Home Gray box 3 Legislation Could Lower Drug Prices, But At What Cost?

Legislation Could Lower Drug Prices, But At What Cost?

A proposal by House Speaker Nancy Pelosi to lower prescription drug costs by allowing the government to negotiate with pharmaceutical companies is expected to come to a vote by the House of Representatives in coming days. Meanwhile, a separate plan to accomplish the same end, but by different means, has been introduced to the Senate by Republican Chuck Grassley, who serves as finance committee chairman. Grassley’s plan would involve government review of drug pricing and support for generic alternatives.

Pelosi’s bill has made it through three committees and is now up for a vote on the House Floor. As of press time on October 31, Grassley’s bill had advanced through one committee in the Senate.

While some health care organizations, like the American Hospital Association, have come out in support of Pelosi’s plan, it has been met with resistance from business interests. Pharmaceutical Research and Manufacturers of America, an advocacy group representing many major drug companies, opposes both Pelosi’s and Grassley’s proposals. The U.S. Chamber of Commerce opposes Pelosi’s bill, the Lower Drug Costs Now Act (HR 3), based in part on initial findings by the Congressional Budget Office that it would result in eight to 15 fewer new drugs being brought to market over the next decade, thereby stifling innovation.

In a letter to congress, the U.S. Chamber argued that the bill was really an attempt to create government price setting measures for drugs, rather than a means to enable price negotiations.  The chamber pointed out that pharmaceutical innovation in European countries diminished after government price controls were put in place in 1986. “Today, Europe trails the U.S. in research investment by nearly 40%, and Europeans have access to fewer treatments than Americans overall,” the chamber letter claimed.

The CBO’s analysis estimated that HR 3 would result in hefty government savings: the report found federal direct spending on Medicare would be reduced by $345 billion between 2023 and 2029. The CBO estimated that the bill would cost the pharmaceutical industry between $0.5 trillion and $1 trillion over the next decade.

HR 3 would enable the Centers for Medicaid & Medicare Services (CMS) to negotiate drug prices for the most expensive medicines directly with pharmaceutical companies, with both Medicare/Medicaid patients and privately insured citizens benefiting from resulting price reductions. Current law prohibits CMS from such negotiations.

HR 3 specifically directs CMS to negotiate prices for insulin and “at least 25 single source, brand name drugs that do not have generic competition and that are among the 125 drugs that account for the greatest national spending or the 125 drugs that account for the greatest spending under the Medicare prescription drug benefit and Medicare Advantage,” according to the bill’s summary.

In order to prevent drug companies from “ripping off Americans” by charging less for the same drugs in other countries, as phrased on Pelosi’s webpage dedicated to the bill, HR 3 requires that the negotiated maximum prices for these medications must not exceed 120% of the average cost in Australia, Canada, France, Germany, Japan and the United Kingdom. If that information is not available, such as when a drug has not been introduced in those markets, the drug may not exceed 85% of the average manufacturer price in the U.S.

Grassley’s bill, the Prescription Drug Relief Act of 2019 (S 102), is not as far-reaching. It would require the Department of Health and Human Services to review, at least annually, excessive pricing of brand name drugs, and to review prices upon petition. Drugs found to be excessively priced would have their government-granted exclusivity rights voided (i.e., protection against generic competition), and non-exclusive licenses for the drug would be issued. Additionally, reviews for applications of corresponding generic drugs or similar products would be expedited. Excessive pricing would be defined as exceeding the median price of the drug in Canada, the U.K., Germany, France and Japan.

The Congressional Budget Office found that S 102 would save Medicare $85 billion between 2019 and 2029. Beneficiaries would save $27 billion in out-of-pocket costs during the same period, per the CBO.

While organizations that represent pharmaceutical business interests tend to take issue with these legislative proposals, there are many health care and labor organizations, nonprofits and companies that support HR 3 and S 102, including: the American Society of Hospital Pharmacists; the American Federations of State, County and Municipal Employees; the American Association of Retired Persons and others.

Sharon Jhawar, chief pharmacy officer for SCAN Health Plan, a Long Beach-based nonprofit provider of Medicare Advantage Plans, told the Business Journal that HR 3 would have a beneficial impact. “There are several proposals out about reforming Part D [the drug coverage element of Medicare] and instituting a maximum out of pocket – particularly, Nancy Pelosi’s proposed Lower Drug Costs Now Act,” she stated. “Title 3 [of the bill] . . . would provide seniors with more predictable and maximum out of pocket costs on prescription medications in a given year, which would be better compared to the coverage gap, or donut hole, some seniors face today.”

Jhawar noted that HR 3 would establish an out of pocket maximum of $2,000 for Medicare beneficiaries, and eliminate the coverage gap under Part D. “If signed into legislation, there will be a positive impact for the senior community as their yearly out-of-pocket expenses for drugs will be capped,” she said. “By setting a limit of out-of-pocket costs, seniors are provided transparency into how much they will spend in one year, as well as their copays – if that is how their plan is set up – resulting in the ability to plan finances accordingly for a population that is largely on a fixed income.”

Rep. Alan Lowenthal, who represents Long Beach and parts of Western Orange County in the House, supports both bills, but prefers HR 3. Asked if the HR 3 is the best way forward to addressing rising prescription drug costs, Lowenthal answered affirmatively. “Absolutely, once passed, HR 3 will be the most important health care legislation to come out of the House in nearly a decade and is a critical step toward lowering drug costs and providing relief for the many Americans who currently struggle to pay for their medication,” he said in a response e-mailed to the Business Journal.

“By allowing Medicare to negotiate the cost of the most expensive drugs, place an out of pocket cap, and implement an excise tax on companies who refuse to negotiate, the costs of prescription medications will go down not only for those on Medicare but for all Americans,” Lowenthal continued. “There are things that can be done to strengthen H.R. 3 and much more that can be done to help bring down prescription drug and health care costs, but this is a great start.”

Lowenthal noted that Americans pay more for prescription drugs than other advanced, industrialized nations. “Most of these same drugs are available for much less in other advanced industrialized countries . . . and the drug manufacturers still make a profit in these countries. The difference is that these countries have structures in place, structures similar to that of HR 3, that don’t allow companies to take advantage of patients,” he said.

Asked how he would weigh the CBO’s risk estimate that eight to 15 fewer new drugs would be brought to market when it comes time for a House vote, Lowenthal stated that this represents just 2.5% of the overall number of new drugs entering the market. He also pointed to the CBO’s analysis, which noted that the Food and Drug Administration approves an average of 30 new drugs annually, suggesting that about 300 new drugs would be introduced over the course of the next decade.

Lowenthal continued, “The pharmaceutical industry spends far more on marketing and advertising than they do on research and development and they will continue to have a wide profit margin if HR 3 is enacted. I don’t see much cost there. The cost to everyday people and struggling families if HR 3 is not enacted is that they will continue to have to choose whether or not they will be able to afford drugs they need.”

Lowenthal pointed out that he often hears from constituents about the cost burdens of health care. “No one should have to opt out of necessary prescription drugs they need and deserve because they can’t afford it,” he said.

Regarding Grassley’s bill, Lowenthal said he was supportive of its out-of-pocket limit and penalties to firms that increase drug costs above the rate of inflation. “However,” he stipulated, “the whole effort falls far shorter than HR 3 and would have a less meaning full impact on the overall cost of drugs.”

HR 3 was being jockeyed around Congress in the final days of October, as progressives reportedly sought support for floor amendments that Pelosi reportedly did not agree with. As reported by The Hill and various other national publications, progressive Democrats were seeking to increase the minimum number of drugs to be negotiated. As of press time, the bill had not come to the floor for a vote.

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