Cumulatively, these lawsuits highlight the myriad constitutional defects of Biden’s drug price control scheme and may put a quick and merciful end to the IRA’s provisions.

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Joe Biden apparently assumed that the drug price control provisions of his “Inflation Reduction Act” (IRA) offered a political slam-dunk in the leadup to the 2024 presidential campaign.  

Although price controls violate immutable economic principles and maintain an unbroken record of failure across time and geography, they somehow retain a deceptive and stubborn allure.  

On both the legal and political popularity fronts, however, Biden’s scheme already faces potentially devastating challenges.  

On the legal front, two new federal lawsuits spearheaded by the United States Chamber of Commerce and Merck & Co. expose the way in which Biden’s price control mechanisms violate multiple constitutional provisions, including separation of powers and the First, Fifth and Eighth Amendments.  

Falsely labeling the government’s compulsory drug price mechanisms as “negotiation,” the Department of Health and Human Services (HHS) will select a gradually increasing number of pharmaceuticals to bring within its price-setting process.  By depriving drugmakers the ability to earn a reasonable return on the massive investments they commit in researching, developing and manufacturing the targeted drugs, the government violates the Constitution’s Fifth Amendment Takings Clause.  As one illustration, if drugmakers refuse the HHS’s proposed “maximum fair price,” then they will be subject to “excise taxes” escalating from 186% of revenues up to 1,900%.  

That violates the Fifth Amendment by effectively commandeering targeted drugs and depriving companies the ability to recover on their massive investments, and it potentially violates the Eighth Amendment by imposing wildly excessive penalties.  The law also violates the Fifth Amendment’s Takings Clause by forcing them to turn over massive amounts of proprietary information under penalty of $1 million per day fines for violation.  

Outrageously, the IRA’s drug price control provisions also violate the First Amendment’s free speech protections by forcing drug manufacturers to maintain the charade that they agreed to the set price, rather than speaking out against the compulsion.  Additionally, the law prohibits companies from publicly disclosing pricing offers or counteroffers during “negotiation,” as well as other information exchanged during the process.  

Cumulatively, these lawsuits highlight the myriad constitutional defects of Biden’s drug price control scheme and may put a quick and merciful end to the IRA’s provisions.  

On the political front, meanwhile, news of seniors’ skepticism toward the IRA’s drug price controls present a similarly jarring concern for the White House.  

As reported by The Hill, a new survey from American Commitment and the polling firm McLaughlin & Associates finds that, “80 percent of older voters fear the prescription drug reforms included in President Biden’s landmark Inflation Reduction Act will negatively impact drug innovation.”  In contrast, it continues, only “14 percent of those voters think it will lower their drug costs.”  

That supermajority opinion accords with experts ranging from the University of Chicago to the United Nations World Health Organization (WHO), which sound the alarm on how drug price controls and reduced patent protections reduce lifesaving drug innovation.  

Specifically, government price controls of pharmaceuticals and other products stifle innovation by reducing profit incentives.  By imposing price ceilings in the manner of the IRA’s provisions, that reduces the motivation for companies to invest in research and development in creating new or improved products.  Without a reliable prospect of return on investment, companies scale back innovation efforts, which slows the development of new products and technologies in the first instance.  

Price controls also result in a narrower range of available products in the market, because they press companies to prioritize products that are easier and cheaper to produce, which reduces the availability of more complex, costly or niche drugs that serve important needs.  The result is fewer choices for affected seniors and less innovation in products that cater to specific needs or priorities.  

With America’s aging population, drug price controls also disrupt market dynamics by distorting the balance of supply and demand.  By artificially suppressing prices below market levels, they can result in higher demand for the product without allowing manufacturers to allocate sufficient resources to additional production or innovation, creating a mismatch between elevated demand and sustainable supply and innovation.  

In the longer term, price controls also create entry barriers for new firms or smaller startups.  With the looming prospect of price controls for successful drugs, it becomes more difficult for new or smaller companies to compete with established producers that possess economies of scale and established distribution and marketing networks.  That reduced competition also leads to sclerosis among existing manufacturers, because they face fewer incentives to innovate or differentiate their products against competition.  That results in less innovation, due to less competitive pressure to improve existing products or meet evolving consumer demand for new products.  

Fortunately, according to the new survey, the same constituency that Biden seeks to charm with his drug price control scheme recognizes the peril that they create in terms of innovation and supply.  

With multiple legal challenges due to the IRA scheme’s constitutional defects, we’ll be fortunate if courts terminate the program before that grim reckoning arrives.