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Begin New Search Topic Public Investment Author Fred D. Ledley

1. Considering Returns on Federal Investment in the Negotiated “Maximum Fair Price” of Drugs Under the Inflation Reduction Act: an Analysis

Author:
Edward W. Zhou, Paula G. da Silva, Debbie Quijada, and Fred D. Ledley
Publication Date:
03-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The Inflation Reduction Act (IRA) of 2022 contained landmark provisions authorizing government to negotiate a “maximum fair price” for selected Medicare Part D drugs considering the manufacturer’s research and development costs, federal support for discovery and development, the extent to which the drugs address unmet medical needs, and other factors. This working paper describes federal investment in the discovery and development of the ten drugs selected for price negotiation in the first year of the IRA as well as the health value created through Medicare Part D spending on these drugs. We identified $11.7 billion in NIH funding for basic or applied research leading to approval of these drugs with median investment costs of $895.4 million/drug. This early public investment provided a median cost savings to industry of $1,485 million/drug, comparable to reported levels of investment by industry. From 2017-2021, Medicare Part D spent $126.4 billion (median $10.7 billion) for these products before rebates. Excluding two products for diabetes, Medicare Part D spending was $97.4 billion and the total health value created was 650,940 QALYs or $67.7 billion (WTP/QALY=$104K) representing a negative residual health value of -$29.7 billion (before rebates). We argue that a negotiated fair price should provide returns on both private and public investments in these products commensurate with the scale and risk of these investments, with the principal return on public sector investments being the residual health value (net price) accruing to those using the product. These empirical data provide a cost basis for negotiating a fair price that rewards early government investments in innovation and provides social value for the public.
Topic:
Economics, Health, Public Health, Pharmaceuticals, and Public Investment
Political Geography:
North America and United States of America

2. Implications of the Inflation Reduction Act for the Biotechnology Industry

Author:
Cody Hyman, Henry Dao, Gregory Vaughan, and Fred D. Ledley
Publication Date:
07-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The Inflation Reduction Act of 2022 contains landmark provisions authorizing the government to negotiate the price of selected drugs covered by Medicare Part D. The biopharmaceutical industry has criticized these provisions as a threat to innovation arguing that reducing future revenues could disincentivize equity investment in biotechnology. This research examines the sensitivity of private and public equity investment in the biotechnology industry to drug price indices and market conditions from 2000-2022. The analysis shows that equity financing and valuation in the biotechnology industry were strongly associated with equity market conditions but not indices of either producer or consumer drug prices. These results do not support claims of an association between changing drug prices and the availability of equity capital to emerging biotechnology companies, which currently sponsor the majority of all clinical trials. These results add to evidence that the IRA may not have a negative impact on pharmaceutical innovation.
Topic:
Economics, Health, Inflation, Innovation, Biotechnology, Public Investment, and Inflation Reduction Act
Political Geography:
North America and United States of America