The 'pill penalty' that's worsening American health

One solution is to end the pill penalty by equalizing the exemption period for small-molecule drugs and biologics.

While the Inflation Reduction Act, signed in August 2022, focuses mainly on subsidies to invest in clean energy projects, it also lets the government put price controls on certain advanced medicines for Medicare patients.

For no good reason, the act discriminates against a class of drugs that are easier to take, don’t require trips to the doctor or hospital and provide particular benefits to disadvantaged patients. You’re certainly familiar with this kind of drug. It’s called a pill.

Under the Inflation Reduction Act, the government can “negotiate” (a euphemism for “set” since the government is the lone buyer) the prices of small-molecule drugs — that is, pills, tablets and capsules — as soon as nine years after Food & Drug Administration has approved them.

But for biological products, or biologics, which are large-molecule drugs, typically administered as injections or intravenous infusions in hospitals and physicians’ offices, the exemption period is 13 years.

The gap — call it the “pill penalty” — is already having a big effect. By allowing four extra years to make back the $2 billion average cost of inventing a drug and bringing it to market, the government has made a biologic a much better place for risk capital than a pill. 

Eli Lilly CEO Dave Ricks said the difference “is about 50 or 60 percent of the value.” He added, "In 10 years, we'll have far fewer small molecules being developed than we do today." The company halted efforts for a small-molecule blood cancer drug because it "couldn't make the math work."

Limiting the patent life of small-molecule drugs will produce a huge drop in R&D spending and lead to “79 fewer” such medicines being developed, resulting in “116.0 million life years lost over the next 20 years,” according to an August study by Tomas Philipson, former acting chairman of the Council of Economic Advisers and five colleagues at the University of Chicago. 

The pill penalty also discourages the extensive R&D that occurs after a drug has been approved, leading to new indications (that is, treatments for different conditions) for the same medicine. Three out of five small-molecule cancer medicines were awarded at least one new indication after their initial approval.

A survey by PhRMA, the drug manufacturers’ trade association, found that 63 percent of member companies expect to shift their R&D focus away from small-molecule medicines. 

Why should we care? Discouraging the discovery of new medicines in pill form will harm the health of all Americans but, as the Chicago study notes, especially hurt the people the Inflation Reduction Act is supposed to help, including marginalized patients who have a more difficult time getting infusions outside their homes. 

“Many of these people are unable to travel for routine care,” Amy Hinojosa, president of MANA, a National Latina Organization, wrote in El Diario. “The cost of treatment doesn’t stop at the cost of medication.” 

Kevin Kimble, executive director of the Southern Christian Leadership Policy Institute, points out that “Black Americans are disproportionately likely to live with certain diseases for which easy-to-take pills are the holy grail of care.”

For example, Blacks and Hispanics account for 70 percent of new HIV infections in the United States. One of the great breakthroughs in treating that condition, once a death sentence, was the single-tablet regimen. It might never have occurred if the pill penalty had been in place. 

Small-molecule therapies have a special ability to target the processes within cells that allow cancer tumors to grow and spread. Three of the five most popular cancer medications are delivered as capsules: Revlimid for multiple myeloma, Imbruvica for leukemia and Ibrance for breast cancer. 

Pills are also critical in treating infectious diseases like Hepatitis C, neurological conditions and COVID-19. More than 30 different small-molecule antibiotics are included in the World Health Organization’s list of essential medicines. At a time when antimicrobial resistance is considered a global crisis, the last thing we should do is penalize the development of more of these easy-to-store pills.

But that is what’s happening. The Biden administration announced late last year that it had selected the first 10 drugs for price controls. Seven of them are small-molecule therapies.

One solution is to end the pill penalty by equalizing the exemption period for small-molecule drugs and biologics. That’s the aim of a bill introduced on Jan. 31 by Greg Murphy (R-N.C.), Don Davis (D-N.C) and Brett Guthrie (R-Ky.) called the Ensuring Pathways to Innovative Cures, or EPIC Act.

Of course, the worst unintended consequence of the Inflation Reduction Act-imposed price controls is their devastating impact on the development of new therapies in general. But right now, Congress can go a long way toward making Americans healthier by simply ending the pill penalty.

James K. Glassman, formerly a senior fellow at the American Enterprise Institute, served as under secretary of State in 2008 and 2009. He advises health care companies and nonprofits.