Lower Drug Costs Now

By Harry A. Waxman | Health Affairs

As Americans, we like to think of ourselves as number one in everything, but in some cases — health care costs prime among them — it’s a dubious distinction. The fact that we spend twice as much on health care as the average for wealthy industrialized countries while having the lowest life expectancy and the highest infant mortality rates is a national disgrace.

While fixing this toxic combination of skyrocketing costs and poor health outcomes is complicated to say the least, there is one simple, common sense solution to a big part of the problem that can be achieved right now. All it takes is a small dose of political courage.

That step is to lower drug costs now by empowering Medicare to negotiate prices with the pharmaceutical industry. This is exactly what H.R. 3 — the Lower Drug Costs Now Act, introduced by House Committee Chairmen Pallone, Neal, and Scott — will achieve.

SKYROCKETING PRICES

Currently, U.S. drug prices are, on average, 3.7 times higher than the combined average of 11 other similar countries, according to a just-released study of 79 single-source brand-name drugs by the House Ways & Means Committee. In some cases, individual drug prices were an astounding 67 times higher. And they keep rising at unprecedented speed. The list prices for more than 3,400 drugs increased by 17 percent from July 2018 to July 2019, and from 2011 to 2016, prescription drug spending in the U.S. grew at 2.5 times the inflation rate. It’s especially disturbing that insulin costs per patient, taking into account prices and cost-sharing, nearly doubled from 2012 to 2016.

Why do these appalling price disparities exist? The primary reason is that every other industrialized country negotiates drug prices with the pharmaceutical industry, using their purchasing power to save taxpayer and consumer dollars. The drug companies, by their own admission, still earn profits in these countries — just not exorbitant windfalls. There is no logical reason why current law prohibits Medicare from doing the same.

In fact, the Veterans Health Administration and the U.S. Department of Defense’s TRICARE program both negotiate the price of drugs — and they pay much less than Medicare Part B and Part D, too.

SAVINGS FROM NEGOTIATION

Passing the Lower Drug Costs Now Act will save the federal government at least $100 billion over 10 years. That’s based on the amount the Congressional Budget Office (CBO) estimates would be saved by a similar but weaker drug pricing bill, introduced by Senate Finance Committee Chairman Charles Grassley (R-Iowa), that has many of the same provisions as H.R. 3. Like H.R. 3, for example, the Senate bill includes a cap on out-of-pocket costs. However, unlike H.R. 3, the Senate Bill leaves out Medicare negotiation.

In fact, H.R. 3 will likely save far more as a result of including negotiation. The bill creates a maximum fair price for any negotiated drug based on an average international market price index to ensure that Americans don’t pay more than the residents of other countries. The House Ways & Means Committee found that the U.S. could save $49 billion annually on Medicare Part D alone by using average drug prices for other countries.

The savings will go far beyond savings to the federal budget and taxpayers. There is a provision in the bill that requires manufacturers to offer the negotiated price to group health plans and health insurance issuers as well. So all Americans, including those with private insurance, will save money because they will pay the Medicare-negotiated prices.

The Lower Drug Costs Now Act will also help Medicare enrollees directly by creating a new, $2,000 out-of-pocket limit on their prescription drug costs, assuring financial protection that seniors currently are not guaranteed in the program. Furthermore, some of the bill’s savings will be reinvested in innovation and the search for new breakthrough treatments and cures at the National Institutes of Health (NIH).

The pharmaceutical industry claims this legislation creates an obstacle or disincentive to bringing new, life-saving medicines to market. In fact, the industry itself spends more on advertising, marketing and stock buybacks than they it does on research and development. Drug manufacturers also benefit enormously from taxpayer-funded research, yet still get to pocket the profits themselves. Notably, NIH funding contributed to research associated with every one of the 210 new drugs approved between 2010 and 2016.  Moreover, H.R. 3’s use of the savings from lower drug prices to increase NIH’s research budget will arguably accelerate the development of innovative, life-saving drugs.

BUILDING ON DECADES OF PROGRESS

Passage of this legislation would mean a lot to me personally, as well. Over the course of my 40 years in Congress, I worked painstakingly to hold down prescription drug costs while creating incentives to encourage innovation. I was able to sponsor several pieces of legislation — the Hatch-Waxman Act, the Orphan Drug Act and the Affordable Care Act in particular — that increased access to prescription drugs for millions of Americans while balancing drug innovation with price competition. The Lower Drug Costs Now Act would take these gains a vital step further.

Unlike most issues in Washington, D.C., this has bipartisan support and the potential for achieving positive change. President Trump has long called for lowering prescription drug costs, even citing Medicare negotiation, and has indicated his willingness to support such legislation. While Big Pharma will furiously lobby to defeat these bills, when you have the speaker of the House and the president on the same side, there is no excuse for inaction.

There is simply no acceptable explanation for the fact that Americans spend seven times what the Japanese pay for prescription drugs. No reason why Americans pay nearly five times more for Humira, the best-selling prescription drug in the world, than the residents of other industrialized countries. The pharmaceutical marketplace in the U.S. is broken when it comes to brand-name drugs with long monopoly protection and it’s time we fix it.