Peter Bach, a physician at Memorial Sloan-Kettering Cancer Center, explains in Bloomberg News that lowering drug prices will not affect drug innovation in a meaningful way. We will still find cures and more people will be able to afford the medications they need.
The Congressional Budget Office (CBO) analyzed Speaker Nancy Pelosi’s bill to lower drug prices on up to 35 brand-name drugs a year and found that new drugs will continue to be discovered at almost the same rate as today. The CBO projects only a three-five percent drop in new drug discoveries.
Bach believes if Pelosi’s bill were enacted, pharmaceutical companies will have less incentive to develop drugs we don’t need. For example, a drug that treats Duchenne muscular dystrophy, Exondys 51, which costs almost $1 million a year here has not been found to be effective in Europe so is not available there.
Under Pelosi’s plan, Medicare and others would pay a maximum of 1.2 times what Germans, Australians, Canadians, Japanese and French pay for a number of high-cost brand-name drugs that lack serious generic competition. Any drug not sold abroad would be priced at Medicaid rates. (Today, Americans pay four times more than the Swiss for our drugs. However, some specialty drugs, such as Kymriah, a CAR-T cell therapy, which treats leukemia, costs about the same in the UK as in the US. So, there’s still plenty of financial incentive for pharmaceutical companies to discover new drugs of this type.)
Medicare currently is forbidden by law to negotiate drug prices with pharmaceutical companies. It cannot negotiate prices of retail drugs we buy at the pharmacy. It must pay the price pharmaceutical companies charge for intravenous drugs administered in doctors’ offices. And, Medicare must reimburse hospitals for the cost of drugs administered in hospital no matter how high. Drug prices paid by commercial insurers are about the same as Medicare’s.
The CBO estimates that, if Pelosi’s bill passed, the federal government would save $345 billion on Medicare between 2023 and 2029. Medicare’s Office of the Actuary projects that individuals, states and employers would save an additional $243 billion. (Note: Savings on drug costs would be far greater if we paid the average of what other wealthy countries paid for all our drugs.)
If Pelosi’s bill passed, the savings could be used for targeted public drug innovation through the NIH. Or, savings could be used to improve Medicare benefits.
Of course, savings are only a piece of the story. Today, Americans with health insurance are seven times less likely to take their medicines than people in other wealthy countries. They are too expensive.
To be clear, until Democrats have control of the Senate, there’s little if any chance Pelosi’s bill will be enacted into law. But, at least now there’s compelling evidence that we can lower drug prices with little effect on innovation.
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