December 12, 2019

CBO: Pelosi's Rx drug pricing bill would save feds a net $5B—and slow down drug development

Daily Briefing

    A provision in House Speaker Nancy Pelosi's (D-Calif.) drug pricing bill (HR 3) that would allow the HHS secretary to negotiate prescription drug prices would save the federal government about $456 billion from 2020-2029, but the bill would raise federal spending in other areas, according a Congressional Budget Office (CBO) report released Tuesday.

    Infographic: 5 ways to control the flow of drug expenditures

    Bill details

    Pelosi's bill, called the Elijah E. Cummings Lower Drug Costs Now Act, 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 high-cost drugs that lack two generic or biosimilar competitors on the market.

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    Under the version of the bill analyzed by CBO, the bill would have allowed the HHS secretary to negotiate prices for a minimum of 35 and a maximum of 250 high-cost drugs each year. However, under a deal Pelosi reached this week with Reps. Pramila Jayapal (D-Wash.) and Mark Pocan (D-Wis.), co-chairs of the Congressional Progressive Caucus, the bill now would allow the HHS secretary to negotiate prices for a minimum of 50 and a maximum of 250 high-cost drugs each year.

    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 HHS 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 on prescription drug price increases. The bill as scored by CBO would require pharmaceutical companies to either lower the prices of drugs covered by Medicare Parts B and D if the drugs have experienced price hikes at rates above inflation since 2016, or pay a rebate worth the entire difference in the price above inflation to the Department of the Treasury. However, under the deal Pelosi reached this week with Jayapal and Pocan, the bill's limits on drug price hikes also would apply to employer-sponsored health plans.

    Further, the bill would create an out-of-pocket maximum of $2,000 for prescription drugs covered by Medicare Part D.

    In addition, the bill would require that the copayment for a drug under participating employer-sponsored health plans not exceed the negotiated price, require federal investigators to examine the effects of price negotiation and extending the inflation cap to employer-sponsored plans, and ensure data collected under the bill is not duplicative.

    The bill also would increase Medicare Part B reimbursements for biosimilars for five years. Under current rules, Medicare Part B reimburses providers a 6% markup of a biosimilar's average sales price, but the bill would increase that rate to an 8% markup of the drug's average sales price.

    The bill also includes new price transparency requirements for drugmakers and expanded eligibility for the low-income subsidies offered in Part D. In addition, the bill would cap annual out-of-pocket costs for Medicare beneficiaries and alter the percentages of beneficiaries' drug costs that insurers and drugmakers must cover. The bill also would add dental, hearing, and vision coverage to Medicare benefits.

    CBO releases final report on Pelosi's bill

    CBO in October released a preliminary analysis of Pelosi's bill, and projected that the measure would save Medicare $345 billion from 2023 to 2029, but could cause drugmakers to bring fewer new drugs to the market. However, CBO's preliminary analysis was based only on portions of Pelosi's bill.

    CBO on Tuesday released a final report on Pelosi's bill that includes all of the provisions that were included in the measure before Pelosi this week reached the new deal with Jayapal and Pocan. CBO in the report noted that it included some modifications to the bill in its analysis, such as changes to some of the provisions' implementation dates.

    CBO in the final report estimated that the bill's provisions related to price negotiation—before the tweaks made this week—would lower direct federal spending by about $456 billion from 2020-2029.

    But CBO estimated that some of the bill's other provisions would raise federal spending. For example, CBO projected that the bill's addition of dental, hearing, and vision coverage to Medicare benefits would increase federal spending by approximately $358 billion from 2020-2029. According to CBO, the federal government would spend:

    • Nearly $238 billion on dental care;
    • $89 billion on hearing services; and
    • $30 billion on vision care.

    CBO also estimated that the bill's changes to the shares of drug costs that insurers and drugmakers must cover for Medicare beneficiaries, as well as its caps on annual drug costs for Medicare beneficiaries, would increase federal spending by $9 billion.

    According to Inside Health Policy, CBO's predictions mean that all but about $5 billion of the $456 billion in savings generated by the bill would be absorbed by the new Medicare benefits and other investments called for under the legislation.

    CBO also predicted that the bill could lead drug companies to spend less on research and development, and therefore lower the number of new drugs introduced in the market over time. CBO estimated that the bill would result in drugmakers bringing eight fewer drugs to market over 2020-2029—down from the 30 new drugs FDA approves annually on average under the current law. According to CBO, drugmakers would bring 30 fewer drugs to market from 2030-2039. CBO did not predict which drugs companies would forgo developing or the effects that bringing fewer new drugs to market could have on public health.

    Further, although the bill would increase NIH funding for biomedical research, CBO estimated that the increased spending on such research would take more than two decades to have an impact on drug interventions.

    However, CBO noted that its estimates "are uncertain." For example, CBO wrote, "The price negotiation process could be implemented in ways that differ from CBO's interpretation, and manufacturers might respond to it differently from what CBO has projected."

    Bill to get a vote

    The House is scheduled to vote on the bill Thursday. However, even if House lawmakers approve the measure, the Republican-controlled Senate likely will not consider it, The Hill reports (Wilkerson, Inside Health Policy, 12/10 [subscription required]; Sullivan, The Hill, 12/10; Hellmann, The Hill, 12/10; Owens, "Vitals," Axios, 12/11; CBO report, 12/10).

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