President Biden and Vice President Harris’s recent accusations of inflation being driven by price manipulation and “corporate greed” mirror the rhetoric of Venezuelan leader Nicolas Maduro. Maduro frequently attributes economic problems to greed when enforcing stringent price controls, a pattern that has contributed to Venezuela’s current economic crisis.
Currently, the Biden-Harris administration is implementing price controls within the healthcare sector through an arrangement with pharmaceutical companies. Price controls have a dismal history of failure globally. For example, in Venezuela, mandated low prices led bakers to either reduce their output or stop baking altogether, resulting in shortages and price increases, which Maduro then blamed on the bakers’ supposed greed.
Inflation Reduction Act Could Lead to Increased Drug Prices Despite Implementing Price Controls
The Trump campaign could leverage the adverse impacts of these price controls to their advantage. If the Republicans succeed in November, Trump could potentially reverse Biden’s drug pricing policies, marking an early victory for his administration.
Biden’s Inflation Reduction Act, designed to lower drug prices, actually enforces a severe 95 percent excise tax on drugs that don’t meet the government’s price limits. This could paradoxically lead to increased drug costs and diminished access.
Prescription drug commercials often display idealized scenarios, but if legislation were to have similar warnings, the Inflation Reduction Act would read: “This law aims to cap drug prices, but possible side effects include higher costs or reduced availability of medications.”
Even though the price negotiations won’t start until 2026, there’s still time for lawmakers to address potential issues. The HHS Secretary, responsible for evaluating drug prices, has broad authority. However, history suggests that regulatory cost-benefit analyses often fall short of their intended outcomes, as highlighted by Justice Antonin Scalia’s critique in Michigan v. EPA.
The excise tax in the Inflation Reduction Act may lead to either inflated drug prices or severe reductions in company revenues, depending on how the baseline is defined.
Given the stringent controls, pharmaceutical companies may be dissuaded from investing in research and development. Over 40 organizations have urged for market-based reforms to mitigate the negative impact of this policy. Despite Senate Majority Leader Chuck Schumer’s dismissal, the potential damage from this policy is substantial.
This issue is crucial for the future of drug pricing in the U.S. With the pressure mounting, Harris’s policy might backfire. The Trump campaign should focus on linking inflation to the Biden-Harris administration’s policies, turning this into a potent campaign message.
