is nothing inherently wrong with free markets. Markets, however, are not free when one party is prevented from freely negotiating with another. A survey conducted in 2023 found that 93% of Democrats and 88% of Republicans support allowing Medicare to negotiate the price of prescriptions.
Big Pharma is a highly concentrated industry with few or no competitors, significant barriers to entry and segmented markets. Companies develop and produce drugs where little or no competition exists. Furthermore, government intervention, in the form of patent protection, already exists to protect innovation and drug development.
Ultimately, Big Pharma’s exorbitant profits are facilitated by potentially life-changing drugs, the prices of which do little to reduce demand. People’s innate desire to live or improve their quality of life renders them insensitive to high drug prices. Retireguide.com notes that two-thirds of personal bankruptcies result from the inability to pay for health-incurred debt, a fifth of whom attribute their bankruptcy to the high cost of prescription drugs.
Of course, the pharmaceutical industry should continue to develop and produce life-saving medications. But giving Medicare the ability to negotiate drug prices will not disincentivize future drug development. Patent protection and the high desirability to access critically needed drugs will ensure that pharmaceutical companies will remain highly profitable. Again, we need politicians to set aside partisan politics to consider the best interests of their constituents.
John P. Watkins is an emeritus professor of economics at Westminster University. James “Cid” Seidelman, Ph.D is an emeritus distinguished service professor of economics and former provost at Westminster University.