As total cost of care increasingly becomes a major issue in the United States, both market solutions like clinical pathways and government solutions such as drug pricing regulations are being proposed. Each solution has a unique way of assessing overall value of treatments and proposing mechanisms to lower cost. This article reviews a plan that is quickly moving forward in the House of Representatives.
Lowering prescription drug costs has become a rare bipartisan issue, as lawmakers on both sides of the aisle demand changes. Congress and President Trump are trying to pass drug pricing legislation before the end of the year prior to anticipated partisanship increases in the 2020 election year.
Pelosi’s Drug Plan
HR 3, which is also known as Pelosi’s plan, is quickly moving through the committee process in the House of Representatives and will likely be the first major bill to be voted on in Congress.1
The bill requires pharmaceutical companies to disclose to the government its prices and total sales to Australia, Canada, France, Germany, Japan, and the United Kingdom; manufacturers who do not comply would be penalized $75,000 per day. The average of these prices will be deemed the manufacturer’s “average international market price,” while the lowest price of any listed country will be called the “government’s target price.” The Department of Health and Human Services (HHS) would choose 25 brand-name drugs to start “negotiations” with, but that figure would increase to 30 in 2028 and 35 in 2033. 1
A pharmaceutical manufacturer then has three options:
- Accept the target price based on the lowest country price
- Negotiate with the government for a price up to a ceiling of 120% of the average international market price
- Pay an excise tax of 65% to 95% of sales
The manufacturer must offer the government a set price to both public and private payers or face a penalty of 1000% the difference in prices Private payers can negotiate further discounts for formulary placement and lower hurdles for utilization management.
For drugs that are not launched in the six reference countries, the government will get a 15% discount from the manufacturer’s price. A selected drug would no longer be subject to HHS negotiations if at least two generic competitors are on the market. The bill also aims to cap out-of-pocket costs for Part D beneficiaries at an annual limit of $2000 and redesign the Medicare Part D benefits to increase manufacturer and Part D plan share of costs in the catastrophic phase.
Republicans in Congress have expressed concerns with the legislation, citing that it would discourage innovations in new pharmaceutical product development, but the President has nevertheless praised Pelosi’s plan. Ultimately, the plan would create an unprecedented role for HHS in setting prescription drug prices.
Ramifications of Pelosi’s Plan
The main concern with this proposal is the expected growth in health care costs, but pharmaceutical products contribute just a portion of that growth. Prescription drugs were estimated to account for 16.8% of total health care costs in the Unite States in 2018.2 Growth in health expenditure is a concern for the government, given it is the largest payer in the United States.
Centers for Medicare & Medicaid Services drug expenditures increased $3.6 billion between 2016 and 2019, but expenditures for hospital care increased $42.7 billion; administrative costs and insurance expenditures increased $21.3 billion; and physician and clinical services expenditures increased by $10.1 billion.3 Private payers and hospitals that may benefit from lower drug prices if this plan is approved should consider what other prices the government will set in the future.
A Congressional Budget Office analysis found that the bill would save $345 billion in Medicare costs over the next 7 years but also found that it could prevent 8 to 15 new drugs from entering the market over the next decade.4 Americans currently have more access to medicine than countries used as a benchmark in Pelosi’s bill because other countries set prices. Of 270 new
drugs launched around the world between 2011 and 2018, all were approved in the United States while only 63% were approved in Germany, 64% in the United Kingdom, 53% in France, 52% in Canada, 48% in Japan, and 41% in Australia.3
Conclusion
While this act is still far from certain, given the political importance of drug pricing we should expect “something” is going to happen soon, and there will be even more attention to drug pricing in 2020. Any legislation that does get passed related to drug price control will almost certainly impact clinical pathways’ treatment selections and placement. The impact of a new pricing law on pathways will be clearer once a bill is further down in the legislative process.
References
1. Lower Drug Costs Now Act of 2019. HR 3. https://docs.house.gov/meetings/IF/IF00/20191017/110114/BILLS-116-3-P000034-Amdt-1.pdf. Accessed October 25, 2019.
2. The Pew Charitable Trusts. A look at drug spending in the U.S. https://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2018/02/a-look-at-drug-spending-in-the-us. Published February 27, 2018. Accessed October 25, 2019.
3. PhRMA. Implications of Speaker Pelosi’s drug pricing plan. https://www.phrma.org/-/media/Project/PhRMA/PhRMA-Org/PhRMA-Org/PDF/Media-Briefing-Slides-on-HR-3_101019-FINAL.pdf. Published October 10, 2019. Accessed October 25, 2019.
4. Congressional Budget Office. Re: Effects of Drug Price Negotiation Stemming From Title 1 of H.R. 3, the Lower Drug Costs Now Act of 2019, on Spending and Revenues Related to Part D of Medicare. https://www.cbo.gov/system/files/2019-10/hr3ltr.pdf. Published October 11, 2019. Accessed October 25, 2019.
