We Just Saved $12 Billion on Drugs. But What Did We Lose? #377
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Hey there, Yang Hong here. Today is December 6th, hoping you stay in good.
Let's look at the price tag on your health. Last month, a drug like Ozempic could cost a thousand dollars a month. Under the new administration's plan, that price might drop significantly for millions of seniors.
That sounds like magic. Who doesn't want cheaper bills?
But in economics, there is rarely magic—usually, there is a trade-off.
We are securing real savings today, but we need to have an honest conversation about who pays for those savings in the long run.
The legal tool being used here is the Inflation Reduction Act.
That law was passed in 2022 by Democrats. Republicans generally opposed it. But today?
The Trump administration is using that exact same legal framework to negotiate aggressively.
They are taking a tool built by their predecessors, swinging it harder, and branding the results as "TrumpRx."
It’s not just a slogan. It’s policy execution. They are locking in prices for 15 high-cost drugs—treatments for cancer, diabetes, and heart disease. The goal is clear: Deliver a win for voters who are tired of high prices, regardless of who wrote the bill.
The White House projects this will save Medicare about $12 billion in the first year alone. $12 billion is massive. That’s enough to keep the lights on in thousands of hospitals. For seniors, this means lower copays and a healthier Medicare system. That is a real, tangible benefit.
While Pharma companies are profitable and won't go bankrupt tomorrow, you cannot cut revenue by 40% or 50% without changing behavior. Developing a new drug is like drilling for oil. It’s expensive and risky. You drill ten wells, and nine run dry. You rely on the one "gusher" to pay for the failures.
If the government caps the payout on the "gusher," the math changes. You don't stop drilling entirely. But you might stop drilling the riskiest wells. Studies suggest that with cuts this deep, we could see 30% to 60% fewer early-stage research projects. Over the next few decades, that could mean dozens—maybe hundreds—of new drugs never make it to market.
The high-risk scenario isn't that the industry collapses. It’s that it becomes Risk-Averse. The risk is that companies focus on "safe" tweaks to existing pills rather than swinging for the fences on Alzheimer’s or rare diseases.
The Trade-off is subtle. We are trading "Solvency Today" for "Innovation Risk Tomorrow."
We are saving $12 billion now, which helps the budget.
But the cost might be the drug that doesn't exist in 2035. It’s a valid choice to make, but we shouldn't pretend it’s free.