Capping U.S. Drug Prices by Factoring in What Other Countries Pay

Legislation proposed by Congressman Pallone could save tens of millions of dollars annually for taxpayer-funded health plans like Medicare
“The cost of prescription drugs has skyrocketed,” Pallone said.

The federal government would negotiate the price of dozens of costly drugs each year, under legislation proposed by Rep. Frank Pallone, (D-NJ), and U.S. prices would be calibrated to those paid by a half-dozen other wealthy countries.

Pallone joined health care advocates in Long Branch on Monday to rally support for his bill, which would drive down the cost of prescription medications and could save tens of millions of dollars a year for taxpayer-funded health plans like Medicare.

The proposal also would allow private insurance companies purchase pharmaceuticals at the lower, government-negotiated prices; cap pharmaceutical spending for Medicare; and limit out-of-pocket expenses for seniors and individuals with disabilities.

“The cost of prescription drugs has skyrocketed,” Pallone said. “I hear about this more than any other issue,” he added, “and not just from seniors, but from the public at large.”

Too expensive to take as prescribed

According to AARP, which joined the event and has launched a campaign to address the issue, the annual cost of prescription drugs in New Jersey rose nearly 58 percent between 2012 and 2017. By that point, nearly one in four residents was skipping or splitting doses to save money. (NJ Spotlight will host a roundtable discussion on prescription drug pricing on October 18, sponsored in part by AARP.)

“In a country like ours, that’s just unacceptable,” said Pallone, who has worked with members of both parties over the years to reduce the cost of prescription drugs.

Under the new legislation, which was introduced in mid-September and faces a long and challenging road to become law, federal officials would target at least 25 of the most expensive medications each year and work with their manufacturers to reach an equitable deal, pegged to the average price paid by a half-dozen other countries: Australia, Canada, France, Germany, Japan and the United Kingdom. Insurance companies that refused to negotiate with the U.S. government would face enormous, escalating fines.

Medicare — which includes 1.7 million New Jersey seniors — would be allowed to purchase the drugs at the negotiated price, reducing the costs for taxpayers who support these plans. The bill would also force drugmakers to offer products at these lower prices to commercial insurance companies; more than 4 million Garden State residents are protected by commercial plans. (In state-run Medicaid — which insures 1.8 million New Jerseyans — drug costs are controlled by other factors, including the wholesale price paid by pharmacies.)

In addition, the proposal would limit annual price hikes to less than the rate of inflation for more than 8,000 drugs covered by Medicare, and would force insurance companies to refund the federal government if they exceeded this cap. The bill would also set a $2,000 limit on out-of-pocket spending on prescription drugs for Medicare members nationwide.

No love lost among drugmakers

Pharmaceutical representatives, which have huge political power, have strongly rejected the proposal. Stephen J. Ubl, president and CEO of PhRMA, which represents the industry, said the “radical” proposal would give the government “sweeping authority to set medicine prices” and “import price controls” from other nations, while diminishing the United States’ standing as a global leader in the field. PhRMA also said that linking American costs to those paid by other countries would create artificially low prices that would “delay patient access to new medicines and keep some innovative treatments off the market entirely.”

“We do not need to blow up the current system to make medicines more affordable,” Ubl added, urging policymakers to instead focus on reducing out-of-pocket costs for pharmacy patients and expanding value-based care, which rewards providers for outcomes, not treatment volume, among other things.

Leveraging Medicare

But Pallone and his allies said the current practice, in which other nations are permitted to negotiate prices that are up to four or five times lower than what the United States pays, is grossly unfair to Americans. Previous laws have limited the U.S. government’s ability to use its 46 million Medicare members as leverage when trying to secure lower prices on drugs or other medical treatments.

“That we are being gouged here as Americans is disgraceful,” said Assemblyman Eric Houghtaling, (D-Ocean.)

Maura Collinsgru, the health policy director with Citizen Action, said the current situation was “fleecing the American people.” Since American tax dollars are used to support drug development, citizens should not be overcharged for the final product, she said, adding, “We need to treat this as a public good.”

And, as AARP’s Brendan Blake noted, “The drug companies are making billions in profits.”

Pallone’s bill, HR3 – which includes three-dozen Democratic co-sponsors, including U.S. Rep. Donald Norcross (D-NJ) – would require the secretary of the U.S. Department of Human Services, the agency that oversees Medicare, to compile an annual list of the 250 brand-name drugs (those without generic equivalents, or biologically similar products) that are the most costly.

Insulin would also be listed, even though treatment options exist; diabetes is the nation’s most costly condition, requiring more than $300  billion in resources annually, according to the congressman’s team.

After determining which are the most expensive medicines, the secretary would be required to negotiate with the makers of at least the top 25 products on the list each year. While the hope is they would seek to address more, Pallone said he wanted to consider the agency’s capacity to reach these deals. The secretary would need to consider research and development costs, alternative options and other factors, but all negotiated prices would need to be no more than 120% of the average price (weighted to account for use volume) for the six wealthy industrial countries.

Under the bill, companies that refuse to negotiate could be taxed at a rate starting at 65% of their annual gross sales, and escalating by 10% every quarter (until it reaches 95%). These penalties are justified by the fact that prices are so much higher here than in other industrialized countries, Pallone’s office said.

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