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EMAIL THIS | PRINTER FRIENDLY MPR 01 PDF (92 kb) WHAT THE PRESS SAID: Rx Price Controls Would Be Disastrous For Innovation, Study Says FDAnews.com, 12-15-04 Price Controls on Medicare-Covered Drugs Would Mean Less Innovation, Report Finds BNA, 12-9-04 Report Warns of Drug Price Controls Washington Times, 12-8-04 SUMMARY: Critics of the new Medicare drug benefit have called for the government to use its increased purchasing power to drive down drug prices. This study examines the effects of government pressure on pharmaceutical prices and R&D from 1960-2001. During that time, it finds that the government induced a loss of capitalized pharmaceutical R&D expenditures of $188 billion, resulting in 140 million lost life years due to the absence of new medicines. Applying this same analysis to the future, it finds that if government tries to use its new buying power to reduce drug prices R&D spending will drop by nearly 40%, resulting in a loss of 277 million life years. Consequently, policymakers should consider the trade-offs between lower drug prices now and the future health benefits of increased R&D spending. TABLE OF CONTENTS: EXECUTIVE SUMMARY BACKGROUND AND PURPOSE OF STUDY The MMA and the Noninterference Clause The Original Medicare Act and the Noninterference Clause Drug Price Controls and Innovation Purpose of This Study U.S. GOVERNMENT’S HISTORICAL INFLUENCE ON PHARMACEUTICAL PRICING Mechanisms of Government Influence Impact of Government Influence on Drug Prices, 1960 to 2001 Simulated Real Drug Prices with and without Government Influence, 1960 to 2001 Figure 1: Simulated Impact of Government Influence on Real Drug Prices GOVERNMENT INFLUENCE ON PHARMACEUTICAL R&D AND LIFE YEARS LOST Figure 2: Estimates of Lost R&D Because of Government Influence on Drug Prices Figure 3: Effect of Lost Life Years on U.S. Economy The Potential Future Costs of the MMA Figure 4: 2004 Estimated Present Value Cost of the MMA’s Negative Impact on Pharmaceutical Innovation CONCLUSIONS REFERENCES APPENDIX: MULTIPLE REGRESSION FINDINGS ABOUT THE AUTHORS ENDNOTES