[Ip-health] CBO score of HR 3 has an interesting estimate of the trade-off between the cost of innovation, when financed through high prices

Luis Gil Abinader luis.gil.abinader at keionline.org
Thu Oct 17 10:16:21 PDT 2019


Link: https://www.keionline.org/31841

CBO score of HR 3 has an interesting estimate of the trade-off between the
cost of innovation, when financed through high prices

Posted on October 17, 2019 by James Love

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.

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 to $1 trillion / 8 = $125 billion.

The CBO analysis illustrates how incredibly inefficient is the current
system in financing R&D for new drugs.


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