Don't Take the Blue Pill: A Law and Political Economy (LPE) Critique of the Pharmaceutical Industry
In February 2019, the Senate Committee on Finance summoned top executives from seven large pharmaceutical corporations for a hearing on drug pricing in America. Footnote #1 content: Drug Pricing in America: A Prescription for Change, Part II: Hearing Before the S. Comm. on Fin., 116th Cong. (2019). The hearing, one of several conducted on similar subjects by Congress in the past decade, Footnote #2 content: See, e.g., A Prescription for Change: Cracking Down on Anticompetitive Conduct in Prescription Drug Markets: Hearing Before the Subcomm. on Competition Pol’y, Antitrust & Consumer Rts. of the S. Comm. on the Judiciary, 117th Cong. (2021); Unsustainable Drug Prices: Testimony from the CEOs (Part I): Hearing Before the H. Comm. on Oversight & Reform, 116th Cong. (2020). reflected widespread, even bipartisan, frustration with rising government spending on pharmaceutical products. The CEOs were predictably on message in their responses to questioning, reminding the Committee that pharmaceutical spending makes up a small share of all healthcare spending, shifting blame to insurance companies and pharmacy benefit managers (PBMs), and arguing that innovation in medicine requires robust incentives in the form of patent protected monopoly periods. Footnote #3 content: See Christopher Rowland, Drug Executives Grilled in Senate Over High Prices, WASH. POST (Feb. 26, 2019, 4:49 PM), https://www.washingtonpost.com/business/economy/drug-executives-grilled-in-senate-overhigh-prices/2019/02/25/abc89c04-393f-11e9-aaae-69364b2ed137_story.html; Drug Pricing in America: A Prescription for Change, supra note 1, at 533. As they put it, pharmaceutical corporations need the promise of massive profits to continue investing in innovative new drugs that require hundreds of millions of dollars to develop, because many development efforts fail during trials and research and development (R&D) requires capital expenditures. Footnote #4 content: See Analysis: CEOs From Pfizer, Merck, AbbVie and Others Face Senate on Drug Prices, WALL ST. J. (Feb. 26, 2019, 4:30 PM), https://www.wsj.com/articles/live-analysis-drug-company-ceos-takethe-hot-seat-before-congress-11551191988; Drug Pricing in America: A Prescription for Change, supra note 1, at 492, 495, 497. Discounting these arguments, the House of Representatives in November 2021 passed a sprawling reconciliation bill that included provisions to radically alter how the federal government pays for pharmaceuticals. Footnote #5 content: H.R. 5376, 117th Cong. §§ 27001–27002 (as passed by House, Nov. 19, 2021); infra note 7. After initially failing to pass the Senate, renewed negotiations over the summer resulted in the passage of the rebranded Inflation Reduction Act (IRA) on August 16, 2022. Footnote #6 content: Inflation Reduction Act, Pub. L. No. 117-169, 136 Stat. 1818 (2022). The IRA passed on entirely partisan lines, with all fifty Senate Democrats voting for the bill, all fifty Senate Republicans voting no, and Vice President Kamala Harris breaking the tie in favor of passing the bill. Melissa Quinn, Senate Passes Democrats’ Sweeping Climate, Health and Tax Bill, Delivering Win for Biden, CBS NEWS (Aug. 8, 2022, 7:16 PM), https://www.cbsnews.com/news/infation-reduction-act-senate-pass-climate-healthcare-taxbill/ [https://perma.cc/CXU2-NV9G]; see also Budget Reconciliation: The Basics, HOUSE COMM. ON BUDGET (Aug. 11, 2021), https://democrats-budget.house.gov/sites/democrats.budget.house.gov/ files/documents/Budget%20Reconciliation%20The%20Basics%20-%20Final%202021.pdf [https://perma.cc/ VR6G-98DN] (“Instead of needing 60 votes, a reconciliation bill only needs a simple majority in the Senate.”). The IRA passed on entirely partisan lines, with all fifty Senate Democrats voting for the bill, all fifty Senate Republicans voting no, and Vice President Kamala Harris breaking the tie in favor of passing the bill. The bill includes the most sweeping revisions in drug pricing policy since at least the Affordable Care Act in 2009 and arguably since the creation of the Part D program in 2003. Footnote #7 content: See Inflation Reduction Act secs. 11001–11408. Among other changes, the law allows the Secretary of Health and Human Services (HHS) to directly negotiate with pharmaceutical companies for some drugs purchased by the Medicare program, requires manufacturers to pay Medicare a rebate if the price of a drug rises faster than the rate of inflation, and restructures the Part D benefit design. See id. secs. 11001, 11101, 11201; see also infra Part IV (discussing the drug pricing provisions of the IRA).
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