The White House Opts for the Wizard of Oz Over Reality

When Toto pulls back the curtain in the classic scene from the Wizard of Oz, Frank Morgan’s character scrambles in vain to quickly finish his great proclamation and escape with, “Pay no attention to that man behind the curtain.” It’s hard not to reference this scene as the White House prepares to throw a celebration for the passing of the Inflation Reduction Act (IRA) to highlight policies like new price controls being placed on drugs in Medicare.

Perhaps some would call it a far stretch to liken President Biden to the Wizard of Oz—after all it was Sen. Schumer and Sen. Manchin that surprised everyone with a deal on a legislative package chock full of policy proposals that everyone considered to be dead less than a year before; however, the illusion coming from the White House that people will benefit from the new drug price controls in the Inflation Reduction Act is profoundly Oz-like in its attempt to throw a shade over Americans’ eyes on the true impact of this policy.

So, let’s pull back the curtain and reveal the hard realities of what Americans will be forced to accept now that price control measures are enacted.

First, the provision that will force drug makers to negotiate prices with the government for inclusion in Medicare will not go into effect until another President is in office. According to the legislation, ten treatments will be subject to price controls in 2026, 15 in 2027, and 20 in the year 2029. While he hasn’t officially made any announcement, the general consensus is that President Biden won’t seek another term. No matter which Administration is in power after 2024, it isn’t going to be President Biden that will face the repercussions that government price controls will have on the dynamic innovation pipeline that America currently leads the world.

We understand that nothing happens in Washington overnight, but far too many votes are taken to reap immediate election-year short term benefits over the actual good of the policy or how it helps people. Once legislation is passed, it is nearly impossible to repeal—just look at the attempt by Republicans to undo Obamacare in 2017.

Second, four years from now, any pharmaceutical company that doesn’t agree with the price that the government sets on a drug will face a 95 percent excise tax on that medication. If they don’t want to face the penalty, they will have to remove their treatments from Medicare and Medicaid. For some companies, that will mean they won’t try to get expensive treatments into the Medicare formulary in the first place. On top of that, companies won’t be able to raise their prices past the rate of inflation; if they do, they will have to pay Medicare in the form of a rebate.

This means less access for Medicare patients and less innovation on the part of many companies that will be forced to cut their R&D budgets because of these government price controls. There’s a reason that companies are granted market exclusivity, for example, because research shows that the result is a massive increase in innovation and development of compounds to treat the rarest of diseases.

So, an unpopular idea will have someone else at the helm when it takes effect and both the suppliers and the receivers of treatments and other drugs will be hurt.

Who then benefits? In the short term, it is politicians running for reelection that can state they are doing something about the cost of drugs—when in reality, they are not. And in the longer term, unrelated government programs will use drug price controls as the go-to cash cow for funding—all while claiming the savings go to patients. Now that’s a reality that would lead Dorothy to immediately click her heels and go back to Kansas.

Jack Kalavritinos

CPAC’s Executive Director of the Coalition Against Socialized Medicine