KEY VOTE: “NO” on the “Elijah E. Cummings Lower Drug Costs Now Act” (H.R. 3)

This week, the House will vote on H.R. 3, the Elijah E. Cummings Lower Drug Costs Now Act. This ill-conceived legislation doubles down on ineffective policies and would ultimately limit access to life-saving medicines, stifle innovation, and increase spending in the long run. Once again, Democrats have abandoned market-based reforms and have opted to pursue harmful government price-setting proposals.

This deeply flawed legislation seeks to create an international pricing index which is nothing more than federal government price controls, a poison pill for conservatives. The bill gives the power to federal bureaucrats to set an upper limit on drug prices equal to 1.2 times the cost a drug’s average price in six specified countries (Australia, Canada, France, Germany, Japan, and the United Kingdom). Furthermore, the bill would empower the Secretary of HHS to “negotiate” prices below the established limit for a minimum of 25 drugs per year with a maximum of 250 drugs. These “negotiated” prices would then apply to both public and private payers. However, if a manufacturer declines to negotiate the price of one of their products, they could face an excise tax of as much as 95% on that product’s revenue from the previous year.

Members should reject price-setting proposals, as data clearly shows that government price-setting has had a negative impact on all six countries included in the international pricing index. The diagnosis for the U.S. is just as grim, as the California Life Sciences Association’s (CLSA) recent study shows that H.R. 3 would reduce the development of new medicines by 88% in California research facilities alone and eliminate 80,000 R&D jobs nationwide.

According to Doug Badger, the Heritage Foundation’s Visiting Fellow in Domestic Policy Studies:

Access to new drugs is much greater in the U.S. than in countries with price controls, in part because of having shunned price controls.

Of new active substances introduced between 2011 and 2018, 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.

Badger has also highlighted the chilling effects this legislation would have on innovation:

Countries with price controls also suffer a decline in pharmaceutical research and development.

In 1986, European firms led the U.S. in spending on pharmaceutical research and development by 24%. After the imposition of price control regimes, they fell behind. By 2015, they lagged the U.S. by 40%.

In addition to the bill’s flawed international pricing index, if enacted, it would also establish an inflation rebate that would immediately punish drug manufacturers for pricing actions taken well in advance of this legislation’s enactment. Specifically, if a drug company has raised the price of a drug in Medicare Part B or D above the rate of inflation since 2016, they can either lower the price or be required to pay the entire price above inflation in a rebate back to the Treasury.

According to The Heritage Foundation, this provision is fundamentally flawed, as the inflation penalty that the government would impose on drug-makers would be based on list prices. However, Part D plans do not pay list prices for drugs. There is no rationale for assessing Medicare Part D penalties on manufacturers based on prices that Medicare Part D plans do not pay them.

Furthermore, as in most situations, China has a plan to overtake the U.S. as the leader in medical innovation. The reductions in U.S. spending on medical research, which will ultimately occur as a result of price setting proposals, will have long term ramifications that pave the way for China to become the leader in an area the U.S. currently excels.

While some have chosen to promote H.R. 3 and its price-setting proposals as a way to “lower drug costs now,” the President’s Council of Economic Advisers has accurately surmised that price controls might save money in the short term but would cost more money in the long run. Government price-setting, it wrote, “makes better health care costlier in the future by curtailing innovation.”

Related:

Why Pelosi’s Drug Price Control Scheme Would Be a Poison Pill to Innovation and Access

Prescription Drug Pricing: Striking the Right Balance

Good and Bad Ideas in the Senate’s Medicare Drug Bill

CLSA Study Calculating Impact of International Reference Pricing