Although lawmakers and President Trump have talked a good game about bringing down prescription drug prices, they've managed to take few, if any, steps toward that goal. Trump's most dramatic proposals -- tying the price of certain Medicare drugs to their prices overseas and barring payments from drug manufacturers to middlemen -- have either been dropped or held up by internal bickering. And a Senate committee's proposal to rein in drug price hikes, which garnered a rare degree of bipartisan support, has been stalled by opposition from Republican senators.
Yet lawmakers haven't given up, as demonstrated Thursday when the House passed HR 3, a bill that would empower Medicare to negotiate the price of up to 250 prescription drugs per year while also guarding consumers with employer-provided health benefits against sharp increases in drug costs. Although the bill may be too ambitious for the Senate and the president to swallow, its passage in the House injects some badly needed momentum into the drive to rein in spending on prescription medications.
Drug manufacturers often argue that their prices aren't the big issue for consumers, given that prescription drugs have steadily accounted for only about 10% of U.S. health care spending. But the costs of brand-name and specialty drugs have been escalating far faster than inflation, a problem that is only partially offset by the declining prices of many generic medications. As a consequence of high costs, millions of Americans are unable to afford the medicines they need; according to a Kaiser Family Foundation survey, almost 30% of U.S. consumers didn't fill a prescription, skipped doses or took an over-the-counter medication instead in the past 12 months.
Cutting drugmakers' prices comes with a tradeoff, however. Bringing a new drug to market is an extremely expensive proposition, requiring manufacturers and their investors to put a significant amount of money at risk. Any move to restrain prices inevitably reduces their incentive to invest in drug research and development. That means some breakthrough drugs may not be developed, or may be pushed further back in the pipeline.
But there's no telling which new drugs would be forgone; indeed, no matter how prices are regulated, the incentives for continuing to invest in potential blockbuster cures for widespread or costly diseases would remain strong. And the current system seems unsustainable, as new drugs are popping up at mind-boggling prices of $1 million or more for a course of treatment. Even some drugmakers agree that we need to switch to a system that prices drugs not according to how much the market will bear but according to their value -- that is, how much they improve the lives of the people who take them. But that's a difficult and politically sensitive calculation because it may require putting a value on human life and the quality thereof.
The House proposal moves toward value-based pricing, but only gingerly. For the 50 to 250 medications that face no competition and account for the largest cost to Medicare, the government would bargain with manufacturers over prices, considering such factors as research and production costs, prior federal aid in the development of that drug, and how much of a therapeutic advance it represents over alternative treatments. Most important, the bill would cap the price Medicare pays for those drugs at 120% of the average charged in Canada, Australia, Japan and three European nations -- effectively relying on those countries' calculations of the drugs' value.
The six countries pay significantly less than we do for medications, so in the short term, the bill would result in huge savings for Medicare. And because Medicare is so large, with almost 60 million enrollees, changes in the program tend to ripple through the rest of the market. Over the long term, though, manufacturers would have an incentive to demand higher prices in those six countries, leading to lower savings here. Nevertheless, such rebalancing would be welcome because it would force foreign consumers to pick up a more fair share of the tab for developing new drugs.
Meanwhile, the bill would use most of the money Medicare saves on prescription drugs to fund new dental, hearing and vision coverage at no extra cost to Medicare Part B enrollees. It's true that many senior citizens already purchase this coverage through Medicare Advantage or supplemental insurance plans. But moving those important benefits into Medicare itself would vastly improve older consumers' access to them.
Only two Republicans in the House voted for HR 3, largely because of their concern about the price caps. But as shown by proposals from the White House and the Senate's health committee, there is a consensus emerging around the need to reduce drug costs and tie prices to value. Lawmakers just need to find a way to turn that consensus into tangible progress.
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