3 months ago • 2 mins
What’s going on here?
The US government took steps to slim down the country’s healthcare costs, but Big Pharma’s not ready to swallow that pill.
What does this mean?
The US is known for one-dollar hot dogs, historic cowboy towns, and the promise of unlimited opportunity. Oh, and for having the highest medicine costs in the developed world by far. Well, the government seems to think that last bit’s souring the tone a little. It signed the Inflation Reduction Act around a year ago, part of which gives Medicare – the taxpayer-funded healthcare system for retirees – the power to directly negotiate drug prices with manufacturers. And on Tuesday, the government named the first ten prescription drugs to be affected: a range of treatments for the likes of diabetes, heart failure, and blood thinning. By 2026, average medicine prices are expected to be sliced in half – and that should save Medicare around $100 billion by 2031.
Why should I care?
For markets: No financial pain, no gain.
That list of ten is just the start: more drugs will be added every year, and analysts reckon the reductions could cut 5% off the drugmaking industry’s revenue. But Big Pharma has a reputation for putting profit first, so naturally, it’s not keen on this whole help-the-people idea. In fact, the likes of Johnson & Johnson and Merck have been busy filing lawsuits that argue the move is unconstitutional. That, then, may be why stocks of some of the biggest drugmakers barely moved after the release.
The bigger picture: Big Pharma’s big protest.
Big Pharma knows how to formulate a threatening argument. The industry’s protesting that lower prices will squash motivation to make new drugs, especially ones for rare diseases. But even so, it’s estimated the shift might reduce the number of new drugs available by just 1% in 30 years, so don’t start scanning the black market just yet.
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