The “Lower Drug Costs Now Act of 2019”: What’s Good, What’s Bad, and What Must be Improved

September 20, 2019 |

On September 19, 2019, House Speaker Nancy Pelosi released the “Lower Drug Costs Now Act of 2019” (HR 3). Excessive drug pricing is a major factor obstructing access to life-saving treatment in the Global South—and right here in the U.S. where the high cost of medicines is a leading cause of anger among voters, who are demanding major corrective actions. While Health GAP is still analyzing the entire 101-page bill, here is our rapid assessment: 

The good news:

This bill challenges Big Pharma’s monopoly pricing abuses by giving some teeth to the newly granted direct negotiating power of Health and Human Services (HHS) to drive prices for some medicines both for Medicare and insured and private payers. Big Pharma carries out excessive pricing in the U.S. compared with other high-income countries because the U.S. does not have the price control mechanisms used by other countries. HR 3 would not implement such mechanisms but drug makers that refuse to negotiate newly defined fair prices would pay a “non-compliance fee” starting at 65% of gross U.S. sales of the medicines accelerating up to 95% following three quarters of non-compliance. The bill requires greater transparency to HHS concerning R&D and manufacturing costs and domestic and foreign sales information, although it does not require increased public transparency. 

The second positive move combats unjustifiable drug price increases—more than two-and-a-half times higher than the general inflation rate on average. For the 8,000 drugs covered by Medicare, manufacturers that have raised prices by more than the rate of inflation since 2016 will either have to lower their prices to the true inflation rate or face a 100% retroactive inflation rebate back to the Treasury.

The bad news:

These proposals suffer from glaring omissions and loopholes that must be corrected.

  1. First and foremost, the proposal only requires action on a minimum of 25 Medicare medicines a year with a maximum of only 250. The top 25 drugs in terms of spending account for only 23% of Part D drug spending, meaning that 7,975 drugs accounting for 77% of Part D funding could go unchecked.
  2. Second, the proposal has no impact on or oversight regarding initial launch prices which can be gamed by biopharmaceutical companies to soak American payers until the drug reaches the top 25 (or maybe 250 list). This generates a very long lag time before there would be any deterrent restraint affecting drug prices, and would likely trigger further price gouging earlier, in anticipation of the effects of HR 3.
  3. The proposal covers brand-name medicines that lack price competition, defined as lacking just one generic or biosimilar competitor. However, the entry of two competitors rarely reduces prices significantly according to previous studies and it is only when there are six competitors that bloated originator prices are reduced by 75%. Thus, there will be many brand name medicines excluded from negotiations where true competition has not yet significantly dented prices.
  4. Fourth, the Average International Market price ceiling will be based on average prices charged in six high-price, upper-income countries (Australia, Canada, France, Germany, Japan, and the United Kingdom) and will be set at 1.2 times the average. These are all countries that also face high launch prices from Big Pharma, though they have historically achieved somewhat better pricing through negotiation, price controls, and use of therapeutic formularies. But the average ceiling price will in no sense be justified by any economic or therapeutic benefit analysis. Similarly, the proposal does not explain why the U.S. should pay as much as a 20% premium over the average price paid by other rich countries. Drug companies can (and expectedly will) seek to impose higher prices in those six reference countries in order to maintain higher prices and profits in the U.S. Although the President has trumpeted his intention to make other countries pay more, there is no justification for this result given the bloated global profits that the biopharmaceutical industry earns year after year. At the very least, any resulting legislation should provide for studies of and aggressive remedies to correct these harms.
  5. Fifth, although there is some limited R&D cost, manufacturing cost, and sales transparency for the government that this bill would trigger, such information would be kept from the public despite the public’s right to such information. 

What is missing?

The real solution to correcting the stranglehold Big Pharma enjoys is to challenge their government-granted monopoly power and take away exclusive rights when they are so systematically abused. Given the pre-dominate role of public funding of R&D in break-through medical discoveries and the licensing of government owned drug discoveries, the U.S. should already be getting a much better deal both for government payers and the public-at-large. But, in many instances, the best solution to excessive drug pricing is to promote robust generic competition through lawful, government-imposed licenses, where multiple producers can make medicines efficiently and sell them cheaply while still making a profit and while still providing some remuneration to the patent holder. 

We have to make sure that prioritized R&D is paid for, but it is a terrible system that requires unconscionable payments through extortionate pricing, systematically excluding desperate people from access to the medicines they require. The neglect of a licensing option, such as that contained in HR 1046, the “Medicare Negotiation and Competitive Licensing Act of 2019,” is a glaring weakness in HR 3 and must be addressed by lawmakers. Instead of reaching near parity with bloated prices in other rich countries, Congress should aim for a much better deal.