Pelosi’s plan to lower drug prices: the good and bad for health care

The centerpiece of House Speaker Nancy Pelosi’s plan to lower prescription drug prices — more direct Medicare negotiations with drug makers, with a hard cap on prices as a backstop — would save the federal government hundreds of billions of dollars, but fewer new drugs would come onto the market, according to a new analysis from the Congressional Budget Office.

The CBO report makes clear the tradeoff for more government intervention in the drug market: Cost savings for the government would equal less spending on research and development by drug companies, which will mean fewer new treatments. What we don’t know is how harmful, if at all, that would actually be.

Pelosi’s proposal, as Vox’s Li Zhou explained in more detail, would allow Medicare to negotiate with drug makers on at least 25 drugs annually and set a hard cap on the highest price the government would agree to pay for the drugs, using international prices as a reference when applicable. Drug makers that declined to participate in the negotiations would pay a massive tax and, as a result, CBO generally expects drug makers to play ball, though a few may decide to pull their drugs from the US market altogether.

The new CBO report projects Medicare would spend $345 billion less over 10 years under the Pelosi plan, most of that because of direct savings on prescription drug spending. At the same time, it anticipates eight to 15 fewer new treatments would be brought onto the US market over 10 years, as drug companies would lose an estimated $500 billion to $1 trillion in revenue.

For context, CBO expects 300 new drugs would be approved for sale in the United States over the same 10-year period. So we’re not talking about a dramatic contraction of the US drug market. But what we don’t know for sure is whether the decrease in drug development would mean fewer innovative breakthrough treatments or if drug makers would instead be discouraged from bringing treatments with marginal efficacy over existing drugs to the market.

The former would be a real problem and adversely affect the long-term health of American patients. The latter, on the other hand, would arguably mean a more efficient pharmaceutical market. The CBO report expressly does not draw a conclusion about which scenario would happen. It doesn’t try to resolve a tension between the increase in pharmaceutical use in the near term (because drugs are cheaper) and the long-term implications of fewer new drugs:

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.

Elsewhere in their report, the CBO analysts wrote of these potentially unrealized treatments: “It is difficult to know in advance the nature of these drugs or to quantify the effect of foregone innovation on health.”

So all we get is a big shrug on this critical issue, unfortunately, though it is admittedly an extraordinarily difficult question to try to answer.

There are some other interesting tradeoffs discussed in the CBO report. Prices in other countries are expected to rise because they help set the limits for the prices that can be charged in the United States under the Pelosi plan. List prices for new drugs debuting in the US might be set even higher, as one way to offset the mandated discounts under this proposal.

But this tradeoff — more savings, less innovation — is at the core of the debate about lowering drug costs. The CBO analysis reminds us that such an exchange is inescapable. The question we must still tangle with, one that would benefit from even more analysis in the coming months and years, is whether that exchange is worth making.

This story appears in VoxCare, a newsletter from Vox on the latest twists and turns in America’s health care debate. Sign up to get VoxCare in your inbox along with more health care stats and news.

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