The Congressional Budget Office (CBO) says the proposed Lower Drug Costs Now Act, introduced by House speaker Nancy Pelosi, could potentially save $345 billion in federal spending over seven years and reduce out-of-pocket costs by $158 billion over a 10-year period. Part of the savings is attributed to greater access to lower-cost medications, leading to lower overall health costs.
At the heart of the proposed law is the ability for the Health and Human Services secretary to negotiate prices directly with pharma companies on prescription drugs that Medicare spends the most money on – up to 250 different products in all – with price caps set based on the prices paid in other nations (Australia, Britain and Canada).
The lower prices would mean a reduction in pharma industry profits of as much as $1 trillion over 10 years, which the CBO says will lead to 8-15 fewer drugs (2.7 to 5%) being commercialized over that time.
This tradeoff is already made in many other countries, resulting in lower drug prices. Drugs are approved for reimbursement by the government based on whether the clinical benefit they provide is cost-effective compared to other similar medications. Some drugs don’t get covered, but those that do are effective and affordable.
In the U.S.,however, Medicare is required to cover most drugs regardless of their cost, which has allowed regular price hikes. A quarter of people can’t afford their prescriptions, and many ration their medication or don’t take them at all, leading to serious and expensive health consequences.
Those opposed to the bill are concerned that it will stifle innovation. However, there are already problems with the system, as it exists today. There is little incentive for drug companies to develop new antibiotics, which could have a tremendous impact on diseases that affect low-income communities, but big drivers for the development of cancer meds that are only marginally effective for limited patient populations.
Proponents suggest that pharma companies could divert advertising money and funds funneled to stock dividends and share buybacks to R&D. It is thought that the potential savings on drug expenditures and the reduction in overall healthcare costs due to more people properly taking medications should outweigh these risks.
Dr. Challener is an established industry editor and technical writing expert in the areas of chemistry and pharmaceuticals. She writes for various corporations and associations, as well as marketing agencies and research organizations, including That’s Nice and Nice Insight.