“It is difficult to know in advance the nature of these drugs or the effect of foregone innovation on health.”
So writes the Congressional Budget Office in what may be the most important sentence of an important 15-page letter sent to Congress this month. The letter sets forth the respected agency’s preliminary assessment of the potential effects of an adventurous Democratic proposal to reduce prescription drug prices in America.
One of several such bold legislative ideas that might reflect a Democratic agenda should the party gain power in next year’s election, it’s called H.R. 3, “The Lower Drug Costs Now Act of 2019.” It has House Speaker Nancy Pelosi’s backing.
The unknowable “drugs” and “foregone innovation” CBO refers to are the medications and discoveries its analysts predict will not happen should H.R. 3’s sweeping price controls be imposed in the American pharmaceutical market.
Now, you won’t often hear what’s being proposed described as “price controls” by the advocates of this legislation (or by neutral analysts at CBO). Advocates call it “negotiation.” For years, the most popular progressive prescription around for bringing down the painful prices Americans pay for lifesaving drugs has been a call for the federal government to directly “negotiate” with drug firms and leverage the vast buying power of Medicare, the huge health care program for the elderly.
But it’s long been unclear exactly what was meant by “negotiation.” Since at least 2007, CBO has repeatedly informed Congress, in its own words, “that providing broad negotiation authority by itself would probably have a negligible effect.”
That’s because what we call “negotiation” usually means two sides trying to hammer out a voluntary agreement. You know:
I offer “A.” You say: “No thanks, how about ‘C’?” And we settle on “B.”
Or maybe we don’t, in which case we each walk away without a deal.
The trouble, CBO kept trying to explain in its cautious, clinical language, was not that Medicare hasn’t been “negotiating” drug prices since drug benefits were introduced in the program a decade and half ago. It does negotiate, through private drug plans that administer Medicare’s drug benefits. The trouble has been that the government has sharply restricted the ability of those plans to actually apply the leverage of the program’s vast buying power.
Purchasers of drugs — like private insurance companies or other government programs such as the Veterans Affairs — typically “apply leverage” by creating “formularies” that limit coverage on drugs whose makers don’t agree to satisfactory reductions in price. But Congress, apparently fearing political backlash, has never been willing, in Medicare, to broadly “impose limitations on coverage,” as a Kaiser Family Foundation report puts it.
That inability of its purchasing agents to “walk away” where many high-priced drugs are concerned is what has hampered Medicare’s ability to negotiate.
But now it seems progressives, in keeping with their new audacity on many policy fronts — from mandatory gun buybacks to the Green New Deal to Medicare for All — have unveiled a solution that “differentiates this analysis from previous ones,” as CBO dryly puts it.
Well, yes — they’ve shown what they really mean by “negotiation.”
Instead of freeing Medicare to walk away from a lousy deal, H.R. 3 effectively forbids drug companies from walking away. Medicare won’t make “take it or leave it” offers. It will make “take it or else” offers.
Basically, H.R. 3 would put a ceiling on selected drug prices pegged to the average prices manufacturers offer in other wealthy nations, and settle on a “maximum fair price” that would be available not only to Medicare but to all private health plans. Any companies that declined to accept that price, CBO writes, “would be subject to an excise tax of up to 95 percent of the sales of those drugs.”
In short, Medicare would name a price and effectively prohibit drug firms from selling their products to anyone at any other price.
This is “negotiation” only in the sense of the famous “Negotiation at the OK Corral.” Or maybe the “Great Train Negotiation.”
Small wonder CBO concludes that H.R. 3 would be quite effective in lowering costs. The analysts estimate the law, if enacted, would reduce Medicare drug spending by $345 billion over seven years and lower private health insurance premiums to boot.
Sounds good, especially when the report adds: “In the short term, lower prices would increase use of drugs and improve people’s health.”
But notice that “short term.” And read the next sentence:
“In the longer term, CBO estimates that the reduction in manufacturers’ revenues … would result in lower spending on research and development and thus reduce the introduction of new drugs.”
Here of course is the trade-off that CBO admits is difficult to measure “in advance” — and which will be all the more difficult to think about clearly if we don’t start calling things by their honest names.
It is entirely possible that some kind of muscular pressure will need to be exerted on prices if America is ever to contain soaring and disproportionate health care costs in this country. And it’s not just on drugs, but on medical devices, physician services, hospitals and all the rest. All of these are priced much higher in the U.S. than elsewhere.
But CBO’s warning about the loss of new drugs and innovations needs to be carefully considered. CBO estimates that H.R. 3 would “lead to a reduction of approximately 8 to 15 new drugs coming to market over the next 10 years” — out of about 300 new drugs that would be expected to be approved.
That doesn’t sound so bad. But which drugs exactly would not appear, and how valuable they might have been, is what CBO deems “difficult to know in advance.” Maybe a breakthrough on cancer or Alzheimer’s? And because drug development is a yearslong process, the effects further down the road are even harder to foresee.
Sooner or later, America will have to decide when “enough is enough” in health care, as other nations have done. By preserving a more free market system here in the biggest, richest market on the planet, we’ve made the trade-offs less costly for those other countries. We’ve subsidized, through the premium prices Americans pay, innovation that benefits patients everywhere. One of the effects CBO predicts from H.R. 3 is higher drug prices in other countries.
Maybe it’s time to say enough is enough on prescription drugs, to control prices and make peace with whatever reduction in future innovation results.
But that choice should be made with eyes wide open, calling price controls what they are and acknowledging all the unknowable results.
D.J. Tice is at Doug.Tice@startribune.com.