Academic Study Finds Proposed NYS Executive Budget Could Decrease Quality of Care and Increase Health Care Costs

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Pharmaceutical Research and Manufacturers of America (PhRMA) and Union College economists release study on economic impact of Governor’s proposed surcharge on “high cost” drugs

Prescribe Real Solutions

In this case, the study finds that “consumers will bear the majority of the burden of the tax."

Today, the Pharmaceutical Research and Manufacturers of America’s (PhRMA) Prescribe Real Solutions campaign released a new study, which finds that consumers will “bear the majority of the burden” of proposed taxes on ‘high cost’ drugs.

The study, titled “Economic Impact of a Surcharge on ‘High Cost’ Drugs,” was authored by Lewis Davis, Ph.D. and Jia Gao, Ph.D. of Union College’s Department of Economics at the request of PhRMA. It investigates the potential economic response to the pending 2017-2018 Fiscal Year New York State (NYS) Executive Budget.

The academic analysis found that the proposed NYS executive budget could increase the prices of impacted drugs for insurers, decrease quality of patient care, create a costly regulatory structure and undermine future biopharmaceutical research.

According to the study, the proposed surcharge does not fully account for the impact a tax of this nature would have on consumers in the health care market. “While the language of the proposed law attempts to place the burden of the tax on drug manufacturers,” it states, “in practice market forces determine how the burden of the tax is shared between producers and consumers (page 2).” In this case, the study finds that “consumers will bear the majority of the burden of the tax (page 2).”

The proposed surcharge also disregards the current supply chain, in which insurers, distributors, pharmacy benefit managers and pharmacies, among other groups, play a role in determining consumer costs. With the proposal as written, each entity could potentially adjust pricing to pass the cost of the next tax onto consumers.

The study concludes that the surcharge could result in an overall decrease in quality of care and higher health care costs for patients. The authors note that insurance companies are likely to respond to increased costs by dropping coverage of impacted drugs, increasing policy premiums and passing additional costs onto consumers in the form of higher co-pays.

At the same time, the tax may deprive medical researchers of funds necessary for future innovations. The study found that the proposed surcharge fails to account for the critical role profitable drugs play in offsetting research and development (R&D) costs for less successful, but necessary, medicines. On average, only one in five approved drugs generate more in revenue than they cost to develop.

The study from Union College’s Department of Economics supports concerns previously voiced by the Prescribe Real Solutions campaign of New York Health Works and Pharmaceutical Research and Manufacturers of America (PhRMA). To read the full study, visit

To learn more about Prescribe Real Solutions, visit

About PhRMA
The Pharmaceutical Research and Manufacturers of America (PhRMA) represents the country’s leading innovative biopharmaceutical research companies, which are devoted to discovering and developing medicines that enable patients to live longer, healthier and more productive lives. Since 2000, PhRMA member companies have invested more than half a trillion dollars in the search for new treatments and cures, including an estimated $58.8 billion in 2015 alone.

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Alison Krawczyk
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