October 15, 2019

Preliminary analysis predicts Pelosi's drug pricing bill could save $345B over 7 years

Daily Briefing

    House Speaker Nancy Pelosi's (D-Calif.) bill (HR 3) aiming to reduce prescription drug prices in the United States would save Medicare $345 billion from 2023 to 2029, but drugmakers could bring fewer new drugs to the market, according to a preliminary analysis by the Congressional Budget Office (CBO) released Friday.

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    Bill details

    The bill includes several provisions intended to lower U.S. drug prices. For instance, the bill would allow the HHS secretary each year to negotiate prices for between 25 and 250 high-cost drugs that lack generic or biosimilar competition on the market. The bill would establish a drug price ceiling for the negotiations based on the prices paid for the drugs in other countries—which is somewhat similar to a White House proposal that would tie payments for drugs covered by Medicare Part B to certain international prices.

    Pharmaceutical companies that refuse to negotiate prices with the department would face a 65% tax on the drug's annual gross sales from the previous year. That penalty would increase by 10 percentage points for every quarter that a deal remains unstruck, with the penalty maxing out at 95%. If a drugmaker negotiates a price with HHS but then overcharges Medicare or does not provide other payers the negotiated price, HHS could levy a civil penalty equivalent to 10 times the difference between the negotiated price and the offered price.

    The bill also would set limits for prescription drug price increases and would create an out-of-pocket maximum of $2,000 for prescription drugs purchased through Medicare Part D.

    CBO estimates bill would save Medicare $345B

    CBO in a letter sent Friday to House Energy and Commerce Committee Chair Frank Pallone (D-N.J.) wrote that its preliminary analysis of the bill showed that, as introduced, the bill's provisions related to price negotiations and ceilings would lower direct federal spending for Medicare by an estimated $345 billion from 2023 to 2029. CBO wrote that setting price ceilings for drugs on the U.S. market that are sold internationally would generate the most savings of those provisions.

    But CBO also warned that the provisions could affect access to care in the United States.

    CBO predicted that the lower prices generated under the bill "would immediately lower current and expected future revenues for drug manufacturers, change manufacturers' incentives, and have broad effects on the drug market." For instance, CBO wrote, "A manufacturer that was dissatisfied with a negotiation could pull a drug out of the U.S. market entirely, though CBO expects that would be unlikely for drugs already being sold in the United States." Drugmakers also could set higher prices for their drugs at the outset, CBO wrote.

    CBO projected that, in the near-term, the lower prices generated under the bill would lead to increased use of prescription drugs in the United States which could "improve people's health."

    However, CBO predicted that, in the longer-term, the consequential reductions in drugmakers' revenues could lead the companies to spend less on research and development, and therefore lower the number of new drugs introduced in the market. CBO estimated "that a reduction in revenues of $0.5 trillion to $1 trillion would lead to a reduction of approximately eight to 15 new drugs coming to market over the next 10 years." According to Vox, CBO expects 300 new drugs to be introduced to the market over the same 10 years, meaning the overall quantity would not significantly fall. But it remains unclear if the drugs not coming to market would be new, innovative treatments or modest updates to existing products, Vox reports. CBO wrote, "The overall effect on the health of families in the United States that would stem from increased use of prescription drugs but decreased availability of new drugs is unclear."

    CBO also predicted that the provisions could drive up prices and affect access to care in other countries. CBO wrote that manufacturers might not choose to introduce some new drugs in other countries as a result of the bill, or introduce drugs only in countries in which the companies "can sell at sufficiently high prices." Further, CBO wrote that drugmakers eventually might develop "mechanisms by which they can charge relatively high prices in other countries to avoid feedback that lowers U.S. prices while providing other forms of compensation that effectively reduce the net price of drugs in other countries."

    CBO wrote that it will continue to analyze the bill's potential effects, but added that it expects the bill also could result in lower premiums in the commercial health insurance market and higher federal revenues.

    Reaction

    Pallone, House Ways and Means Committee Chair Richard Neal (D-Mass.), and House Education and Labor Committee Chair Bobby Scott (D-Va.) in a joint statement said CBO's preliminary analysis "proves" the bill "will effectively rein in the soaring cost of prescription drugs and level the playing field for American patients" by "sav[ing] consumers money" and "provid[ing] tremendous savings to American taxpayers."

    However, Rep. Kevin Brady (R-Texas), the ranking member on the House Ways and Means Committee, said the analysis shows the bill would "hurt the development of future cures and damage American innovation" (Sullivan, The Hill, 10/11; Armstrong, Bloomberg, 10/11; Leonard, Washington Examiner, 10/11; Scott, Vox, 10/14; CBO letter, 10/11).

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