On Wednesday, Congressional Budget Office (CBO) Director Phillip Swagel testified before the House Budget Committee. During the testimony, Rep. Dan Crenshaw (R-TX) asked Swagel about the Democrats’ proposed prescription drug price control bill, H.R. 3.
The following exchange took place:
CRENSHAW: What else did CBO say about H.R. 3? About how many fewer cures there would be because of those price controls? It’s not a negotiation. Let’s not call it that; we know it’s not. It’s a formula for price controls on drug prices. So what did CBO say that would do to innovation?
SWAGEL: So, we also carefully modeled that as well using the economic research literature and showed that over the ensuing several decades, something on the order of 30 fewer drugs would be produced. About a 10% reduction.
CRENSHAW: So, we can afford the drugs, but they won’t exist. So it doesn’t really matter if you can afford them because they won’t exist. That’s not a really good trade-off.
The pertinent portion of the video begins at the 1:57:17 mark:
The CBO report for H.R. 3 reads in part:
CBO estimates that under the bill, approximately 8 fewer drugs would be introduced to the U.S. market over the 2020-2029 period, and about 30 fewer drugs over the subsequent decade. (Under current law, 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 estimates are in the middle of the distribution of possible outcomes, in CBO’s assessment, and are uncertain.
Those effects would occur because the potential global revenues for a new drug over its lifetime would decline as a result of enactment, and in some cases the prospect of lower revenues would make investments in research and development less attractive to pharmaceutical companies. The result would be fewer new drug products developed and coming to market. The effects would be larger in the 2030s because of the considerable time needed to develop new drugs and because of the larger effects that would occur when more phases of development are affected. Later in the 2030s, the size of the effects would stabilize at an annual reduction of roughly 10 percent.
Under H.R. 3, the Secretary of Health and Human Services (HHS) would create a negotiation relationship with pharmaceutical companies.
According to the summary for H.R. 3: “The negotiated maximum price [of certain drugs] may not exceed (1) 120% of the average price in Australia, Canada, France, Germany, Japan, and the United Kingdom; or (2) if such information is not available, 85% of the U.S. average manufacturer price. Drug manufacturers that fail to comply with the bill’s negotiation requirements are subject to civil and tax penalties.”
This tax penalty is described by the CBO:
Title I of H.R. 3 would require manufacturers of certain prescription drugs to negotiate prices with the Secretary of Health and Human Services (HHS) … If manufacturers did not enter into negotiations or agree to prices by specified dates or if they did not meet other conditions, they would be subject to an excise tax of up to 95 percent of the sales of those drugs.
Wayne Winegarden, director of Pacific Research Institute’s Center for Medical Economics and Innovation, writes in Forbes that prince controls “have always made bad situations worse.” He cites as examples the grain price controls in post-revolution France, which led to a “greater economic crisis,” and, more broadly, rent control, which he says leads to “housing shortages and sharp declines in housing quality.”
“No matter where they have been tried, price controls have always made bad situations worse because it is impossible for policymakers to have the necessary knowledge to dynamically set the efficient price level,” writes Winegarden.
He then writes directly of H.R. 3, and how the excise tax of up to 95% isn’t a negotiation, but a total domination, and that a better alternative to price controls would be reducing various “market barriers,” thus heightening competition.
House Republicans have also outlined their own proposal, H.R. 19.
According to a statement released from House Minority Leader Rep. Kevin McCarthy (R-CA), H.R. 19 would “make medication more affordable for seniors by capping their out-of-pocket costs; increase the availability of generic and biosimilar drugs by prohibiting drug companies from delaying the start of their exclusivity period and allowing the FDA to speed up its approval process for applications; and provide greater price transparency by requiring insurance companies to make information about drug costs available in the doctor’s office before a prescription is written.”