Bureaucrats Shouldn’t Decide What Counts as Innovation
CMS should withdraw this provision that would prematurely combine separately developed and separately approved medicines for purposes of government price setting.
President Donald Trump returned to office determined to lower prices, bring manufacturing back to the United States, and unleash American innovation.
His policies are already producing results. Pharmaceutical companies have announced roughly $500 billion in new American investments in research, manufacturing, and infrastructure. President Trump has also challenged the foreign governments that have been paying artificially low prices for American medicines and leaving American patients to finance much of the world’s medical research.
This is the right direction: Lower costs for Americans while strengthening the system that produces new treatments and cures.
Unfortunately, the enormous regulatory machinery created by President Joe Biden’s so-called Inflation Reduction Act is threatening to pull the Trump administration in the opposite direction.
A pending rule at the Centers for Medicare and Medicaid Services (CMS) would expand Biden’s system of government drug price controls to include certain newer medicines sooner than investors, researchers, and manufacturers could reasonably have anticipated.
The immediate dispute involves a relatively narrow category of medicines. But the principle at stake is much larger.
Medical innovation requires stable rules.
Developing a new treatment can take a decade or more. Researchers must make scientific judgments, companies must conduct expensive clinical trials, manufacturers must build specialized facilities, and investors must commit capital years before knowing whether a product will ever reach a patient.
All these decisions depend on some reasonable expectation that the government will not fundamentally change the rules after the investments have been made.
This is one of the central dangers of the modern regulatory state. Congress passes a sprawling law, delegates enormous discretion to federal agencies, and allows bureaucrats to continually reinterpret what the law means. Each individual change may sound technical or limited, but together they create a system in which government can rewrite the economics of an investment long after the work has begun.
The current CMS proposal is a perfect example.
Scientists have developed ways to turn some medicines that require hours in an infusion chair into injections that can be administered in minutes—and, in some cases, given in a doctor’s office or at home.
For cancer patients and others with serious illnesses, that can replace hours spent traveling to and sitting in an infusion center with shorter, more convenient treatments. Patients lose less time with their families and at work, while doctors, nurses, and infusion centers can care for more people.
Producing these improvements is not as simple as changing the packaging. The newer medicine requires its own research, clinical work, manufacturing investment, and Food and Drug Administration approval.
Yet CMS is proposing that, for purposes of Biden’s price-control system, some of these separately approved products should be combined with the older medicine on which they were built. As a result, the newer treatment could become subject to government price setting years earlier than it otherwise would.
CMS presents this as closing a potential loophole, but improving a treatment is not a loophole.
If an alteration provides no meaningful benefit, patients, physicians, and health plans should be free to reject it. But when an innovation turns hours of treatment into minutes, reduces the burden on patients, or permits care in a less expensive setting, government should encourage it — not retroactively redefine it as the same old product.
This is exactly how bureaucratic price controls distort innovation. Government officials begin by claiming that they are merely setting a price. They inevitably end up deciding what counts as a new medicine, which improvements deserve recognition, how long an innovation has value, and which future investments are financially possible.
Those decisions will not only affect large pharmaceutical companies. They will affect the venture capital firms, private equity funds, pension funds, research institutions, and individual investors that provide the capital for medical discovery.
Capital can move.
Investors do not have to finance a risky medical project that may take 10 or 15 years to succeed. If Washington demonstrates that bureaucrats can change the rules midway through that process, investors will put their money into artificial intelligence, financial services, real estate, energy, or other industries with more predictable returns. They may also invest in research and manufacturing outside the United States.
The cost will not appear immediately in a federal budget table. It will appear years from now in the form of treatments that were never developed, trials that were never funded, and medical breakthroughs that patients never received.
CMS should withdraw this provision that would prematurely combine separately developed and separately approved medicines for purposes of government price setting. The administration should also conduct a broader review of the Biden-era drug-pricing system to ensure that its implementation is consistent with President Trump’s goals of lowering costs, expanding American manufacturing, and sustaining American leadership in medical innovation.
This is not an argument for accepting high drug prices or protecting every decision made by a pharmaceutical company. President Trump is right to confront corporate middlemen, demand better prices for American patients, and insist that wealthy foreign countries pay their fair share for medicines developed here.
But lowering prices through competition, transparency, and fair dealing is fundamentally different from allowing a labyrinth of federal regulations to make investment increasingly unpredictable.
America cannot remain the world’s leading source of medical breakthroughs if Washington reserves the right to rewrite the economics of those breakthroughs after the research has begun.
President Trump has helped unleash an extraordinary new wave of investment in American medicine. He should make certain that the bureaucratic remnants of the Biden administration do not smother it.
Gingrich 360 consults with clients in the healthcare industry which would be affected by the policies described in this piece.
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