How will the new drug bill affect physicians?

By John Murphy, MDLinx
Published October 23, 2019

Key Takeaways

A bill proposed in the House of Representatives would force drugmakers to greatly lower the costs of their drugs. The result? Americans would pay less for prescription drugs—and hopefully stick to the regimens their doctors prescribed. But, the legislation may also cause an unintended result: It could inhibit pharmaceutical innovation and reduce the number of drugs that enter the market, according to drugmakers and others.

The question for physicians: How would either of these outcomes affect the care that doctors provide their patients?

Time for optimism?

The Centers for Medicare & Medicaid Services (CMS) is the largest purchaser of prescription drugs in the world. In 2017, the CMS spent nearly $253 billion on medicines. However, the CMS is prohibited from negotiating for better prices for drugs, despite rising drug costs. Medicare alone spent $185.3 billion on prescriptions in 2017—an increase of $76.3 billion since 2012.

Because of these rising costs, 28% of American adults ages 19 to 64 don’t take their prescription drugs in the manner their doctors prescribed, according to a recent AARP report. To cut costs, they take their drugs less often—or stop taking them altogether. In short, the cost of drugs has a major effect on the treatment that doctors can provide.

On September 19, Speaker of the House Nancy Pelosi announced major new legislation—the Lower Drug Costs Now Act (H.R. 3)—that would finally allow the CMS to negotiate with pharmaceutical companies to lower drug prices.

“I’m optimistic,” said Speaker Pelosi during a press conference to announce the bill. “As sad as it is that we're in this situation, in terms of the cost of prescription drugs, it is an opportunity for us to go forward.”

A preliminary analysis from the Congressional Budget Office (CBO) estimated that the bill could save $345 billion in federal spending over 7 years. But, the CBO also warned that the bill could have negative effects on drug costs and drug development down the line.

A mandate to negotiate

“The CBO analysis confirms that H.R. 3 lives up to its name of lowering prescription drug costs for the American people,” said Rep. Frank Pallone Jr. (D-NJ), chairman of the House Committee on Energy and Commerce, who introduced the bill into the House. “This initial analysis proves that H.R. 3 will effectively rein in the soaring cost of prescription drugs and level the playing field for American patients.”

As introduced, the bill would:

  • Require pharmaceutical companies to negotiate directly with the CMS on prices of certain drugs. This includes negotiating maximum prices for insulin products as well as at least 25 (and up to 125) high-cost, commonly prescribed, brand name drugs that don’t have generic competition. The final number and the specific drugs have yet to be determined.
  • Establish price ceilings for drugs. A drug’s price would not be allowed to exceed 120% of the average price in certain other countries, including Australia, Canada, France, Germany, Japan, and the United Kingdom.
  • Penalize drug companies that refuse to negotiate prices. Companies would be fined an escalating tax that starts at 65% of their drugs’ annual gross sales and then increases by 10% increments, up to a maximum of 95%.
  • Create a $2,000 out-of-pocket limit on prescription drug costs for Medicare Part D beneficiaries.
  • Prohibit pharmaceutical companies from raising prices above the rate of inflation.

Lower prices, fewer drugs?

In its analysis of the bill, the CBO predicted consumers would pay lower net prices for drugs over time. However, the lower prices under the bill “would immediately lower current and expected future revenues for drug manufacturers, change manufacturers’ incentives, and have broad effects on the drug market,” according to the CBO.

Also, a drug company that sours on negotiations could pull its drug out of the US market entirely, although the CBO expects that would be unlikely for drugs already being sold in the United States.

“In the short term, lower prices would increase use of drugs and improve people’s health,” the CBO predicted. But long term, a reduction in drug company revenues would lead to cutbacks in research and development, slowing the introduction of new drugs.

Cheers and jeers

The CBO wasn’t the only organization to cast a wary eye on the new bill. The US Chamber of Congress panned it outright.

“By imposing government price controls on prescription drugs, H.R. 3 will reduce investments in medical research, put at risk over 700,000 American jobs, and potentially shift cutting-edge medical research to foreign countries, like China,” the Chamber wrote in a letter to representatives. “Further, H.R. 3 sets a dangerous precedent. If Congress can impose price controls on prescription drugs, why not on hospital and physician treatments?”

The American Medical Association (AMA), however, gave the bill a thumbs up. In a letter to Rep. Pallone and other House committee chairmen, AMA Executive Vice President James L. Madara, MD, wrote that the “AMA supports efforts to redesign the Medicare prescription drug benefit to ensure appropriate alignment of incentives and cost sharing while also ensuring Medicare beneficiaries have access to medically necessary treatment.”

The American College of Physicians (ACP) also stated its support of the bill. “For many years, ACP has continued to express concern over the rising cost of prescription drugs, particularly for our patients as they struggle to afford basic and life-saving medications prescribed by their physicians to treat diseases and chronic conditions,” wrote ACP President Robert M. McLean, MD.

Where the bill stands now

On October 17, the bill was marked up and amended in the House Energy and Commerce Subcommittee on Health. According to Rep. Pallone, committee members made some notable changes to the bill “that will provide even more relief to Americans struggling with skyrocketing drug prices.”

These changes include:

  • A phased-in increase in the minimum number of drugs the HHS Secretary must negotiate.
  • A guarantee that a negotiated drug price will remain in place until there are two or more generic competitors.
  • A new provision to negotiate prices for newly launched drugs.
  • An update on drug transparency based on the Fair Accountability and Innovative Research (FAIR) Drug Pricing Act.

House leaders have indicated that they hope to bring the bill to the House floor for a vote during the week of October 28.

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