The President’s State of the Union (SOTU) address last Tuesday contained some interesting statements and some interesting reactions. There were even some back-and-forth reactions with members of Congress, but I don’t want to get involved in all that. My goal here is to focus on the portions of his remarks that dealt with healthcare, specifically drug pricing, and its effect on older Americans.
As I listened to the President, I heard him describe drug manufacturers in two different ways depending on the context and the issue he was discussing. Some would say this is just how politicians talk but it seemed to me to be duplicitous and even disingenuous. The far-ranging impacts of what Washington has already put into law and the direction they are headed make this a very serious matter that could have a huge impact on us. Here’s a few places where I think the President tried to have his cake and eat it too.
The President touted the portion of the Inflation Reduction Act (IRA) that dealt with drug prices and described drug manufacturers as “Big Pharma,” amassing huge profits. He talked about drug prices and how they have skyrocketed. That statement garnered some of the biggest applause of the evening. In another part of his talk, he touted how “science” had saved millions of lives by developing and manufacturing the COVID-19 vaccine. The “science” he identified was developed by the same “greedy” drug manufacturers he described above. These same drug manufacturers who had spent millions, if not billions, over decades to identify the basis for the mRNA science which they then used to develop the lifesaving vaccine in record time. In fact, the first company to get approval turned down any government help for the vaccine’s development. I was certainly confused on which one he was referring to, the greedy “Big Pharma” or the lifesaving vaccine developers.
More than once the President presented us with some facts that he challenged us to “look it up” if we didn’t believe them to be true, so I did, for the umpteenth time. Here’s the data on the last five years on drug prices.
There are two types of drug prices that will show who profits and who does not:
List price – The price that is used to calculate rebates to insurance companies and the patient out-of-pocket portion.
Net price – The actual money that the drug manufacturer gets from the sale of their prescription.
The average increases for list prices fell from an increase of over 7% in 2018 to an increase of only 5% in 2022. The net price, the money a drug manufacturer gets, went from a decrease of over 2% in 2018 to a decrease of around 1% in 2022. So, in looking at the data as the President directed, the “Big Pharma” has received less money per drug each year since 2018. If you figure in what the inflation was in 2022, the inflation adjusted decrease in revenue was 8.7%. Profits have actually decreased.
The President described himself as a capitalist and said he was a champion of competition. He said that “capitalism without competition is extortion.” In another part of his talk, he bragged about the drug price “negotiation” part of the IRA. When the government sets the price of a drug and the drug manufacturer is faced with either accepting that price or paying up to a 95% of the list price back to the government if they don’t charge the price the government set, there is no negotiation. It is capitalism without competition. This is not competition or capitalism.
The President announced a reenergized cancer moonshot, a recommitment to the discovery of ways to fight and cure cancer. These discoveries will not be made by the government. They will be primarily the result of the research and development of drug manufacturers who will invest billions into these projects. To me the President’s commitment to the cancer moonshot seemed hollow when the price setting portion of the IRA will lower the investments in discovering these new cures. Again, it seems the President is pushing solutions that are at odds with each other.
It bothers me when politics gets in the way of sound, fact-based solutions. I understand that President Biden was using the SOTU platform to begin his run for reelection but making statements that seemed to be at odds with each other, especially when they deal with life extending and lifesaving medicines, seems to be a dangerous and ill-advised approach. I want to unleash the power of discovery that exists in America. We are at the cusp of a golden era of innovation when it comes to our health. We should be finding ways to double down on our investment, not passing legislation that hinders innovation.
To that end, I hope you can join Shalla Ross, President of The Ross Group, and me this Thursday, February 16 at 2:00 pm ET for a Facebook Live event to discuss some of the things I’ve touched on here. We’ll talk about healthcare policy in the 118th Congress, the Biden administration’s policies that affect seniors’ healthcare and the Inflation Reduction Act implementation. It promises to be a down to earth discussion about the issues that affect you and me. You can click here and mark yourself as going. You can tune in to the event once it is live with the same link. I hope you can make the Facebook Live event.