What is H.R. 3?
(Updated September 9, 2020)
This bill — the Lower Drug Costs Now Act — would enact comprehensive reform to lower prescription drug costs. It would end the ban on Medicare negotiating directly with drug companies and create new tools to force drug companies to come to the table to negotiate on drug prices (including for newly-launched drugs) with the Health and Human Services (HHS) Secretary. Subsequently, it would also give all Americans access to the federally negotiated lower drug prices. A given drug’s negotiated price would remain in place until it has two or more generic competitors.
Additionally, to stop drug companies from charging American customers a different, higher price for the same drug as compared to foreign customers, this bill would limit the maximum price for any negotiated drug to be in line with the average price in a country comparable to the U.S. For comparison purposes, this bill would look to six countries: Canada, the United Kingdom, Germany, France, Australia, and Japan.
This bill would also create a new $2,000 out-of-pocket limit on prescription drug costs for Medicare beneficiaries.
Finally, this bill would reinvest its anticipated cost savings from lower drug prices into the search for new breakthrough treatments and cures at the National Institutes of Health (NIH) and the nation’s healthcare system, including Medicare.
Argument in favor
Runaway prescription drug prices cost U.S. taxpayers, the U.S. healthcare system, health insurers, and the federal government billions of dollars. Pharmaceutical companies gouge U.S. consumers and the U.S. healthcare system because they can, not because they have to — their ability to turn profits in other countries while charging lower prices for the same prices is proof of this unconscionable practice. This bill will bring prescription drug prices under control, which will benefit everyone in the U.S. healthcare system, from consumers all the way up to the federal government.
This bill would concentrate the power to set prescription drug prices in the hands of a few unelected bureaucrats, which is an incredibly huge responsibility to give to people aren’t beholden to anyone, including voters and the general public. It also puts healthcare innovation at risk: by reducing pharmaceutical companies’ revenue streams, it’d necessarily reduce those companies’ free capital to invest in potentially life-saving new medications. Finally, certain provisions of this bill, such as international reference pricing, could prove tremendously difficult to implement.
Americans who take prescription drugs; prescription drug pricing; health insurers; pharmaceutical companies; Medicare; healthcare systems; NIH funding; and the HHS Secretary.
Cost of H.R. 3
The CBO estimates that the drug price negotiation prescribed in this bill would reduce federal direct spending on Medicare by $345 billion over the 2023-2029 period.
In-Depth: House Energy & Commerce Committee Chairman Frank Pallone (D-NJ) introduced this bill as a bold, comprehensive plan to lower prescription drug costs:
“New Jerseyans should not have to choose between making a rent payment, putting food on the table, and affording lifesaving prescription medications. That’s why I introduced legislation that will lower prescription drug costs and invest in new treatments and cures. It’s long past time to give the federal government the authority to negotiate drug prices with the pharmaceutical manufacturers in order to reduce costs for consumers. It’s time we negotiate a better deal for the American people.”
In opening remarks at this bill’s committee markup by the House Energy and Commerce Committee on October 17, 2019, Rep. Pallone said:
“[The Lower Drug Costs Now Act] finally gives the federal government the ability to negotiate lower prescription drug prices with drug companies. It’s only fair. The American people, both Republicans and Democrats, are rightfully outraged that they are paying three, four or ten times more for the same drugs than people are paying in other countries. It’s time we finally negotiate a better deal for the American people. The legislation also caps Medicare Part D beneficiaries’ out-of-pocket expenses at $2,000 per year.”
After this bill passed the Energy and Commerce Committee, Rep. Pallone said:
“With the Energy and Commerce Committee’s action today, we are one step closer to finally empowering the federal government to negotiate lower prescription drug prices for the American people. The Lower Drug Costs Now Act levels the playing field by ensuring that Americans are not forced to pay three, four or ten times more than people in other countries for the same drugs. This transformative legislation will also save taxpayers hundreds of billions of dollars that we can reinvest in the search for new cures and treatments and strengthening our health care system.”
In a joint December 5, 2019 press release before this bill’s planned mid-December House floor vote, Rep. Pallone, House Ways and Means Committee Chairman Richard Neal (D-MA), and House Education and Labor Committee Chairman Bobby Scott (D-VA) said:
“When the House of Representatives takes up the Elijah E. Cummings Lower Drug Costs Now Act next week, Democrats will not only deliver on our promise to lower prices For the People, but we will also make historic investments in Medicare and the search for new cures and treatments. Based on guidance from the Congressional Budget Office, we anticipate that H.R. 3 will save approximately $500 billion over the next ten years that we plan to reinvest in the American people. we are proud to announce that the Lower Drug Costs Now Act will include transformative expansions of Medicare’s benefits to include dental, vision and hearing for the first time in the history of the program. It will also include critical funding to assist innovation in the search for new cures and treatments, as well as funding to combat the opioid crisis. These significant investments are made possible as a result of our promise to finally empower the federal government to negotiate lower drug prices for the American people. We look forward to following through on our promise next week.”
Gerard F. Anderson, PhD, director of the Johns Hopkins Center for Hospital Finance and Management, argues that the high drug prices facing patients in the U.S. constitute a “market failure.” Testifying before the House Energy and Commerce Committee on September 25, 2019, he asserted that “intervention is needed when there is market failure and this occurs when there are no therapeutically alternatives available. [Drug purchasers] have no ability to obtain lower prices without an alternative available.”
Anderson pointed out that the government already negotiates drug prices in both other industrialized nations and the U.S. itself (Medicaid programs, the Veterans Administration (VA), and the Dept. of Defense (DOD) all routinely negotiate substantial discounts for the drugs they purchase). Given this evidence, he concluded, “Negotiation has been used effectively to set drug prices in the US and abroad for many years… [N]egotiation is both possible and results in lower prices, even for drugs without therapeutic competition.”
The AARP supports this bill. AARP New Jersey’s Director of Advocacy, Evelyn Liebman, says:
“There is no reason for Americans to continue paying the highest prescription drug prices in the world. We need immediate action to lower prices, as older adults are particularly hard-hit by outrageously high prescription drug prices. AARP, on behalf of its nearly 38 million members and all older Americans nationwide, supports Chairman Pallone’s H.R. 3, the Lower Drug Costs Now Act of 2019 that will help ensure that more Americans have affordable access to the prescription drugs that they need to get and stay healthy.”
Testifying before the House Energy and Commerce Committee on September 25, 2019, American Enterprise Institute (AEI) Research Fellow Benedic Ippolito expressed support for this bill’s Medicare Part D reform provisions (which incorporate some recommendations that he himself worked on as part of a group of bipartisan health policy experts from AEI and the Brookings Institution). However, he raised concerns with regard to this bill’s drug negotiation proposals. Ippolito argued that giving the HHS Secretary the power to negotiate drug prices would “effectively task the Secretary with dictating a price,” which would make U.S. drug prices “largely at the discretion of a very small number of bureaucrats.” He warned:
“Consolidating price setting power this much introduces a number of challenges. This is particularly true under the practical reality that rate regulators cannot feasibly know all relevant information distilled via markets and where they are subject to substantial constraints and pressures—be them political or otherwise. Centralized decision making under these kinds of scenarios can lead to outcomes that stray far from what is the best for Americans. This is important to acknowledge because there are real costs to erring in price setting.”
Specifically, Ippolito argued that there’s a tradeoff between lower drug prices and innovation (financial returns from successful drugs underwrite the development costs for new, innovative drugs, so it logically follows that reduced drug prices and thereby reduced drug revenue would reduce companies’ ability to invest in innovation). He also contended that the structure of this bill would discourage innovative new drugs’ development, as drugs without competitors “would be subject to aggressive rate regulation by the [HHS] Secretary,” whereas second market entrants (competitors to an existing drug) wouldn’t be subject to the same regulation. Therefore, under this bill, “[i]t is entirely possible that being a second market entrant could prove substantially more profitable than bringing a novel therapeutic to market. Thus, the proposal could substantially depress incentives to pursue pathbreaking drugs,” particularly drugs that treat relatively small populations and are unlikely to face competition in the near future.
Ippolito also questioned the wisdom of using international reference pricing, which he argued would import preferences and value judgments about what is — or isn’t — worth paying for that may differ substantially from Americans’ perspectives. Further, he raised concerns about the feasibility of implementing such a system, pointing out that calculating the Average International Market Price of drugs is a fairly complex calculation, especially since determining true transaction prices in foreign countries could prove extremely challenging.
Pfizer — one of the world’s largest pharmaceutical companies — opposes this bill. In a call to action, it argues that this bill “holds drugs hostage” and risks subjecting patients to significant delays in accessing new treatments while prices are being negotiated; overpromises on its cost reduction projections; could lead to a 5-10% reduction in medical research and development budgets; and that it gives the government too much power over innovative drug developers.
Similarly, national pharmaceutical trade union PhRMA opposes this bill. Its president and CEO, Stephen Ubl, argues that Congress would be better served focusing on realistic, incremental reforms:
“We do not need to blow up the current system to make medicines more affordable. Instead, policymakers should pursue practical policy solutions such as sharing negotiated savings with patients at the pharmacy counter, lowering coinsurance in Medicare Part D, increasing transparency on patients’ costs … among other improvements to the system.”
In another statement, Ubl added:
“Speaker (Nancy) Pelosi’s radical plan would end the current market-based system that has made the United States the global leader in developing innovative, lifesaving treatments and cures. It would fundamentally restructure how patients access medicines by giving the federal government unprecedented, sweeping authority to set medicine prices in public and private markets while importing price controls from other countries that restrict access to innovative medicines.”
House Energy & Commerce Committee Ranking Member Greg Walden (R-OR) criticized this bill’s “rushed” movement through the committee, saying, “ Unfortunately, the nasty politics of prescription drug pricing has overtaken the real reform we would have achieved, working together.” Rep. Walden raised concerns with the potential innovation-discouraging effects of this bill, pointing to the CBO’s estimate that it could prevent up to 15 new drugs coming to market over the next 10 years. He asked:
“What if one of those was the cure for ALS or Alzheimer’s? What if one brought relief to sufferers of arthritis and another the cure for childhood cancer? Truth is none of us knows which cure or which medicine will never get invented or approved.”
President Donald Trump has been critical of drug companies and discussed the need to lower prescription drug prices. According to Rep. Pallone, President Trump “made a favorable comment about it” when he saw this bill. Based on this, Rep. Pallone says, “It may very well be that this is something that’s bipartisan, that we can get passed in the Senate and that the president would sign.”
This bill passed the House Energy and Commerce Committee by a 30-22 vote, the House Ways and Means Committee by a 24-17 vote, and the House Education and Labor Committee by a 27-21 vote. It has 105 Democratic House cosponsors.
POLITICO writer Sarah Karlin-Smith reports that this legislation has “virtually no chance of being taken up in the Republican-controlled Senate.” Further, she notes that it could face Constitutional challenges, as some Congressional legal advisors have advised that its provisions limiting drug prices could violate the Fifth Amendments takings clause and the Eighth Amendment’s excessive fines clause.
Of Note: In the U.S., pharmaceutical companies charge American customers prices that are three to ten times higher than what they charge for the same drugs in other countries (even though, by their own admission, they still make profits overseas at lower prices). As an illustration of this fact, consider the price of Humira. According to a May 2018 article:
A U.S. patient’s prescription would cost $2,669
A U.K. patient’s prescription would cost $1,362
- A Swiss patient’s prescription would cost $822.
These price differences are due to the fact that many other countries’ healthcare systems negotiate prescription drug prices with manufacturers, whereas the U.S. federal government leaves this task to individual drugmakers, who are allowed to set their own prices for their own products. This leaves each U.S. health plan to negotiate its own prices with drugmakers, leading to less bargaining power across the system for consumers and, consequently, higher drug prices.
Tom Sackville, president of the International Federation of Health Plans, explains, “You could say that American health care providers and pharmaceuticals are essentially taking advantage of the American public because they have such a fragmented system. The system is so divided, it’s easy to conquer.”
Due to this dynamic, drug prices in the U.S. have risen incredibly quickly, especially in recent years. The AARP reports that the average annual cost of prescription drugs in the U.S. rose nearly 58% over the five-year period from 2012 to 2017.
According to the Kaiser Family Foundation, 33% of American adults or their family members have had to forgo filling a prescription, rationed medication below their prescribed dosage, or skipped medication dosages altogether due to inability to afford the full cost of medication.
Sponsoring Rep. Frank Pallone (D-NJ) Press Release
Sponsoring Rep. Frank Pallone (D-NJ) Remarks at House Energy and Commerce Committee Markup
Sponsoring Rep. Frank Pallone (D-NJ) Remarks After House Energy and Commerce Committee Passage
Johns Hopkins Center for Hospital Financial and Management Director Gerard F. Anderson, PhD Testimony Before House Energy and Commerce Committee (In Favor)
American Hospital Association (AHA) Letter (In Favor)
American Enterprise Institute (AEI) Research Fellow Benedic Ippolito Testimony Before House Energy and Commerce Committee (Largely Critical)
House Energy and Commerce Committee Republicans (Opposed)
House Energy and Commerce Committee Press Release
House Energy and Commerce Committee Hearing
House Speaker Nancy Pelosi (D-CA) Bill Info Page
Association of American Medical Colleges (AAMC)
The Two River Times
House Energy and Commerce Committee Bill Summary
CBO Estimate - Drug Negotiation Cost Savings
Summary by Lorelei Yang(Photo Credit: iStockphoto.com / Sezeryadigar)
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