Democratic legislation to lower prescription drug prices could also result in fewer drugs being produced each year.
“We all know how outrageously expensive drugs are in America,” President Joe Biden said in his address to Congress in April, in which he asked for legislation to have the government intervene more directly in prescription pricing.
In late April, House Democrats reintroduced H.R. 3, a bill that passed the House in late 2019. H.R. 3 would require drug companies to negotiate prices with the Department of Health and Human Services. The bill targets drugs that have little competition and account for a large amount of spending. Reducing the cost of prescription drugs is also a top goal for Senate Democrats.
“There’s been a lot of tracking of this over time, and year over year, hundreds of drugs have seen their prices increased,” said Lovisa Gustafsson, vice president of controlling healthcare costs at the liberal Commonwealth Fund. “It’s creating a real affordability issue for patients.”
Research from the Kaiser Family Foundation shows that half of the drugs covered under Medicare Part D had price increases higher than the rate of inflation from 2018-2019. A KFF survey from 2019 found that nearly one in four people taking prescription drugs said affording their medicine was difficult.
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H.R. 3 would mandate that the negotiated price of a drug not exceed 120% of the average price of that drug in Australia, Canada, France, Germany, Japan, and the United Kingdom. Drug prices tend to be lower in those countries because governments block drugs from their markets if the manufacturer does not agree to a government negotiated price. The negotiated price would be offered not only to government programs such as Medicare but also to private insurers.
Critics refer to it as a price control.
“It’s a price that is arbitrarily dictated by the prices in other nations,” said Chris Pope, a senior fellow at the conservative Manhattan Institute.
But liberals see it as necessary to reduce drug prices.
“There needs to be a stick to get pharmaceutical companies to the negotiating table. Otherwise, prices will never go down,” said Maura Calsyn, managing director of health policy at the liberal Center for American Process.
Price controls would mean lower revenues for the pharmaceutical industry, and lower revenues would likely result in less investment in drug research and design. That, in turn, would mean fewer new drugs being produced.
The extent to which that would happen is a matter of conjecture. The Congressional Budget Office estimated in 2019 that the savings to Medicare under H.R. 3, and presumably the cost to the pharmaceutical industry, would be almost $450 billion over 10 years. The number of new drugs produced would decline by eight to 15 over that same period.
Republicans have highlighted the risk of lost drugs in their efforts to stop the Democratic legislation. In late 2019, Rep. Kevin Brady of Texas, the top Republican on the Ways and Means Committee, said of H.R. 3, “At its heart is a dangerous trade-off for the American people: lower drug prices in the short-term but fewer lifesaving cures and treatments in the long term.”
The California Life Sciences Association, an industry group, commissioned a study showing that pharmaceutical industry revenue would decline by nearly $1 trillion over 10 years, and 61 fewer new drugs would come to market.
But some argue that the federal government could pick up some of the slack.
“The government does fund a lot of drug research through the National Institutes of Health, and that is not going away,” said Gustafsson. “In fact, H.R. 3 gives that funding boost.”
Indeed, about 30% of annual drug research and development spending comes from federal taxpayers, and H.R. 3 boosts that by more than $7 billion over 10 years.
Oliver Rocroi, vice president of federal government relations and external affairs at the California Life Sciences Association, said that was not sufficient.
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“While the NIH does some early research, it is not equipped to bring a drug from early research, spin it out into a company, do clinical trials, and all that other good stuff,” said Rocroi. “If H.R. 3 went into effect and private R&D declined, the government would not pick up the slack.”
