CBO: Proposed Medicare pricing plan could curb drug development

A new drug development model released by the Congressional Budget Office (CBO) estimates a Medicare drug pricing bill like the one proposed by Democrats in the US House of Representatives could result in between 21 and 59 fewer drugs brought to market over the next three decades.
 
The Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3), introduced in the 116th Congress during the 2019-2020 legislative session, would require the Secretary of Health and Human Services to negotiate drug prices for insurers participating in Medicare Part D, cap drug costs at 120% of international prices, and “prioritize drugs to areas where the impact would be greatest.” A CBO working paper published in February 2021 estimated price reductions under H.R. 3 between 57% and 75%.
 
CBO’s simulation model found a similar policy to H.R. 3 would lower expected returns on drugs by 15% to 25%, resulting in 2 fewer drugs (0.5%) entering the market annually in the first decade of the policy being enacted, 23 fewer drugs in the second decade (5%), and 34 fewer drugs by the third decade (8%). The model allows for a wide variation in the number of drugs that can enter the market, with the middle two-thirds of simulations accounting for the range of between 21 and 59 fewer drugs entering the market after three decades.
 
In a statement following the publishing of the CBO report, Pharmaceutical Research and Manufacturers of America (PhRMA) president and CEO Stephen J. Ubl said the proposed policy “is further proof that patients with devastating disease could be denied access to medicines today and in the future.” The focus by policymakers, Ubl said, should be on “capping out-of-pocket costs in Part D, lowering cost sharing and spreading those costs over the calendar year, and making sure the savings negotiated with health plans are passed to patients.”
 
The report does not detail what impact fewer drugs coming to market would have on health outcomes. “CBO has estimated neither which types of drugs may be affected nor how the reduction in the number of new drugs will affect health outcomes,” the office wrote in the report. “In addition, the policy may lead to lower prices and increased usage for drugs already on the market. CBO has not determined the overall effect of the policy on health outcomes.”
 
A KFF Health Tracking Poll in May 2021 found most Americans agree the federal government should have the ability to negotiate drug prices. The consensus is seen across political lines, with 77% of Republicans, 89% of independents, and 96% of Democrats agreeing to the idea. However, “while majorities of the public continue favoring this proposal after hearing that people and the federal government could save money on their prescription drugs if this policy were implemented, majorities oppose this policy proposal when the public hears argument made by pharmaceutical companies that it could lead to less research and development for new drugs, or that access to newer prescriptions could be limited,” Ashley Kirzinger, Associate Director for the Public Opinion and Survey Research team at the Henry J. Kaiser Family Foundation, and colleagues wrote.
 
Rachel E. Sachs, Treiman Professor of Law at Washington University in St. Louis, emphasized in a recent Twitter thread that the CBO report is a model for any legislative proposal that impacts drug development. “It should be applied to proposals that would increase incentives, too,” she wrote.
 
In H.R. 3’s current iteration, over $10 billion is expected to be reinvested in the National Institutes of Health. “Recognizing that there is a point at which drug price reductions will translate into decreases in R&D investments, policymakers should consider whether portions of the savings from drug price reforms should be reinvested in biomedical research, to counteract the investment disincentive,” Sachs wrote in a recent research article published in the Journal of Health Politics, Policy and Law.
 
“But policymakers also should not simply either accept the pharmaceutical industry’s own arguments about the scale of their innovation disincentive or allow those arguments to prevent any drug price reform,” Sachs added. “There is not only uncertainty over the scale of the amount of innovation which would be limited by these bills, but also over the kind of innovation which would result.”
 
CBO