Pelosi’s Healthcare Nightmare Is Coming Back | Citizens Against Government Waste

Pelosi’s Healthcare Nightmare Is Coming Back

The WasteWatcher

H.R. 3, the “Elijah E. Cummings Lower Drug Costs Now Act,” was reintroduced in the House of Representatives on Thursday, April 22.  Similar legislation, originally titled “The Lower Cost Drugs Act,” was introduced in September 2019 and passed the House on December 12, 2019 by a vote of 230 to 192.  It was a bad bill then and a worse bill now because at least in 2019 cooler heads prevailed in the Senate which acted as James Madison envisioned, a “necessary fence” to stand up to the “fickleness and passion” found in the House.  Unfortunately, depending on that fence is risky with far-left Democrats in control of both chambers of Congress and the White House.  This atrocious legislation is loaded with price controls and a drug excise tax that seniors and the general population would pay for through higher costs, fewer innovative pharmaceuticals would reach the marketplace, and the United States would lose its frontrunner place in biopharmaceutical research and development.

The U.S. pharmaceutical marketplace is already heavily price controlled under government drug benefit programs, including Medicaid rebates, the 340B drug discount program, the 70 percent rebate in Medicare Part D coverage gap, and the VA drug benefit, among others.  These price-controlled programs have distorted the U.S. pharmaceutical marketplace, and just like a balloon, when one side is pushed down, the other side increases.  Eventually, if pushed too far, the entire system will break and there will be far less funding for U.S. biopharmaceutical research.

While the bill’s initial focus is on Medicare Part D, it would also allow private entities like commercial health insurance plans, hospitals, physicians, and other healthcare providers take advantage of the price controls.  As a result, expect the biopharmaceutical “balloon” to break.  It is the private sector that has provided the financial foundation for research and development.  The provisions of H.R. 3 will lead to far fewer innovative drugs in the future, as much as 100 over the next decade, as discussed in an April 17 Op-ed by Heritage Foundation visiting fellow Doug Badger.

Supposedly, the “savings” on drugs that H.R. 3 collects through price controls and the excise tax would be reinvested at the National Institutes of Health, the Food and Drug Administration, and used in combating the opioid crisis, but don’t bet on it.  This is a Congress that has already spent a whopping $5.7 trillion on COVID mitigation since March 2020, with much of it having little to do with the pandemic, like funding and maintaining the operation of the Kennedy Center, which was closed, climate change programs, and supporting Voice of America.  Now the far-left Democrats want to spend more than $2.25 trillion on the President’s proposed infrastructure package, the American Jobs Plan, again with large amounts going to items that have nothing to do with roads or bridges, like expanding $400 billion on home and community-based services and long-term care facilities or increasing union membership rolls.

H.R. 3 starts off with “Title 1 – Lowering Prices Through Fair Drug Price Negotiation,” the implication being that no negation occurs in Medicare D, the voluntary prescription drug benefit.  But negotiation already occurs in Medicare Part D among drug manufacturers, insurers, pharmacy benefit managers (PBMs), and pharmacies.  Medicare Part D plans compete with one another on price, value, and options so seniors can choose the plan that best fits their needs.

The legislation would allow the Secretary of Health and Human Services to negotiate a “maximum fair price,” whatever that means, for a Medicare drug plan year.  But more than likely, the Department of Health and Human Services (HHS) will adopt a price very near or at the level found in six countries because the legislation allows for the use of an average international market (AIM) price.  The HHS Secretary will look at a select group of drugs that are estimated to have the greatest net spending in the U.S. and will use the AIM to determine the maximum fair price for most drugs.  This would be amusing if it wasn’t so destructive because the “market” price found in these countries is a result of some form of price control due to their government-run healthcare systems.  They free-ride on U.S. funded research, as discussed in two Council of Economic Adviser’s reports from February 2018 and February 2020.

Reminiscent of Orwell’s 1984 “newspeak,” if a pharmaceutical company does not accept the government’s “negotiated price” during the “voluntary negotiation period” they will be fined up to a 95 percent excise tax based on the prior year’s sales.  There is nothing “voluntary” about complying.  Expect private investment in biopharmaceutical research to be greatly reduced and moved to other, more government-favored industries.

H.R. 3, if it should become law, would take the U.S. down the path the Europeans took not too long ago.  In 1990, $16.7 billion was invested biopharmaceutical research, with European countries contributing 59.2 percent and the U.S. contributing 40.8 percent.  But when Europeans implemented price controls in the 1980s and 1990s, pharmaceutical investment shifted to the U.S.  By 2017, those percentages had switched sides.  Of the $95.7 billion invested in biopharmaceutical research, the U.S. was contributing 58.3 percent and Europe contributing 41.7 percent.

Due to the remaining private healthcare system, Americans currently have access to 89 percent of ground-breaking drugs, while citizens in France, Germany, and Switzerland have access to only 48, 62, and 48 percent of new drugs respectively.  And if someone has cancer, it is better to be in the U.S. where citizens have access to 96 percent of new oncology drugs, while citizens in France, Germany, Switzerland have access to 66, 73, and 62 percent of new cancer drugs respectively.  That will change if H.R. 3 becomes law.  There will be fewer innovative drugs and U.S. patients will likely become more dependent on countries like communist China that is fast becoming a powerhouse in research.

Citizens Against Government Waste (CAGW) agrees reforms can be made that would return market competition to Medicare Part D.  A reform plan offered by American Act Forum (AAF) would restructure the current Part D benefit by putting more financial risk for high-cost beneficiaries on both insurers and drug manufacturers and protecting seniors from catastrophic expenses with an out-of-pocket cap.  Instead of utilizing the current standard Medicare Part D benefit where only 5 percent of the coverage gap, or “donut hole,” is paid for by the plan (an insurer or PBM) and pharmaceutical companies pay a 70 percent rebate (a price control), the AAF plan would have the plan pay 75 percent of the cost from the deductible to the catastrophic phase and the beneficiary pay 25 percent, with a maximum out-of-pocket cost.  In the catastrophic phase, 71 percent would be paid for by the private plan, 20 percent by Medicare, and 9 percent by the drug manufacturer.  CAGW would prefer that the manufacturer pays nothing in the catastrophic phase because doing so would encourage manufacturers to have a higher list price to cover costs, distorting the market.  In any case, putting more risk on the plans will encourage more robust negotiations and use of generic drugs.

Congress also needs to evaluate the damage it has done with implementing government price controls in a large segment of the pharmaceutical market that has distorted overall pricing and find true market-driven ways to lower costs.

Finally, the administration and Congress need to write better trade deals where economically advanced countries that can and should contribute more to biopharmaceutical research do so and reduce the burden paid by American taxpayers and consumers.  Not only would this improve the situation in the U.S. market, it would also improve private investment in those countries and help grow their biopharmaceutical research to provide more choices and greater competition that would lower costs, benefitting the entire world.

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