- House Speaker Nancy Pelosi's plan to require direct price negotiation between the federal government and the pharmaceutical sector would reduce Medicare drug spending by $369 billion over a decade, according to a new estimate from the Congressional Budget Office.
- If the bill becomes law, drugmakers are likely to push back by raising list prices and reducing research and development spending, which in turn could lead to a reduction in the number of new drugs coming to market by as many as 15, CBO forecasters predicted.
- Drugmakers have warned the impact will be even more profound, saying price controls would extend to the private sector and reduce industry revenue by as much as $1 trillion over 10 years. "It's lights out for a lot of very small biotechs" if the bill becomes law, PhRMA President Stephen Ubl said last week.
Like all CBO estimates, the analysis of the Pelosi plan takes in a 10-year time horizon, but the savings don't really began to accrue until 2023, the first year when drug prices would be set by negotiation and capped based on prices paid in six other countries.
CBO anticipates that the effects of the law would be limited by litigation, so the effects are small until about 2025 in the analysis.
Of the $369 billion in reduced spending, $303 billion comes from savings to the federal government. The remainder accrues to Medicare beneficiaries in the form of reduced cost-sharing. But because the price-setting would extend to the private sector, the CBO believes total reductions in pharma sector revenue would be between $500 billion and $1 trillion — an estimate modestly more conservative then PhRMA's own.
This would, in turn, reduce the amount of available cash to spend on R&D. The CBO estimated this would reduce the number of new drugs approved by the Food and Drug Administration by between eight and 15, off of an anticipated 300 expected to be approved over the decade.
"For the ecosystem as a whole, this would be nuclear winter in places that depend on early-stage financing for biotech innovation," Ubl said last week.
The sector probably would seek some advantage within the new negotiation system by launching new drugs with higher list prices than they otherwise would have, or by restricting overseas launches to keep them from being included in the international price index that will serve as a ceiling on negotiations.
CBO forecasters also wrote that they expect drugmakers to seek higher prices overseas, an idea that PhRMA rejected because other countries have laws against unilateral price-setting and increases.
PhRMA also said the effect of the bill will be hard to predict because it would allow price negotiation on between 25 and 250 different drugs. Revenue reductions would be greater if 250 drugs are subject to negotiation, although HHS might not have the resources to look at that many.
The Pelosi bill may force PhRMA to work more directly with the sponsors of a less-onerous Senate bill that would mandate rebates to Medicare for drugs that have price increases greater than the inflation rate. Ubl suggested the existence of the Senate alternative should not encourage wavering House members to vote for the Pelosi bill as they look ahead to re-election campaigns in 2020.
"I think there may be a mistaken notion in certain quarters that this is a messaging bill that won't become law and therefore it's a free vote," he said. "We're here to say otherwise — that this type of policy would have a devastating effect on the industry and the patients who we serve. We are going to continue to take it very seriously and engage with policymakers accordingly."
Ned Pagliarulo contributed reporting.