This article was updated October 14, 2019.
With House Speaker Nancy Pelosi at the helm, House Democrats released a sweeping drug pricing bill September 19. This bill would give the U.S. Department of Health and Human Services (HHS) the power to negotiate as many as 250 of America’s most popular drugs, including extravagantly expensive insulin. The savings would be applied as discounts to private healthcare plans across the country.
What the plan includes
The plan will establish an international pricing index, which prices drugs according to those set by other countries for the same drug. In other words, if Canadian patients pay $30 for a prescription, American patients could pay something within that range. Drug companies that refuse to negotiate with HHS and lower their prices would be penalized.
The penalty would start at 65 percent of the company’s gross profits on the drug which has not been discounted, and be increased by 10 percent each quarter that the price is not lowered. For example, if the drug company makes $1 million in profits on a single drug which has not been reduced in price, the company would be fined $650,000 the first quarter and increase by 10% in each consecutive quarter.
The plan would also:
- Penalize drug companies that raise the prices of their drugs faster than the rate of inflation,
- Cap out-of-pocket drug costs for Medicare beneficiaries at $2,000, and
- Reinvest savings from the bill into treatment research and development at the National Institute of Health.
In a press conference, Nancy Pelosi said, “The status quo on prescription drug prices is broken. Prescription drug companies are charging Americans prices that are three, four, or even ten times higher than what they charge for the same drugs in other countries.”
The Pharmaceutical Research and Manufacturers of America (PhRMA), the industry’s main lobby group that works to keep prices inflated, was not available for comment on the bill.
Why Medicare is currently not allowed to negotiate drug prices
Medicare (via HHS) is currently prohibited from negotiating drug prices with drug companies. Instead, pharmacy benefit managers act as the middlemen between drug companies and insurance providers to negotiate prices. However, the savings are passed from the drug companies directly to the pharmacy benefit managers in the form of rebates (or kickbacks) instead of consumers. The amounts of these rebates are kept secret and incentivize both the drug companies and pharmacy benefit managers to keep prices (and profits) high.
Other proposals to lower drug prices
The Trump administration has proposed solutions to pass savings along to consumers at the pharmacy counter, but these proposals have all been cancelled for various and mostly unknown reasons.
Increasingly high drug prices have become a rare bipartisan issue, with lawmakers regularly reaching across the aisle to bring affordable prescription drugs to the American people.
What comes next
Pelosi’s plan is expected to receive pushback from Republicans, who often prefer to leave drug pricing up to competition created by the free market. However, a new report from the nonpartisan Congressional Budget Office (CBO) says the plan would save Medicare $345 billion over 10 years.
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