CBO, CMS Say Pelosi Drug Pricing Plan Will Reduce Spending, but Long-term Impact Unclear

No matter which piece of a Congressional Budget Office (CBO) report or a similar one from CMS actuary that observers seize on, both documents indicate that HR 3, the Lower Drug Costs Now Act of 2019, would save federal spending and improve health, at least in the short term, and also have a dramatic impact on the prescription drug industry.
Allison Inserro
October 14, 2019
Will the drug pricing plan put forth by House Democrats, led by Speaker Nancy Pelosi, D-California, save Medicare $345 billion in drug costs, or lead to a loss of future research and development for new drugs?

No matter which piece of a Congressional Budget Office (CBO) report or a similar one from CMS actuary that observers seize on, both documents indicate that HR 3, the Lower Drug Costs Now Act of 2019, would save federal spending and improve health, at least in the short term, and also have a dramatic impact on the prescription drug industry. 

Both reports were released on Friday.

The CBO estimates savings from Title I of the bill to Medicare of $345 billion on federal direct spending and revenues related to Part D between 2023 and 2029.

CBO is working on analyses of the rest of the bill, which would give the HHS secretary the power to annually negotiate prices for up to 250 of the most costly drugs that lack a generic or biosimilar competitor, including those in both Part D and Part B.

“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,” the CBO report says. A manufacturer that was dissatisfied with a negotiation could pull a drug out of the US market entirely, though CBO expects that would be unlikely for drugs already being sold in the United States. "Manufacturers would initially set list prices of some new drugs in the US higher than under existing law, although the net prices paid by consumers over time could be lower in many such cases," adds the report.

The bill, which has already had a hearing in a House Energy and Commerce (E&C) subcommittee, sets maximum prices determined through a blend of international prices that must not exceed 1.2 times the average price in Australia, Canada, France, Germany, Japan, and the United Kingdom.

In addition, HHS will assign penalties to drug companies that refuse to negotiate, starting at 65% of sales for the drug at issue and rising to 95%.

The plan would also cap what seniors pay out of pocket for their medications to $2000 a year, and it would require drug makers to pay rebates to Medicare if they hike their prices beyond the increase in inflation.

The CBO says it expects the following if the bill is enacted: drug prices in foreign countries would rise, and some new drugs may not be sold in other countries at all, or would be sold in a limited quantity, only if drug makers could sell at a “sufficiently high” price. In addition, drug makers might enact “mechanisms by which they can charge relatively high prices in other countries to avoid feedback that lowers US prices while providing other forms of compensation that effectively reduce the net price of drugs in other countries. Those international effects would lessen the effectiveness of Title I in reducing the level and growth of drug prices.”

In the short term, CBO expects population health to improve due to lower drug prices. In the long term, however, CBO said the picture is less clear; it said an early estimate of drug maker revenues sees a reduction of $0.5 trillion to $1 trillion, leading to 8 to 15 fewer drugs reaching the market in the coming decade.

The CMS estimate looks at both Title I and Title II of the bill between 2020 and 2029. Its estimate of Title I says the estimated impacts include a decrease in overall spending of $481 billion, including $158 billion in household spending, $237 billion in federal spending, $39 billion of spending by states, and $46 billion in spending by private businesses.

Drug makers will probably pivot in response to negotiated price changes, the CMS report said, by either obscuring or increasing international prices by “persuading other countries to accept higher list prices accompanied by additional rebates or by otherwise establishing complicated payment arrangements that could mask the ultimate price of a drug paid by a foreign country.” These arrangements already exist, the report says.

Beneficiaries would save $113.2 billion over 10 years in Medicare Part D, and $15.3 billion in Part B.

The Hill reported Monday that Democrats and Republicans were quick to jump on different aspects of the CBO report, and said that House leadership hopes to bring it to a vote by the end of this month.

House Democratic leaders say the CBO analysis shows the “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.” The joint statement was released by House E&C Chairman, Frank Pallone, Jr., D-New Jersey, Ways and Means Chairman Richard E. Neal, D-Massachusetts, and Education and Labor Chairman Bobby Scott, D-Virginia.

Greg Walden, R-Oregon, the ranking E&C leader, calls the CBO score “rushed” and says there are other ways to lower the cost of prescription drugs. “We can do that by passing legislation already agreed to by Republicans and Democrats—legislation that could become law and save people money at the counter,” he said, referring to a bipartisan proposal to reform Part D.

 

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