High drug prices are a growing concern for many Americans. One in four persons taking a prescription drug reported skipping doses or cutting pills in half due to affordability issues. Across party lines, people want policymakers to enact policies that help lower prescription drug costs. In response to public demand, last week, House Speaker Nancy Pelosi released the Democratic caucus drug pricing package, Lower Drug Costs Now Act of 2019 (H.R.3). While there is room for improvement, the legislation has the potential to drive down prescription drug prices and lower out-of-pocket costs for consumers.

Below is our take on key measures in this piece of legislation.

Curtailing pharmaceutical monopoly power over drug pricing

A number of factors have contributed to high prescription drug prices in the U.S. In our view, the most fundamental cause of unconscionably high drug prices is our failure to counterbalance the monopoly power, which drug companies acquire via existing federal laws, with a strong coordinated purchasing strategy. We are encouraged to see that H.R.3 proposes a number of measures that partially curtail this excessive pharmaceutical monopoly power to grant the federal government the authority to negotiate drug prices and implement effective measures to lower prescription drug costs. They include:

  • Relax the ban on Medicare to negotiate directly with drug companies – H.R.3 somewhat relaxes the ‘noninterference’ clause under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.  Under H.R.3 the HHS Secretary would be allowed to negotiate prices — not of all, but the 250 most costly drugs each year.

  • Set a price standard based on an international price index – To limit how high the HHS Secretary can go in negotiating the prices of these drugs, H.R.3 also creates an international price index: no more than 1.2 times the average price in six countries (Australia, Canada, France, Germany, Japan and the United Kingdom).

Drug companies are also required to offer the price resulted in negotiations to other payers, including the private market. This means over 150 million Americans enrolled in employer sponsored plans and 70 million Medicaid beneficiaries would benefit from this policy.

  • Penalize noncompliance and out-of-control price hike – If a drug company refuses to enter negotiations, a high non-compliance fee would be imposed — starting at 65 percent of the annual gross sales, increasing by 10 percent every quarter to a maximum of 95 percent. In addition, H.R.3 requires drug companies to issue rebates to Medicare if they increase drug costs faster than inflation.

Improving prescription drug affordability for consumers

Prescription drug affordability is important, especially for millions of Americans living with chronic conditions, many of whom rely on more than one costly medications. However, insurers have responded to high drug prices by shifting costs to consumers largely by imposing high cost sharing (through deductibles, coinsurance or copayments) and adopting discriminatory formulary designs. This has exacerbates affordability problems for consumers. To improve prescription drug affordability and benefits for consumers, H.R.3 takes the first step to:

  • Cap out-of-pocket costs for Medicare beneficiaries – Currently, there is no cap for out of-pocket costs on prescription drugs for Medicare beneficiaries. As a result, seniors and people with disabilities pay out-of-pocket more than $10,000 per enrollee per year for prescription drugs. H.R.3 would improve prescription drug affordability for Medicare Part D enrollees by capping annual out-of-pocket costs at $2,000.
  • Hold drug companies and insurers responsible for drug coverage in catastrophic situations – Although Medicare Part D has helped make prescription drugs more affordable for seniors, as many as one million of Medicare Part D enrollees remain exposed to five percent of the cost of their medications. To further protect Medicare beneficiaries, H.R.3 requires insurers to pay more drug coverage in catastrophic situations. This creates strong incentives for insurers to negotiate drug prices with drug companies.
  • Expand Medicare benefits – H.R.3 intends to use budget savings from price negotiations to improve Medicare benefit package to include dental, vision and hearing services.

Curbing out-of-control prescription drug prices requires bold actions at the federal level. Although H.R.3 does not address all of the problems we identified in our issue brief (such as ending pharmaceutical anticompetitive practices and direct-to-consumer advertising), it represents a good first step. We commend the House leadership for bringing the legislation forward and urge Congress to ensure its passage.