Legislation that would give Medicare authority to negotiate drug prices would save Medicare $345 billion over ten years, according to a preliminary analysis from the Congressional Budget Office (CBO). The CBO says the bill would also result in lower costs for Medicare’s 61 million beneficiaries.
The Lower Drug Costs Now Act (H.R. 3) introduced in the House by Representative Frank Pallone, Jr. (NJ-6) would allow Medicare to negotiate lower prices on certain prescription drugs. Under the legislation, prices for up to 250 of the most expensive drugs could not exceed 120% of the average international market price (AIM). AIM is an international drug index based on prices in Australia, Canada, France, Germany, Japan and the United Kingdom where governments negotiate lower drug costs. Additional provisions would restrict prices of drugs when no international prices are available. If manufacturers do not enter into negotiations, they could be subject to an excise tax of up to 95% of the sales of these drugs.
The CBO estimates that the negotiated prices would be at or below the current net prices that prescription drug plans currently negotiate with manufacturers. The legislation requires that the Medicare-negotiated “maximum fair price” must be made available to beneficiaries at the point of sale, estimating that consumers would save about $27 billion over the first decade in drug costs. The CBO expects that the lower drug costs will also result in lower drug plan premiums and cost sharing but is still working on quantifying the average amount of that reduction.
Because of the reduced out-of-pocket spending, the CBO estimates that beneficiaries would fill more prescriptions. This in turn, the CBO estimates, would tend to reduce federal spending for services covered by Medicare Part A and Part B by about $42 billion over the 2023-2029 period.
The drug pricing approach used in the legislation has broad support among retirees. Seventy-two percent of participants in TSCL’s national Senior Survey support tying prices to an international drug pricing index in order to lower drug costs. TSCL supports legislation that allows Medicare to negotiate drug costs.
Your input on drug costs can help shape the fate of this bill. TSCL is sharing our survey results with the media and as well as with lawmakers in Congress. Please take our new 2020 Senior Survey and help us collect data on Medicare beneficiaries’ out-of-pocket drug costs!
Thanks to all of you who participate, from all of us at TSCL!
Source: “Effects of Drug Price Negotiation Stemming from Title 1 of H.R. 3, the Lower Drug Costs Now Act of 2019,” letter to Honorable Frank Pallone Jr., Chairman, Committee on Energy and Commerce, Congressional Budget Office, October 11, 2019, https://www.cbo.gov/publication/55722.