A lot of U.S. lawmakers are seeing dollar signs – 345 billion of them, to be exact. That's how much the Congressional Budget Office (CBO) is estimating could be saved in direct federal spending on Medicare Part D prescription drugs from 2023 through 2029 if H.R. 3, the Lower Drug Costs Now Act, was passed.
The preliminary estimate is just for title I of the bill, which would require the Health and Human Services secretary to directly negotiate each year up to 250 of the costliest Part B and D drugs that have no competition, using a ceiling of 120% of an average international market price. Manufacturers that failed to negotiate would face an escalating excise tax on gross sales – starting at 65% and increasing by 10% every quarter the manufacturer is out of compliance, to a maximum of 95%. Since the excise tax would not be deductible from income tax, manufacturers would lose money if they didn't accept the government's price, CBO noted. (See BioWorld, Sept. 20, 2019.)
"The lower prices 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," CBO said Friday in a letter to House Energy and Commerce Chair Frank Pallone (D-N.J.), who had requested the estimate.
Some of those effects might not be positive, especially for other countries, CBO said. If the bill was enacted, it likely "would affect prescription drug prices in other countries, with foreign prices expected to rise in response to the link between those prices and prices in the U.S.," according to the preliminary estimate.
Since the U.S. price would depend on the international price, the CBO predicted some drug companies would choose not to introduce new drugs in other countries or would restrict their launch to a limited set of countries where they could sell the product at sufficiently high prices.
"Over time, drug manufacturers might put in place 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," the CBO said. "Those international effects would lessen the effectiveness of title I in reducing the level and growth of [U.S.] drug prices."
Negative U.S. impact
The legislation also could have some negative impacts in the U.S. For instance, the CBO said it expects manufacturers would launch new-to-the-world drugs in the U.S. with even higher list prices than what they have now. With no international pricing as a ceiling, a manufacturer could price new drugs higher to mitigate the lower prices of its other drugs that are sold elsewhere.
Not all the effects of H.R. 3 would be financial. "The bill would affect the use and availability of drugs over time," according to the estimate. "In the short term, lower [U.S.] prices would increase use of drugs and improve people's health. In the longer term, CBO estimates that the reduction in manufacturers' revenues from title I would result in lower spending on research and development and thus reduce the introduction of new drugs."
CBO said its "preliminary estimate is 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." While that may seem like a small price to pay given the FDA's average approval of 30 new drugs a year, it could mean the difference between life and death for patients who would be deprived of a treatment or cure because of R&D reductions.
The CBO noted that its preliminary estimate is subject to considerable uncertainties. Actual savings, costs and impacts would depend on how H.R. 3 would be implemented if it were signed into law, what other countries would do and how industry responds. And there's a strong likelihood that such a law would be challenged in court, CBO said.
Ignoring the caveats about the uncertainties of the savings and the impacts of the bill, Democratic leaders in the House embraced the preliminary estimate as if it were a sure thing. "The CBO analysis confirms that H.R. 3 lives up to its name of lowering prescription drug costs for the American people," Reps. Pallone, Richard Neal (D-Mass.) and Bobby Scott (D-Va.) said in a joint statement.
"For too long, American families have been price gouged at the pharmacy counter, while consumers in other countries pay significantly less for the same drugs. This initial analysis proves that H.R. 3 will effectively rein in the soaring cost of prescription drugs and level the playing field for American patients. Not only will H.R. 3 save consumers money, it will also provide tremendous savings to American taxpayers," they continued.
Although Republican lawmakers also have been clamoring for lower drug prices, the CBO's estimate isn't enough to get them to sign on to H.R. 3, which was crafted behind the closed doors of House Speaker Nancy Pelosi's (D-Calif.) offices with no Republican input. Without Republican support, the bill has little chance of becoming law, but it could be used as campaign fodder.
Rep. Greg Walden (R-Ore.), ranking member of the House Energy and Commerce Committee, slammed what he described as a "rushed partial [CBO] score for a partisan Pelosi plan." Rather than jamming through a drug pricing scheme and "moving forward with less than a full picture to tip the scale," Walden said House Democrats should pass legislation already agreed to by both parties – "legislation that could become law and save people money at the [pharmacy] counter."
Sen. Chuck Grassley (R-Iowa), chair of the Senate Finance Committee, also called for bipartisan solutions. "Lowering costs for patients and taxpayers while protecting American medical innovation should be the goal," he said. He noted that S. 2543, the Prescription Drug Pricing Reduction Act, which he drafted with Sen. Ron Wyden (D-Ore.), would save taxpayers more than $100 billion and save beneficiaries more than $30 billion in out-of-pocket costs. In July, the Finance Committee sent the bill to the Senate floor on a bipartisan 19-9 vote. (See BioWorld, July 26, 2019.)
While the Pharmaceutical Research and Manufacturers of America (PhRMA) takes issue with both the Senate and House bills, it said the "unprecedented" H.R. 3 would be the most damaging to future innovation. In setting drug prices for both the private and public market, imposing a retroactive inflationary rebate on price increases and redesigning Medicare Part D, "Pelosi's plan puts the pipeline for future cures and treatments at risk," according to the industry group.
PhRMA said the bill would result in a $1 trillion-plus hit on biopharma innovators over 10 years, a loss of about 1 million U.S. jobs, including more than 100,000 jobs in Pelosi's home state of California, and "the loss of hope for millions of patients."
Rather than taking such "extreme" measures, PhRMA urged Congress to focus on market-based solutions that would improve the affordability of drugs, fix distorted market incentives, shift toward paying for value and increase competition.