On October 11, 2019, the U.S. Congressional Budget Office (CBO) sent a letter to Representative Frank Pallone Jr., Chairman of the Committee on Energy and Commerce, describing a preliminary estimate of the effects of Title I of H.R. 3 bill.
The letter is available here: https://www.cbo.gov/system/files/2019-10/hr3ltr.pdf
According to the letter, “CBO estimates that applying the provisions in title I to prescription drugs covered under Part D of Medicare would reduce federal direct spending for Medicare by $345 billion over the 2023-2029 period.” CBO states that “[t]he largest savings would come from lower prices for existing drugs that are sold internationally, for which the price ceiling would be binding in most but not all cases, CBO estimates.”
CBO estimates also anticipate adverse effects of H.R. 3 in the price and availability of drugs in other countries. Their preliminary estimate also suggests that “a reduction in revenues of $0.5 trillion to $1 trillion would lead to a reduction of approximately 8 to 15 new drugs coming to market over the next 10 years.” Below we quote two paragraphs with these conclusions.
“CBO also expects that enactment of title I of H.R. 3 would affect prescription drug prices in other countries, with foreign prices expected to rise in response to the link between those prices and prices in the United States. CBO further expects some new drugs would not be introduced in other countries or would be introduced in a limited set of other countries for which drug manufacturers can sell at sufficiently high prices—an effect that again reflects the feedback by which selling at low prices in other countries leads to lower U.S. prices. Over time, drug manufacturers might put in place mechanisms by which they can charge relatively high prices in other countries to avoid feedback that lowers U.S. prices while providing other forms of compensation that effectively reduce the net price of drugs in other countries. Those international effects would lessen the effectiveness of title I in reducing the level and growth of drug prices.
In addition to the effects on the federal budget, CBO anticipates, the bill would affect the use and availability of drugs over time. In the short term, lower prices would increase use of drugs and improve people’s health. In the longer term, CBO estimates that the reduction in manufacturers’ revenues from title I would result in lower spending on research and development and thus reduce the introduction of new drugs. CBO’s analysis of the bill is not complete; its preliminary estimate is that a reduction in revenues of $0.5 trillion to $1 trillion would lead to a reduction of approximately 8 to 15 new drugs coming to market over the next 10 years. (The Food and Drug Administration approves, on average, about 30 new drugs annually, suggesting that about 300 drugs might be approved over the next 10 years.)The overall effect on the health of families in the United States that would stem from increased use of prescription drugs but decreased availability of new drugs is unclear.”
Note that CBO sees a reduction of revenue of $.5 to $1 trillion, over a decade, to be associated with 8 to 15 fewer new drugs coming to the market, over the same period of time. Surely, the U.S. government could find a way to address the decline in innovation, if each new drug would otherwise cost U.S. residents $.5 trillion / 15 = $33 billion, to $1 trillion / 8 = $125 billion. Or $62-$67 billion, per drug, if you assume $.5 trillion/8 or $1 trillion /15.
The CBO analysis illustrates how incredibly inefficient is the current system in financing R&D for new drugs.