The prescription drug bill released yesterday by House Speaker Nancy Pelosi is “an unprecedented exercise of raw government power,” according to Galen Senior Fellow Doug Badger.
The bill would require pharmaceutical companies to “negotiate” prices with the federal government for up to 250 drugs that don’t have generic or biosimilar competition. If they refuse to comply with the government-set rates, they could face a 95% penalty tax on gross sales of each drug—a new tax that would flow to federal coffers and not to reducing drug prices for seniors. The companies would be required to offer the “negotiated” rates to commercial plans.
“It’s one thing for the government to dictate the prices it pays in programs it finances. It is quite another for the government to impose a price for a product’s private sales,” Badger writes in The Daily Signal.
“It’s also very difficult to imagine President Trump supporting a plan which imposes a 95% tax on prescription drugs,” Ryan Ellis, president of the Center for a Free Economy, writes in a Washington Examiner op-ed. “His central policy goal is bringing drug prices down.”
The damage the Pelosi proposal would do to creation of new medicines and even availability in the U.S. of existing medicines would be massive. It would “limit Americans’ access to lifesaving medicines and impede the development of new treatments for deadly and debilitating diseases,” Badger wrote on Tuesday, based upon an earlier leaked version of the Pelosi plan. It would “double down on the failures of existing government policies that have contributed to higher health care costs.”
The maximum price of a drug would be set by statute as 120% of the average of price of the drug in six countries: Australia, Canada, France, Germany, Japan, and the United Kingdom.
Badger analyzed the impact of price controls on access in these countries to new medicines introduced between 2011 and 2018. In a paper for the Galen Institute, he finds that “89% are available to Americans, compared with 62% in Germany and 60% in the United Kingdom. One-half or more of these new therapies are unavailable to Australian, Canadian, French, and Japanese patients.”
For Medicare drug programs, if a drug price rises faster than inflation (retroactively to 2016!), the manufacturer faces a 100% tax on those revenues above inflation.
“This isn’t negotiation,” and “it destroys innovation incentives,” American Action Forum President Doug Holtz-Eakin writes.
What on earth would be the incentive for companies to continue to invest billions of dollars to develop new medicines?
We actually know what would happen if the Pelosi scheme were to be implemented: “In 1986, European firms led the U.S. in spending on pharmaceutical research and development by 24%. After the imposition of price control regimes, they fell behind. By 2015, they lagged the U.S. by 40%,” Badger writes. “If the U.S. emulates the European price-setting example, innovation almost certainly will suffer.”
The United States is the world leader in pharmaceutical research, with at least 30 important new drugs released each year. The rest of the world now relies on us for this progress—creating a wealth of high paying jobs in the process.
This is a power and money grab that will do nothing to lower the costs of prescription drugs and will seriously limit access to existing medicines and dry up resources for companies to invest in better treatments and cures for tomorrow.
“Among the things worth preserving in the U.S. are innovations that save lives and that cure or ameliorate chronic diseases,” Badger concludes. “Governments do not produce those advances; markets do.
“Policymakers face a choice between consumer-centered reform that advances innovation and saves lives and government policies that restrict treatment options for patients.
“The Pelosi drug-pricing bill makes the wrong choice.”