Charles River Associates has previously assessed the implications of proposals to implement international reference pricing in the US and found they would reduce and skew investment in research and new drug development. This report for PhRMA assesses the potential effects of two alternative approaches to regulating drug prices, government price setting, and inflation penalties, on pharmaceutical innovation. These policies are part of the Build Back Better Act (BBB), which passed the House of Representatives in November 2021 and is currently under consideration for passage by the Senate.
Charles River Associates find that the government price setting and inflation penalty provisions in the BBB would reduce and skew R&D investment, resulting in fewer new medicines. As of November 2021, the Congressional Budget Office (CBO) found that drug price controls in BBB would result in fewer new drugs: one fewer from 2022–2031, four fewer in the next decade, and five fewer in the following decade.
However, the CBO’s methodology lacks consideration of the shift in incentives and investment behavior, which indicates that its score is unlikely to capture the full impact of price controls on innovation of new medicines. The results of our assessment imply that the CBO’s score of BBB is likely an underestimate.