The U.S. House of Representatives is racing to pass a bill designed to address prescription drug pricing, but its confiscatory taxes would decimate innovation and undoubtedly reduce the supply of today’s medicines.
Two House committees—Energy & Commerce and Education & Labor—voted largely along party lines yesterday to advance H.R. 3, which is expected to be named after the late Rep. Elijah Cummings who died on Thursday at age 68.
Economist Doug Holtz-Eakin, a former CBO Director and now president of the American Action Forum, took a look at the CBO’s cost estimates of the Pelosi drug bill—which is only a partial estimate but which shows savings of $345 billion to Medicare Part D. That’s a big “savings” number that definitely gets the attention of members always on the prowl for new money to spend.
But at what price? “Now, if you do a little price-fixing…followed by a little extortion…you can save some money,” Holtz-Eakin wrote, adding, “it is easy to save budget dollars — just don’t pay for things.”
That is exactly the point. The confiscatory taxes and other shakedowns of pharmaceutical companies in H.R. 3 would dry up investment in research into new and better treatments and cures and would surely distort and restrict the supply of existing medicines.
Pelosi wants to use the illusionary drug “savings” money to add dental, vision and hearing benefits for Medicare recipients—a clever political ploy designed to make it difficult for Republicans to vote against the bill.
Ways and Means Committee Ranking Republican Kevin Brady of Texas caustically the Pelosi bill the “Fewer Cures for Patients Act.”
As we wrote last month, the bill is a huge overreach: It would require pharmaceutical companies to “negotiate” prices with the federal government for up to 250 drugs that don’t have generic or biosimilar competition. If they refuse to comply with the government-set rates, they could face a 95% penalty tax on total sales of a drug—a new tax that would flow to federal coffers and not to reducing drug prices for seniors. The companies would be required to also offer the government’s “negotiated” rates to commercial plans.
“This means that a manufacturer selling a medicine for $100 will owe $95 in tax, with no allowances for costs incurred,” according to a petition signed by more than 60 freedom groups, including Galen. That’s a tax of greater than 100%.
Galen Senior Fellow Doug Badger analyzed the impact of similar price controls in other countries on access to new medicines introduced between 2011 and 2018. In a paper for the Galen Institute, he finds that “89% are available to Americans, compared with 62% in Germany and 60% in the United Kingdom. One-half or more of these new therapies are unavailable to Australian, Canadian, French, and Japanese patients.” These are the countries that would be used as benchmarks for U.S. price controls.
The Pelosi approach would “double down on the failures of existing government policies that have contributed to higher health care costs,” Badger says, calling it “a poison pill to innovation and access.”
Rep. Brady and colleagues at other committees with jurisdiction over drug pricing say the Pelosi bill torpedoed bi-partisan solutions to drug pricing. “The Speaker of the House opted to discard months of bipartisan work to put politics over progress,” Brady wrote with fellow ranking members Virginia Fox (VA) and Greg Walden (OR).
Chris Holt of the American Action Forum says the CBO explains that CBO is way off the mark in claiming the Pelosi bill would reduce the number of new treatments by just 8 to 15 over the next decade. The loss of new drugs would almost certainly be “substantially higher,” especially discouraging to innovative companies with new ideas that will find it increasingly difficult to raise investment capital.
Meanwhile, the Senate continues to focus on forging a bipartisan solution with some policy changes that not only could work but which are needed, including modernizing the catastrophic spending phased of Medicare’s drug benefit. Doug explains more in “Good and Bad Ideas in the Senate’s Medicare Drug Bill.” The Council for Affordable Health Coverage also offers “Prescriptions for Savings: Policies to Increase Patient Access and Improve Affordability.”
So we will rely on the Senate to avert the disaster the House bill would detonate.