At Hearing, Warren Highlights Impact of Inflation Reduction Act on Massachusetts, Debunks Big Pharma’s Claims that Medicare Drug Price Negotiation is Bad for Innovation
Washington, D.C. – At a hearing of the Senate Finance Committee, Senator Warren highlighted significant health care savings for seniors in Massachusetts as a result of the Inflation Reduction Act (IRA), which Congress passed with zero Republican votes, and debunked claims that allowing Medicare to negotiate drug prices will harm innovation and investment in the pharmaceutical industry.
In response to questions from Senator Warren, Professor Rena Conti, Dean’s Research Scholar and Associate Professor for Markets, Public Policy and Law at the Questrom School of Business at Boston University, confirmed that multiple leading indicators of innovation have increased since the IRA’s passage, and in fact, pharmaceutical companies have outperformed the financial markets. Professor Conti also indicated that the law will push pharmaceutical companies to increase investments in research and development, rather than spend more on stock buybacks and dividends to enrich shareholders.
According to Professor Conti, pharmaceutical executives have consistently affirmed to shareholders that their companies will remain highly profitable despite the Medicare negotiations – even as their companies’ lawyers fight in Federal Court to block the law from taking effect.
Transcript: Hearing on Health Provisions in the Inflation Reduction Act (IRA)
Senate Committee on Finance
September 17, 2024
Senator Elizabeth Warren: Thank you very much, Mr. Chairman. I'm going to recap here. Two years ago President Biden and Democrats in Congress passed the Inflation Reduction Act without a single vote from Republicans. We capped the monthly insulin cost for seniors at $35. We limited annual out-of-pocket costs in Medicare to $2,000. We penalized drug companies that hike prices above inflation, and – my personal favorite – we authorized Medicare to negotiate drug prices.
Seniors are already feeling relief. Karen, one of my constituents in Southampton, Massachusetts used to pay $150 every month for her insulin. She now pays $35. Over 300,000 Massachusetts residents are saving an average of $3,700 a year on premiums for their ACA coverage. And by next year another half a million seniors in the Commonwealth will save $330 on average on prescription drugs. And the best part, all of the savings are completely paid for by my 15% corporate tax on billionaire corporations.
But not everyone is happy. Eight of the largest drug companies have sued the government in an effort to block Medicare from negotiating drug prices. Oh the outrage.
Professor Conti, you are an expert on the pharmaceutical industry. The industry claims that negotiating Medicare drug prices will harm pharmaceutical innovation and investment. Does your result bear that out?
Dr. Rena Conti, Dean’s Research Scholar and Associate Professor for Markets, Public Policy and Law at the Questrom School of Business at Boston University: No, it does not. Stock-price performance of affected companies is going up, not down. Merger and acquisition activity and VC spending in this space – two leading indicators of innovation continuing – are also up. R&D spending is up, and therefore, we do not believe that this law is impacting innovation negatively.
Senator Warren: So, in effect what is happening is the exact opposite of what pharma is claiming in court. Rather than hurting innovation, the data you are citing suggests an increase in pharmaceutical investment since the IRA’s passage. It turns out that Big Pharma executives are telling their shareholders that same story.
Take Bristol Myers Squibb: last year the company made over $12 billion on its blockbuster blood thinner, Eliquis. Eliquis is one of the first 10 drugs selected for Medicare negotiation, which will slash its price by half for nearly 4 million seniors who use it. The company's CEO recently told investors that he was "confident in the company's ability to navigate the impact of IRA on Eliquis."
Professor Conti, you have combed through your fair share of earnings calls. Thank you for taking that on. Is Bristol Myers Squibb’s view different compared to other drug companies?
Dr. Conti: No. It is paradigmatic of what companies are telling their shareholders and telling Wall Street. That the IRA is inducing them to look for opportunities for growth, for taking more risks, and for, frankly, putting more of their money to work to bring new products to market.
Senator Warren: I just have to underscore this. This is not about speculating what’s going to happen. This is actually the guys who are on the frontline. I get it. They go to court and they say it’s terrible and they play the violins. But the reality is, when they are talking to their own investors they say, “We've got this.”
Dr. Conti: Absolutely.
Senator Warren: And, “Not only do we have this, we’re actually investing more than we did before.”
Dr. Conti: Absolutely. And not only that, but they are also persisting in giving stock buybacks and also dividend payments to their shareholders, which means that this money cannot be that meaningful to them, that they are changing their course wholesale.
Senator Warren: I think it is time to get real on this. Giant drug companies want Americans to believe that charging fair prices for drugs will jeopardize innovation. And let's face it. Those same companies have under invested in research and development for years. But, what they are saying publicly and what they are saying to their investors just does not match up. With the IRA, Democrats have finally called Big Pharma's bluff. And won big for the American people. The work is not finished. It’s time for us to build on our success by expanding on these programs and ensuring that these protections cover all Americans. Thank you all for being here today. I really appreciate it.
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