Controlling Drug Prices: Costs and Benefits of Direct Negotiation with Big Pharma

Hubwonk 09/03/2024

[00:00:00] Joe Selvaggi: This is Hubwonk. I’m Joe Selvaggi.

[00:00:09] Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. On August 16th, 2022, President Biden signed into law the Inflation Reduction Act, an ambitious piece of legislation that, among many of its provisions, promised to help reduce drug costs for seniors by having the government negotiate prices directly with drug manufacturers.

[00:00:31] While many hailed this new power as a welcome weapon to protect patients and taxpayers from predatory pricing, many healthcare economists cautioned that interventions that effectively set prices on drugs would distort market price dynamics and jeopardize incentives for the development of new therapies.

[00:00:46] Now, on the second anniversary of the bill’s passage, the Biden administration has identified its first 10 target drugs. They’re negotiated price and the projected seven and a half billion dollars of savings for consumers and taxpayers. How does the IRA empower the federal government to negotiate these prices?

[00:01:03] How does the administration measure total savings? What effects are evident today of setting prices for drugs? And what are the likely long-term effects of extending additional price controls over a longer list of therapies for consumers and taxpayers in the future? My guest today is Pioneer Institute’s Director of Life Science Initiatives, Dr. Bill Smith, who has researched and written extensively on the dynamics and regulatory environment of the pharmaceutical industry. Dr. Smith will discuss how the Inflation Reduction Act targets drug pricing and describes both the first order savings expected from the initial price negotiations and the future effects.

[00:01:37] on how new therapies will likely be developed and priced. He will share his views on the IRA’s long-term effect on the output of the pharmaceutical industry. As more drugs fall under the purview of federal price controls. When I return, I’ll be joined by Pioneer Institute’s Dr. Bill Smith.

[00:02:04] Okay, we’re back. This is Hubwonk. I’m Joe Selvaggi and I’m now pleased to be joined by Pioneer Institute’s Director of Life Science Initiatives, Dr. Bill Smith. Welcome back to Hubwonk, Bill.

[00:02:15] Bill Smith: My pleasure, Joe. Glad to be here.

[00:02:17] Joe Selvaggi: Oh, great. Well, it’s always good to have you on the show. You’re a fan favorite, a listener favorite, but the topic I want to talk about today is something that you and I have discussed in the past.

[00:02:26] It’s essentially the, the reasons for, and perhaps remedies for the high cost of prescription drugs. That’s your expertise. You come from that world. And so I want to enlist your help in understanding some recent claims that came out. We’re now passing the second anniversary of the passage. of the Inflation Reduction Act did a lot of things, but among the more substantial or important aspects of the Inflation Reduction Act was that the Center for Medicare and Medicaid Services, CMS, it gave them the power to negotiate drug prices for many of the more expensive drugs used by seniors on Medicare.

[00:03:02] Now, we’ve heard recently the Biden administration has come out to declare that this has been a ringing success, that the law has successfully saved seniors and taxpayers tens of billions of dollars. What I hope to do in our conversation today is to examine the goal of the law, the method that it used to, or tried to use to save taxpayers or seniors money on drugs, how much it saved, if any, Uh, and what the effects of these, uh, effectively, uh, controls on the prices that can be charged for drugs are likely to have on our system in the future.

[00:03:35] So, that’s my goal. So, let’s start at the beginning. Um, the claim, of course, is drug prices and med uh, healthcare in general are just too high. By your observation, how much has the high cost of drugs or the increasing cost of drugs been part of the story about increasing healthcare costs?

[00:03:52] Bill Smith: I think the role of drugs in the cost of healthcare has been greatly exaggerated. Most analysts agree that drugs cost about 14% of the healthcare dollar. Some people say it’s 10%, some people say it’s 18%, but most agree that it’s less than 20%. Healthcare costs are driven by hospitals and other things that aren’t related to drugs.

[00:04:14] Joe Selvaggi: Right. So, so we know drugs can be expensive and in large part, it’s owed to the cost, the way they’re able to essentially charge such high prices for a particular drug is what we know as patent protection. They have, you invent something and you get to sell it exclusively for a certain period of time. As you mentioned, once it’s no longer protected by that patent, it goes generic and helps to control the price over time. But between you and me, Bill, how much does it cost to make a pill? Why is it that the drugs ever cost so much?

[00:04:44] Bill Smith: Well, it’s R& D costs. The business model of biopharma is have very expensive upfront costs, and some people argue it costs as much as 3 billion to research a drug, and then low manufacturing costs. That’s just the business model. It probably costs 5 cents to manufacture a small molecule pill. But you can’t say that the manufacturing costs are the only cost, because the companies have spent enormous money discovering the molecule.

[00:05:16] Joe Selvaggi: Right. So, but nevertheless, we were talking about how expensive, ultimately, when the drug that Presumably sick folks need. It comes to the market and it’s expensive. So what we have here with the Inflation Reduction Act is to empower the government to effectively represent a very large community of Medicare users. And they want to negotiate on their behalf for a better price. They use their market power to negotiate a better price with the drug companies. How does the government negotiate or how did this come down the line? What is the government’s approach to negotiating for these drugs?

[00:05:49] Bill Smith: Negotiation is an Orwellian word in this context because the IRA essentially is price fixing. It’s not price negotiation. If a company doesn’t agree to the government’s Price that is set, the company will have a 1, 900 percent excise tax, which is an enterprising, threatening level of taxation. So it’s price fixing, it’s not negotiation.

[00:06:15] Joe Selvaggi: Yes, I read the CMS’s own release and effectively they say, we haven’t fixed prices, we haven’t set price caps, rather we have negotiated, but again, it’s almost laughable the way it presented it said, well, we gave them a number and they either agreed to it or they didn’t. As you mentioned, it’s a sort of Damocles over the drug company’s head. If they don’t agree to the price, then there, as you mentioned, there’d be a 1900%. I thought it was, they characterized it as surcharge or surtax. Um, those drugs that are overpriced. So effectively, it’s not like a traditional negotiation. It’s an offer you can’t refuse.

[00:06:49] Bill Smith: Accept the price or we’ll put you out of business, essentially.

[00:06:52] Joe Selvaggi: Yeah, right. But okay, let’s say, all right, the government comes in and says, look, these, the drug prices, I think there’s, right now, there’s 10 drugs that are, have been negotiated and for this next year, and then 15 beyond that, is that the ambition?

[00:07:05] Bill Smith: It’s 10 this year, 15 next year, 15 the year after, and then 20, 2020. So within a few years, we’re going to be at 60 of the biggest drugs in Medicare are going to be subject to price caps.

[00:07:18] Joe Selvaggi: It’s okay. So now, okay, depending on where you stand on the wisdom of this movement, uh, let’s just say the drugs are less, the price is less than it would be had the IRA not been passed. So for some of our listeners, I’m sure that sounds like a generally a good thing. So let’s just say across with, I’m going only by what CMS is in their press releases have claimed. And they said on those 10 drugs, they have negotiated between 38 and a 79 percent discount. And to put a fine point on it, they say if this bill or law had been passed last year and applied to this year’s drugs, it would have saved Medicare 6 billion and it would have saved the people who use those drugs 1. 5 billion. This seems like a win. I’m going to call it like I see it. At a high level, are you comfortable with this math, with the CMS assertion that it saved effectively, add them together, the 7. 5 billion for people who consume these drugs?

[00:08:12] Bill Smith: Well, I don’t know what the cost savings are going to be, and my concern is that senior citizens in particular, but patients, are going to have less access to drugs. And the reason for that is we have this system in place where drug companies pay rebates to get onto a drug formulary in a good position with low out of pocket costs, low co pays, and when you knock the price down substantially, the rebates are going to go down. Thank you. And the question is, are PBMs, pharmacy benefit managers who set the formularies, are they going to disadvantage the drugs that are price controlled because they’re going to get less rebate revenue? That’s the question. I don’t know the answer, but it’s possible that the price controlled drugs are going to be harder to get for senior citizens.

[00:08:59] Joe Selvaggi: You brought up an important point, and I suspect that the CMS, these are very large numbers of savings, again, on only 10 drugs. To me, it seems like Medicare, the CMS is using. The drug retail price to measure the savings that they’ve negotiated. Is that how it works in the real world? Do consumers or ultimately the insurance companies pay the retail price or is it something else that sets the price before this?

[00:09:22] Bill Smith: Let’s say the CMS press release isn’t worth the paper it’s printed on. They compare list prices with the negotiated price. Negotiated. And nobody pays list prices. These almost all drugs have rebates attached to them. Some have more rebates than others. Diabetes has more rebates generally than cancer, but almost all drugs have some form of rebate, which means the price gets knocked down by the rebate that’s paid by the drug company. And the rebates are off of list price, which is the list price that, or the retail price that would be cited in the press release.

[00:09:59] Joe Selvaggi: Right. So, so the consumer is paying less than retail in the real world. So the price negotiated by CMS, it has an influence, but perhaps not the magnitude that they claim.

[00:10:09] Forgive me for asking such a, like, I think an obvious question. I’m a drug company and I want to create a drug and set its price. And if CMS is scoring the value of their intervention by the amount they can negotiate. Is it fair to assume that drug, the response to this intervention by CMS is to increase the retail price that they ask for those drugs?

[00:10:33] Because it’s easier for CMS to make wild claims about savings if I price my drug at 1, 000 a dose rather than 100 a dose. And again, if I’m not part of Medicare, I need that drug. I’m not part of that organization. And I am paying retail or close to retail. Doesn’t this increase in retail price have a knock on effect of making me, not in Medicare, pay more?

[00:10:55] Bill Smith: Well, what’s going to happen, I think, is that launch prices of drugs are going to go up. There’s a provision in the IRA that says if you increase the price of a drug above the inflation rate, you have to rebate that money back to CMS. back to the government. And what that means is that if you have a drug that was modestly priced and it turned out the drug is highly effective, more effective than you even thought from the trials and safer than you expected, you’d want to raise the price on that. This inflation provision prevents you from doing that. So drug companies, what drug companies are going to do is launch drugs at higher prices rather than lower prices because they can’t increase the price once it’s on the market, even if it proves very effective.

[00:11:42] Joe Selvaggi: Also, right, if CMS has negotiated the price downward in the case of the 10 drugs. It leaves less room for insurance companies also, that’s crowding out the role of insurance companies to negotiate these prices downward as well. Is that fair?

[00:11:54] Bill Smith: Yeah, except the negotiated price is supposed to, in the beginning, only apply to Medicare. But the Congress slyly decided they were going to announce the prices. And so I would expect commercial insurers are going to start to ask for the negotiated price, the Medicare price.

[00:12:13] Joe Selvaggi: So, essentially, CMS is negotiating the price of that drug for everyone. So, in theory, we all might see some benefit from that negotiation.

[00:12:20] Bill Smith: Right. Well, you just don’t know. What I’m concerned about is generic drugs.

[00:12:25] Generic drug companies make their money. They make their profit in the first six months. One company will get exclusive right to sell a brand name drug when the patent expires, and they’ll go into the market with a generic, and they’ll sell it to Maybe at 80 percent of the price of the branded drug. That’s where they make their profit in those six months. But if the government has whacked down the price by 80 percent in the beginning, what incentive is there for a generic drug company to get into the market right away? I’m concerned that generics are going to exit the market or suffer consequences from this.

[00:13:03] Joe Selvaggi: I want to drill down on this concept, because I think for our listeners who are not paying attention to these kinds of issues, this is complicated. I just want to go back to something we talked about at the top of the show. We talked about that a drug company spends billions of dollars, develops an effective drug, and markets it. And it has a window, 7, 10, 15 years. In which it has an exclusive patent, it can, it’s the only one who can, only company that can sell that drug, and as such, it can command the price it wants, right?

[00:13:27] Bill Smith: It’s separate from, well, but there, there are other molecules that could work on the same disease that compete. You can, you have an exclusive right to sell only that molecule. But there may be other molecules that come along, and we’ve seen this with statins, four or five statins entered the market. All the molecules were different, and companies had a patent on them, but they competed aggressively on price.

[00:13:52] Joe Selvaggi: That’s fair enough. So they don’t have a free hand because there is still, let’s say, substitution competition, right? Something that’s close, but not exactly the same. It constrains their prerogatives as far as price. But I think you bring up an important point that you mentioned at the top of the show that drug, the cost of drugs is not, does not represent a large percentage of health care costs.

[00:14:13] And it’s not going up largely because of this phenomena whereby any drug, as good as it is, falls off its patent and then ultimately someone else can produce that same exact molecule for less. And the lower the drug price, the higher the cost. If negotiated by CMS, the less the incentive is to create an alternative.

[00:14:31] I saw something in a research paper. I’m not sure if it was authored by you, but there is a relationship between how many generic manufacturers come in to produce a drug after it falls off patent and the ultimate reduction in price. That is, the more people who try to make it, this follows logically, the cheaper it gets for ordinary consumers. Say more about this phenomenon.

[00:14:53] Bill Smith: Yeah, so when a patent expires on a branded drug, FDA chooses one generic company that can sell the drug exclusively for six months. That’s it. Six months. And they make enormous money from that particular period because they can price the drug close to what the branded company and they didn’t do any R& D. So all they have to prove is that they’ve copied the drug effectively. Then after six months, other companies can come in. And I would say The first company probably reduces the generic price. The generic drug is probably 20 percent lower in cost. Two or three companies come in, it drops 40%, 60%, 80%, and by the time five or six companies come in, the drug prices has reduced by 90 percent compared with the branded price. So the generics create enormous savings in the system.

[00:15:48] Joe Selvaggi: So, okay, again, I want to underline this concept. So we’ve got a drug that, let’s say, costs 100, and they sell it successfully on patent for 10 years, the developer makes their money, then it goes generic, and for six months another company maybe prices it at 80 and is competing with the 100 drug, but it doesn’t have the name brand.

[00:16:05] So the consumer who wants the generic saves some money. And then after that six months, all kinds of other companies come in and sell it for much lower. And that 80 now goes down to 5 or 10, but remains at that price forever. So effectively, all of us enjoy much cheaper drugs because of the invitation of these generic producers that produce something that had been very expensive, but from now on till the end of time will be very cheap owing to the competition amongst generic. Drug producers. Is that, am I?

[00:16:35] Bill Smith: That’s exactly right and what generics do is give us access to high technology drugs very quickly after sometimes after 10 years or eight years and at very inexpensive prices.

[00:16:52] Joe Selvaggi: So, so again, I want to tie to our theme today, when we’re talking about price controls for expensive drugs, that CMS comes in and says, look, you’re selling this drug, we think it’s too much, we’re going to mandate, lest we, you want a 1, 900 fine, a 1, 900 percent fine, you have to sell it for less. The effect of that is, is to compress all of these numbers, which is to say, it leaves Much less incentive for the first manufacturer of the generic and even less incentive for others. Still takes work. So what you’re saying is by mandating these drugs cost less, ultimately in the short run, we save a lot of money. In the long run, because there’s not much competition for generic, we all pay more for that same drug because there’s, there’s little incentive to reproduce it.

[00:17:37] Bill Smith: I don’t know what will happen with generic market, but it is ominous that, uh, the government is knocking the price down so low, it’s creating disincentives for generics to get into market. Disincentives that don’t exist now.

[00:17:51] Joe Selvaggi: Right. Well, okay. Well, again, what I try to do is tie these kinds of issues to more broad issues that sort of apply, you know, more broadly. To our discussions on other matters, drugs are products that are being sold, just like any other product on the market. You’ve asserted that essentially this is effectively setting price controls on a particular item.

[00:18:12] Arguably, price controls on a drug is different than price controls on fishing poles or watermelons, but it’s still price controls. So It seems to me that most people, intuitively, or certainly economists know, price controls, in general, are bad for consumers. That is, if we set limits on the price of milk, farmers will take their dairy cows and sell them to the butcher, right?

[00:18:34] We’ll have less milk to buy because there’s less incentive to make it. Uh, dairy farmers are in the business of making profit, not making milk. So, following that logic, this seems like it would have all kinds of perverse incentives. But I’ve heard people defend this IRA price control, and saying, yeah, sure, Joe, I agree.

[00:18:53] In a perfect market, Price controls are a really bad idea, but our healthcare system is this Byzantine tile of perverse incentives that don’t, price theory goes out the window. We’re really working in a world where everything is controlled, everything is mandated, and there’s no relationship between price and value.

[00:19:12] In this sort of bizarro world of, of drug prices and our healthcare system, isn’t, you Are really what should govern the price of drugs. Do you see any sympathy to CMS’s instincts to control the price of drugs in the healthcare system?

[00:19:34] Bill Smith: Granted, I will grant that drugs are different than other commodities, but they don’t defy the laws of economics. And the laws of economics are such that price controls drive scarcity. So if you price control bread, you’re going to get bread lines. There’ll be, there’ll be less spread out there. If you price control drugs, there’ll be less, fewer drugs. Now, there’s debate in the policy analyst community about how, how many fewer drugs there will be.

[00:20:05] The CBO at the time the legislation was going through said, Oh, it will only impact 13 drugs or less. Over 30 years, and the CBO projected that there would be 1300 drugs approved in the next 30 years. So it was a 1 percent hit, a very modest hit, but other analysts have come along. There’s a couple of economists from the University of Chicago that estimated that Biopharma revenue, because of the IRA, will drop 31%, which is astounding. That’s an astounding number. And the Chicago Economist projected that there will be 135 fewer drugs. And there are other studies that have corroborated that. So my guess is you’re gonna, you’re gonna create some scarcity in, in, in drugs with price controls.

[00:20:53] Joe Selvaggi: So again, this is perhaps familiar ground for people who are well versed in economics that if you take away the incentive to create new drugs, that is, if you reduce the amount of profit for after a drug is produced, you remove the incentive to invest in the first place.

[00:21:07] I saw one, I think it was a press release from the White House saying, criticizing drug companies for spending more on dividends and stock buybacks than they do on research. As asserting that dividends are spending rather than distribution of profits, if we then essentially take away the profits, we take away the investment, which as you mentioned, would mean fewer drug companies.

[00:21:31] What baked into this idea, or sort of this indifference towards future drugs, it’s almost as if, These policy makers, at least, believe we’ve already discovered everything and that we’re pretty much all set, that the drugs we have work pretty well, there’s not much more to worry about in the future, that these future drugs are icing on the cake and not essential.

[00:21:50] What would you say to those people who are rather sort of indifferent to your claim that new drugs will essentially, the conveyor belt for new stuff is going to dry up with these kinds of policies?

[00:22:00] Bill Smith: Well, this is, to say it’s Pollyanna ish is doesn’t overestimate it. There are so many rare diseases that still need cures. There are many common diseases like diabetes that still need cures. We don’t have the armor for all drugs, for all therapies, and we need to continue discovery. And if you believe that We’ve discovered, all we’re going to discover, you could make drugs cheap by just taking patents away from every company. The drug prices would drop dramatically and there’d be no R& D. No future drugs.

[00:22:40] Joe Selvaggi: Yeah. Well, I think you make the claims almost as if it were absurd to accept, but I think there are a few people in our listening audience that would say, well, that doesn’t sound so bad. But what I, you know, for those, again, I’ve had this kind of conversation with people I respect and who are at least public health or policy health care.

[00:22:57] Experts, and I’ve said, imagine then if we were to have arrived at this wonderful point whereby we. Don’t really care about future drugs. We think we’re just about all set right now. Imagine if we had made that step 50 years ago or a hundred years ago, and we’d be asking patients to deal with their ailments with leeches or a towel around their head.

[00:23:19] I think it’s wildly naive. You had mentioned on an earlier podcast, and we’re sort of on the Eve of a breakthrough, a renaissance in drug development. Say more about what you think is, essentially, we’re coming to these price controls at exactly the wrong moment in time.

[00:23:35] Bill Smith: I’ll quote, I think I quoted Larry Summers last time, and he, what he says about Clinical research, medical research, is that if medical research were art, we’d be in the high renaissance right now.

[00:23:48] It, the amount of discovery that’s happening right now is mind boggling. We’ve mapped the human genome, we know what genes are responsible for what illnesses, and we’re inventing cures for those, and in steps price controls, which is a great disincentive to, for example, Because price controls in the IRA impact the Medicare population, Medicare drugs, there’s a disincentive to find cures for the elderly.

[00:24:16] If a venture capitalist is looking at different programs to finance, different clinical programs to finance, a program for a young person’s drug is going to be more attractive than an older person’s drug, because that older person’s drug could get sucked into the price control regime.

[00:24:34] Joe Selvaggi: Yeah, of course, yes. And I’d also say to our listeners, I think perhaps we’re all terrified of one common disease, which is Alzheimer’s. Imagine 50 years hence, we’ve cured Alzheimer’s. Think of the hundreds of billions of dollars that we would save if we had the quote unquote cure for Alzheimer’s. I don’t know if it’s imminent, but I think to myself, certainly it’s worthy of our best effort to try to figure it out for all of us.

[00:24:59] And I think, well, again, if we imagine we’ve discovered everything we’re going to discover already. That brave new world free of Alzheimer’s will never occur. I want to move on to another claim, let’s say, that folks have in support of price controls for drugs, which is that other countries are essentially enjoying the fruits of our labor.

[00:25:18] In other words, we spend all this money developing these drugs in the U. S. Largely, I think, roughly 50 percent of all drugs are discovered here. And the rest of the world is enjoying those same drugs for much cheaper prices. We hear all kinds of stories about people driving to Canada or what Say more. Why is it that it seems to be that these drug companies are milking American consumers and the rest of the world is getting away with murder?

[00:25:42] Bill Smith: Yeah, they are getting away with murder. And it should have been a trade issue for the United States for many years. The problem for Pharma companies, in particular, is that their business model, that is high upfront R& D costs and then low manufacturing costs, that business model is particularly susceptible to freeloading, because a company that approaches, say, Great Britain and says, please buy my drug, Great Britain knows they’ve already sunk 2 billion into discovering the drug and they can manufacture the pill cheaply, so why should they pay for it?

[00:26:17] What the market price is for the drug. Why not just freeload? You don’t see this freeloading happening with companies that have high manufacturing costs. Like nobody in Great Britain can buy a Ford F 150 for 15, 000 because the manufacturing costs are so high. Ford Motor Company is not going to sell it that cheaply.

[00:26:39] But you’re talking a different situation when it’s a pharmaceutical company. They’ve already spent 2 billion to do the R& D. And if Great Britain is only going to offer 50 cents on the dollar, they’re probably going to take it because they have to make up those R& D costs as effectively as they can. So the business model is subject to freeloading and that’s what’s happening. Europe freeloads off our defense spending and they freeload off our pharmaceutical R& D. There’s just no doubt about that.

[00:27:07] Joe Selvaggi: Well, let’s stay on, let’s stay on topic with the price of drugs. Again, we’re talking more broadly about a key feature of the Inflation Reduction Act. This was, as the name implies, supposed to reduce inflation, will let our listeners decide for themselves whether it accomplished its goal, but it’s also supposed to save us money, the deficit of, I think it was supposed to save 90 billion. I don’t know if you saw a recent article that the CBO has come out and re evaluated the cost of the Uh, Inflation Reduction Act. Have you seen anything about the savings that the Inflation Reduction Act has enjoyed since passage?

[00:27:43] Bill Smith: Yeah, when the bill was going through, the CBO, because their patrons are Chuck Schumer and Nancy Pelosi, the CBO said, oh, this bill will save 90 billion dollars. After the bill passed, and a year later, they re evaluated that. And they said, oh no, we were wrong. This is going to cause 562 billion in deficit. This bill is unpaid for. We’re going to have to borrow money to pay for it. So, the CBO has been wrong about this, and I think they’re likely wrong on the number of new drugs that are going to be impacted by this bill.

[00:28:17] Joe Selvaggi: Yeah, indeed. Now, we’re getting close to the end of our time together. We’re going to have a new president one way or the other in January. I think, ironically, the conversation about price controls is top of mind for a lot of people. We see some people defending it, and I’m always interested in hearing those who want to defend price controls.

[00:28:35] But in general, it seems economists, and even the intuition of ordinary consumers, seems to be that They intuitively know that you limit the price of anything, eggs or hot dog buns, you’re going to see fewer of them and ultimately either you’ll be on a long line or the item won’t exist because there’s no incentive to create it.

[00:28:54] What do you think in this case when we talk about the incentives and the effects of price controls on drugs? Do you think future administrations, either side, that seem to understand the unintended but harmful effects on drugs in the future, both cost and availability, would be, do you see anybody who seems to quote unquote get it?

[00:29:16] Bill Smith: I think, no, I don’t, to be honest. I think the Trump administration, previous administration, was all over the map on drug prices. They stepped in and made drug prices in Europe a trade issue, as I wanted them to, but then they were all over the map and they said kind things about price controls. And, J. D. Vance has actually said good things about negotiating drug prices in Medicare. So I don’t see anybody that really gets it. There were a few people at the Council of Economic Advisors for Trump that understood the business model and said the right things, but the administration as a whole was all over the map. And I, the Kamala Harris administration would be the same as the Biden administration. I think they would inflict as massive price controls as if they could.

[00:30:01] Joe Selvaggi: Just to be clear again, I would say candidate Harris was the 51st vote to pass the Senate because it was 50 50 tie. She signed it and of course, so did President Biden, so I have to believe there are at least two candidates. Until recently, unless it’s changed, sympathetic to its provisions. I like to ask this of all our experts, if you were king for a day, is there any degree of price controls that make sense when considering the short term cost for consumers who need these drugs desperately and long term costs for all of us for, uh, for both inexpensive drugs and new drugs to keep us healthy in the future? Is there any place for these kinds of controls of provisions in your view?

[00:30:41] Bill Smith: And no, I don’t think the price controls are a smart idea. They’re going to diminish innovation. There’s just no doubt about that. On the other hand, I do think the government could do a few things to help with out of pocket costs because out of pocket costs have been rising because of PBMs substantially for people. People are paying hundreds of dollars sometimes for a prescription, a monthly prescription. And I think the government could do something about that without defying market forces.

[00:31:10] Joe Selvaggi: So, to step in and essentially help people pay the price, at least while it’s under patent, rather than go after the drug company itself.

[00:31:18] Bill Smith: Or give people access to the negotiated net price, minus the rebate. Right now, people who are paying cash at the pharmacy might pay the list price, the retail price, which is not right if their insurer has knocked down the price 50 percent through a rebate. So, people should have access to the discounted price that their insurers get, not the list price.

[00:31:42] Joe Selvaggi: Again, we’re treading on familiar territory. We’ve done podcasts about this topic in the past. And I appreciate, in a sense, we all agree that the price of drugs is high, the price of healthcare is high. Where we disagree is on how to deal with it. I think if the I’m hearing you loud and clear. It’s the market’s business to set prices, not governments.

[00:32:06] And that in the long run, we’re all poor with perhaps the well intentioned, but misguided effort to control prices with price controls. So thank you very much, Bill, for joining me again on Hubwonk. I wanted to address this issue because a lot of, uh, there’s a lot of press on the issue right now. And I think it confuses a lot of our listeners as to whether Yeah,

[00:32:26] Bill Smith: Joe, ominously, just to, to, Bring it back to Massachusetts. There’s a contract research company that runs clinical trials called Charles River Laboratories. And last week they announced that they were seeing a diminished number of clinical trials coming out of the greater Boston area. And the CEO specifically pointed to the Inflation Reduction Act price controls. He said, This is diminishing the number of clinical trials that biotech firms are conducting. The reality is this is going to diminish innovation.

[00:33:01] Joe Selvaggi: Indeed, and to be clear, I’m familiar with that firm, the CEO is a neighbor. But what they do is they facilitate the testing of drugs of other companies. In other words, if I’m developing a new drug, I come to them to run trials for me.

[00:33:15] What you’re saying is the company that runs those trials is saying fewer and fewer trials are coming in. Because again, as we would predict, or an economist would predict, taking away incentives for developing new drugs means fewer new drugs will be developed.

[00:33:26] Bill Smith: Precisely. Exactly.

[00:33:28] Joe Selvaggi: Okay. Well, thank you very much, Bill. Where can our listeners read more about your research and your work?

[00:33:34] Bill Smith: Well, I have a couple op ed pieces out there, and I will share them when they’re published on the IRA. And we’re doing considerable research, which won’t probably be up until the end of the year, where we’re going to look at what happens to these Price controlled drugs. Are they more widely available? Are they costlier or less costly for seniors? We’re going to look at their formulary status and that will be published on the Pioneer Institute website.

[00:34:02] Joe Selvaggi: I think that would be a wonderful compliment to our conversation because at the end of the day, you and I are predicting the effect, but ultimately when you do the research, you’ll measure the effect. Exactly. In theory, detractors or supporters can equivocate with results. So I look forward to that. Perhaps we’ll have you back to discuss the conversation, this topic again in the future. Sounds good. Thank you for your time, Bill.

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