In his recent op-ed, John Burkhardt of Pfizer misses important points when he asserts that the governor’s proposed tax on excessive prescription drug price increases will harm innovation and jobs in Connecticut. He ignores that rising drug prices are making health insurance unaffordable. Overpriced drugs inhibit other innovation and job growth across Connecticut’s economy. He left out how profitable drugs are, and that much of the pharmaceutical innovation is paid for by taxpayers. A tax on very high price increases is easy to avoid when prices are fair.
Mr. Burkhardt justifiably cites impressive efforts by drug companies and their scientists to develop COVID-19 vaccines in record time, for which we are a grateful state. But he didn’t mention the crushing weight of rising health care premiums and out-of-pocket costs on other drugs that are stressing our economy, government budgets, and households across the state. Nor did he acknowledge that skyrocketing drug prices are a main driver of those rising costs. Candidates heard a lot about health care affordability on the campaign trail but we can’t bring down premiums without addressing drug prices.
It’s hard to overstate the economic impact of rising health care costs on Connecticut’s economy. Employers are unable to hire new employees because of soaring health insurance costs and can’t afford wage increases for the workers they have. Potential entrepreneurs with innovative ideas that could grow Connecticut’s economy can’t afford to leave their day jobs because they can’t afford health insurance premiums.
The proposed tax is only on the drug price increase that exceeds inflation for all other goods and services plus 2%t. That is a healthy profit that would make most Connecticut businesses very happy. It should serve as a deterrent to extreme price increases on older drugs for which research costs were recouped years ago. Extreme price hikes for EpiPen and insulin have been featured in the news, but they are far from the only examples. A new analysis by the independent nonprofit Institute for Clinical and Economic Review found that in 2019, price increases for just seven drugs cost the U.S. health system $1.2 billion, with no new evidence of clinical effectiveness. In 2018, they found unjustified price increases for seven drugs cost us $5.1 billion.
Drug companies are very profitable. From 2000 to 2018, U.S. pharmaceutical company profits averaged 13.8% annually compared to 7.7% for S&P 500 companies. Nine of the ten most profitable health care companies are pharmaceutical companies. While they account for only 23% of health care spending, drug companies get 63% of health care profits. Most industries struggle to recoup research costs while keeping prices reasonable. But drug companies don’t have to worry about that. Their new products, innovative or not, are given monopolies and other advantages to keep profits high.
If the tax passes, Mr. Burkhardt is concerned about the impact on future innovation and cures. He failed to mention the substantial role taxpayer-funded research and tax-advantaged investments play in developing promising drugs. Grants from the National Institutes of Health have generated tens of thousands of private-sector patents for new drugs. For instance, the race for COVID-19 vaccines had a head start from early research funded by the NIH, the Defense Department, and federally funded academic labs years before COVID emerged. The federal government sent another $10.5 billion to companies for the vaccine.
Drug companies were largely untouched by the Affordable Care Act’s cost impacts. They get unique protections for their high prices through patent monopolies and other market distortions. We just can’t afford their blank check anymore. The governor’s bill takes a baby step toward reining in out-of-control drug costs and making coverage affordable for every Connecticut resident.
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