With the help of its legislature and four successive governors, Connecticut has become a key hub for bioscience.
Google the word “CT biotech” and the number of recent news articles about successful Connecticut startups, biotechs and biopharmaceutical companies is astounding. Just recently, Merck announced it would acquire Stamford-based SpringWorks Therapeutics for $3.9 billion.
The success of the CT bioscience industry has benefited patients with lifesaving treatments and cures, but it has also bolstered Connecticut’s fiscal outlook immensely. Connecticut biotech has contributed to property tax rolls, created thousands of high paying jobs for Connecticut residents and has drawn talent from across the world to our state.
Gov. Ned Lamont recognized the value bioscience companies bring to the state earlier this legislative session by proposing an increase to the Research and Development tax credit in his budget. Since R&D so defines the biopharma industry —it takes $2.7 billion of R&D to bring a new medicine to pharmacy shelves— enhancing this tax credit makes great economic development sense.
Unfortunately, the governor has also introduced HB 6870, An Act Addressing Patients’ Prescription Drug Costs which, amongst other things, would implement price controls in the form of tying medicine prices to the Consumer Price Index (CPI).
It’s important to underscore that the essential goal of HB 6870 -–to lower patients’ healthcare costs— is laudable and something the Bioscience Growth Council and its members share.
In order to achieve that goal, however, we must recognize that drugs represent only a small part of the healthcare cost equation. Medicines account for only about 15% of what we in the U.S. spend on healthcare. That share of the healthcare dollar has been remarkably stable for 75 years.
To bring meaningful change and cost savings to healthcare it is critical to examine the other 85% of the equation —surgeries and hospital stays, MRIs and CT-scans, doctor’s visits, home healthcare assistance, insurance plan design, to name only a few.
It is also worth noting that this legislation is not occurring in a vacuum. The ongoing threat of tariffs at the federal level has already contributed to significant instability and concern for the bioscience industry (and many others).
The governor’s healthcare bill would limit price increases drug manufacturers can charge for generic and off-patent drugs to the CPI.
Nominally keeping generic and off-patent drug price increases in line with inflation as measured by the CPI may seem reasonable, but it ignores the fact that the CPI is an average of a broad spectrum of products. The CPI does not reflect the rate of inflation for any one specific product category. The overall January CPI, for example, was three percent, but for eggs it was 15.2%.
The components of the drug supply chain, including the supply chain for generic and off-patent drugs, are many and variable. They are sourced from around the world. This is especially the case for the complex manufacturing applicable to injectable and infused biologics.
The price increases suppliers in the generic and off-patent drug supply chain charge for ingredients can often exceed the CPI. Since many parts of and ingredients used in drug manufacturing are sourced from overseas, currency fluctuations can have a dramatic effect on prices significantly in excess of the CPI. At a time when actions in Washington have already significantly affected the supply chain, it is critical that Connecticut leaders take a pause before further upending the supply chain for Connecticut companies. Not only is this a financially smart decision it also helps to reduce the risk that Connecticut (and all) patients will no longer be able to access their medications should further supply disruptions occur.
It’s also important to recognize that tethering medicine prices to a rigid formula like the CPI is a form of price control and price controls never work. No matter the product—flour, machinery, medicines— price controls cause shortages, delay the introduction of new products and manufacturing capacity, give rise to black markets and incentivize high introduction prices.
A rigorous study —academic or otherwise— demonstrating the effectiveness of price controls does not exist.
Price controls didn’t work when Richard Nixon tried them, didn’t work in Nazi Germany or the Soviet Union, and aren’t working in Venezuela or Zimbabwe.
When tried, all price controls have done is ratchet up the misery of empty store shelves and metastasizing inflation. Applied to medicines, they would translate into shortages and slow, or non-existent, introduction of new, cutting-edge cures and therapies.
If the cost of ingredients for a medicine spike beyond the CPI and manufacturers can’t cover their costs, we certainly would not want government policy to be the cause of manufacturers leaving the market and consumers facing empty pharmacy shelves.
Paul Pescatello, JD, PhD, is Executive Director of the Connecticut Bioscience Growth Council and Chair of We Work For Health CT.