Not so much “negotiation”

The House has passed HR-3, a law to lower drug prices and expand Medicare benefits. Not likely to will ever become law as is, but it will receive its share of press coverage.

Here is what the CBO assessment says about negotiation drug prices. As you can see there is not much that could be called negotiation, more like price caps.

Title I, Lowering Prices Through Fair Drug Price Negotiation

In their October 2019 analysis of title I, CBO and JCT noted that the Secretary of Health and Human Services (HHS) would be required to negotiate prices for selected drugs so that, in general, prices did not exceed 120 percent of the average in a reference group of six foreign countries (Australia, Canada, France, Germany, Japan, and the United Kingdom). Negotiated prices would be used by plans participating in Part D of Medicare (the outpatient drug benefit) and would be available to insurers in the commercial market. Insurers could opt out of using those prices. Drug manufacturers that do not agree to participate in negotiations or that fail to agree to a negotiated price would be subject to an excise tax. Manufacturers would be prohibited from deducting the excise tax payments in determining their income taxes.

The estimates are uncertain. For example, the price negotiation process could be implemented in ways that differ from CBO’s interpretation, and manufacturers might respond to it differently from what CBO has projected.

We have to ask, what will HHS negotiate with? Why would a manufacturer agree to anything less than the cap … unless they were promised exclusivity via a formulary? It would also be interesting to know how much less 120% of the reference group price is of the already negotiated prices used by Medicare Part D plans, if at all.

If you would like to read CBOs full assessment of the bill, click here


By the way, make sure you read this section too:

Effect on Pharmaceutical Research and Development

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. CBO estimates that the effects on new drug introductions from increased federal spending under the bill on biomedical research would be modest and would almost all occur more than 20 years in the future.

The introduction of new drugs would tend to be delayed in the six reference countries: Australia, Canada, France, Germany, Japan, and the United Kingdom. Prices of new drugs in those countries would rise somewhat. The drugs not introduced in the United States as a result of the legislation also would not be introduced in those countries. CBO did not predict what kind of drugs would be affected or analyze the effects of forgone innovation on public health.


  1. Speaking as a U.S. Taxpayer (and voter) who’s going to get stuck with paying my “fair share” of everyone else’s drug costs in addition to my own …. If the best “deal” MY Government can come up with is paying 120% of what everyone else pays, maybe it’s time to shop around for some new Government!


  2. If I was a drug company, I would raise the list prices for everybody. Each country now negotiates or sets what they pay. I am betting that the 120% requirement will be the list price in each country not what they actually pay. The drug companies all claim the PBM get kickbacks, I mean rebates, but you can’t negotiate on rebates since they are the not price and in theory guaranteed day in and day out. Therefore this law just gave the drug companies a blank check to raise prices 20% before every negotiating round.


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