A report just released by the nonpartisan Washington-based Tax Foundation reveals that the so-called
Democrat “reconciliation” bill, H.R. 3, could contain changes that would reduce private R&D within the
pharmaceutical industry and reduce the number of new drugs coming to market.

“Instead of hampering medical progress, policymakers should work to ensure that the tax code remains
conducive to R&D spending and the resulting innovation,” writes the foundation’s Erica York.

H.R. 3, the Elijah Cummings Lower Drug Costs Now Act, would allow the government to set prices for
prescription drugs under Medicare Part D using excise tax penalties of up to 1,900 percent for
noncompliance.

The report explains that the technological advancements that allowed many employees to work from
home and patients to seek medical care remotely throughout the COVID-19 pandemic would have been
impossible without earlier investments in research & development (R&D). Likewise, thanks to decades
of R&D in the pharmaceutical industry and the resulting technological breakthroughs, nearly every adult
in the United States has access to safe and effective COVID-19 vaccines.

In 2018, the pharmaceutical industry invested about $129.5 billion in medical and health R&D,
compared to $43 billion from federal agencies. The Congressional Budget Office (CBO) reports that the
pharmaceutical industry spends a relatively large share of its revenue on R&D, even compared to other
knowledge-based industries, such as semiconductors, technology hardware, and software.

Doug Holtz-Eakin of the American Action Forum argues that “The real issue is that the drug industry
would be much, much less attractive as a location for risk capital.”

A 2021 study by Vital Transformation anticipates that on average, H.R. 3 would cause a loss of $102
billion in revenue per year and a 90 percent or greater reduction in the number of medicines developed
by smaller and emerging businesses, or 61 fewer medicines over ten years.

The foundation’s report concludes that “It would be unwise for lawmakers to use government-set
pricing under the threat of steep excise tax penalties as a way to pay for reconciliation or address
prescription drug prices. It would come at the cost of R&D, innovation, and the resulting improvements
in health outcomes.”

Source: https://taxfoundation.org/hr3-prescription-drug-bill-innovation/

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