White House Council of Economic Advisors Issues Analysis of House Drug Pricing Plan

The White House Council of Economic Advisers (CEA) has issued an analysis of the US House of Representatives’ proposed legislation (H.R.3, The Lower Drug Costs Now Act) to address the cost of prescription drugs.

The bill, which was introduced in the House earlier this year (September 2019), would establish a fair price negotiation program, put in protections from excessive price increases under the Medicare program (the US healthcare program for people over the age of 65), and establish an out-of-pocket maximum for enrollees of Medicare Part D (the prescription drug program under Medicare). In October 2019, the US Congressional Budget Office (CBO), a federal agency within the legislative branch of the US government that provides budget and economic information to Congress, and the staff of the Joint Committee on Taxation (JCR), a nonpartisan joint committee of the US House of Representatives and Senate, offered a preliminary estimate of the effects of the bill on federal direct spending and revenues related to Part D of Medicare, the outpatient drug benefit.

The CEA estimates that H.R. 3 could lead to as many as 100 fewer drugs entering the US market over the next decade, or about one-third of the total number of drugs expected to enter the market during that time. CEA says CBO’s assessment suggests that H.R. 3 could reduce pharmaceutical company revenues by $500 billion to $1 trillion over the next decade, which would have noticeable negative effects on drug innovation. CEA noted that since pharmaceutical companies typically spend 15% to 20% of their revenue on research and development, CEA estimates that this revenue decrease would probably result in a $75-billion to $200-billion reduction in research and development expenditures over the next decade. For comparison, CEA says it “conservatively” assumes the cost of developing a new drug to be $2 billion, which explains how CEA reached the estimate that H.R. 3 could result in as many as 100 fewer drugs entering the market over the next decade.

Using standard methods of measuring health gains, the CEA estimates that the economic value of the bill’s resulting reduction in health outcomes ranges from $375 billion to $1 trillion per year over the next decade. The CEA says the economic value of this loss of new drugs, and the resulting health outcomes, could reach $1 trillion per year over the next decade, which is larger than H.R. 3’s projected savings. The CEA says that this means that H.R. 3’s long-term health costs are at least 10 times larger than the short-term savings to the federal government. The CEA further says that CBO’s assessment suggests that the bill would result in eight to 15 fewer drugs coming to market over the next decade.

The bill, which was renamed the Elijah E. Cummings Lower Drug Costs Now Act, in deference to the recently deceased Congressman from Maryland, is scheduled for a full vote by the House.

“Next week, the House of Representatives will pass the Elijah E. Cummings Lower Drug Costs Now Act, said” The US House of Representatives Speaker Nancy Pelosi (D-Calif.) and the co-sponsors of the bill (House of Energy and Commerce Chairman Frank Pallone, Jr. (D-NJ), House Ways and Means Committee Chair Richard Neal (D-MA), and the House Committee on Education and Labor Committee Chair Bobby Scott (D-VA)), in a joint statement on December 5, 2019. “We have now received enough guidance from CBO to bring the Lower Drug Costs Now Act to the Floor and to reinvest its savings in one of the most transformational improvements to Medicare since its creation.”

Source: White House, Council of Economic Advisers, US House of Representatives




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