On April 22, 2021, the chairs of the Ways and Means and the Education and Labor committees reintroduced H.R. 3—the Elijah E. Cummings Lower Drug Costs Now Act. A previous version of this legislation passed the House of Representatives by a bipartisan vote in 2019, and its reintroduction is a significant step toward adopting bold reforms to lower prescription drug prices. H.R. 3 would allow the secretary of the U.S. Department of Health and Human Services (HHS) to negotiate lower prices on many of the highest-priced drugs—plus all insulin—directly with pharmaceutical companies. These lower prices would also be available to private insurers and employers, allowing tens of millions additional people to benefit from the negotiation process.
New analysis from the Center for American Progress (CAP) demonstrates the impact of H.R. 3’s negotiation process on prices for select prescription drugs likely to be eligible for negotiation. People with diabetes could save hundreds of dollars each year on their supply of insulin. For high-priced specialty drugs, the savings on a one-month supply could reach thousands of dollars. And for an extraordinarily expensive drug used to treat multiple sclerosis, Acthar, negotiation could bring down the price for a course of treatment by about $100,000.
H.R. 3, if passed, would be a historic achievement, making prescription drugs more affordable and accessible. The American public is eager for prescription drug reform, and survey data show that 80 percent of adults believe prescription drugs are unreasonably expensive. Almost 90 percent of adults support allowing the government to negotiate drug prices. This is not surprising: Half of all adults currently take prescription drugs, and 3 in 10 adults haven’t taken their prescriptions as prescribed due to cost—sometimes with lethal consequences. H.R. 3 would provide meaningful and much-needed relief to tens of millions of people.
H.R. 3’s new negotiation process and rebates
H.R. 3 would establish a “Fair Price Negotiation Program,” under which the secretary of HHS would negotiate directly with pharmaceutical companies on the prices of certain brand name drugs without generic or biosimilar competition. The negotiation process prioritizes drugs with the greatest savings potential—those that rank highest in terms of spending. HHS would be required to negotiate a minimum of 25 drugs in 2024 and a minimum of 50 drugs in following years. HHS would also negotiate prices for insulin products. If pharmaceutical companies refuse to negotiate, they would face civil and tax penalties.
H.R. 3 would set an upper limit for negotiation at 120 percent of the drug’s average price in Australia, Canada, France, Germany, and the United Kingdom. With U.S. drug prices averaging 2.56 times those in 32 peer countries in the Organization for Economic Co-Operation and Development, according to the RAND Corporation, this step alone would produce significant savings. If international prices were unavailable for a particular drug, the upper limit on the negotiated price would be 85 percent of the average manufacturer price (AMP). The Congressional Budget Office (CBO) estimates that this particular negotiation structure would reduce net prices—that is, after rebates and discounts—by an average of 55 percent for Medicare and privately insured beneficiaries for the first group of drugs to undergo negotiations. Other backstops for upper price limits in negotiations could potentially produce similar savings.
In addition, H.R. 3 would require pharmaceutical manufacturers to pay rebates for the amount they raised prices for covered drugs above the rate of inflation. Drugmakers often set prices for brand name and specialty drugs to maximize their profits as high as the market will bear—both for the drug’s launch and throughout a drug’s life. These price increases can be substantial and can limit access for consumers reliant on a stable course of treatment. For example, the price for AbbVie’s Humira, the world’s top selling drug, has increased by 470 percent since it was first approved in 2002, with 27 price hikes in 19 years. This includes a 9.9 percent increase in April 2015, followed by a 7.9 percent hike just four months later. The House Committee on Oversight and Reform released a report earlier this year that cited AbbVie internal documents that revealed executives’ bonuses were directly tied to Humira revenue.
Rebates for drugs with significant price hikes would be a lifeline for millions of consumers. Table 1 lists some of the drugs with dramatic price hikes in January 2021—all with price increases more than 13 times the rate of inflation (0.6 percent) they would be compared against under H.R. 3.* For example, the list price of Nocdurna, used to treat frequent nighttime urination, increased by 10 percent in January 2021.
H.R. 3 would lower costs for the government, patients, and businesses
The savings to the federal government from drug price inflation rebates and negotiation would be dramatic, amounting to nearly $500 billion over a decade, according to CBO. The bill reinvests part of these savings into prescription drug innovation by increasing federal funding for biomedical research and development.
H.R. 3 would lower costs for Medicare beneficiaries enrolled in Part D plans in multiple ways. First, beneficiaries who have not yet met their deductible would pay lower prices at the pharmacy. Second, as the CBO projects, lower drug prices would in turn reduce beneficiary premiums and cost sharing. Third, H.R. 3 would cap Medicare beneficiaries’ out-of-pocket drug costs at $2,000. Currently, seniors must spend $6,550 before reaching catastrophic coverage in Part D, and some coinsurance and copayments are still required under catastrophic coverage.
Critically, the negotiated prices would also be available to private health care payers, including employers. While insurance can limit patients’ out-of-pocket costs for medication, the lower prices would benefit those who have not yet reached their deductibles or face coinsurance. In addition, all consumers in private coverage could benefit through reduced premiums.
H.R. 3 would save private businesses $43 billion and households $120 billion in premiums and out-of-pocket costs over a decade, according to a December 2019 actuarial analysis by the Centers for Medicare and Medicaid Services. A more recent study by West Health projected even greater savings: H.R. 3 would lower costs for employer-sponsored insurance by $256 billion over the 2023 to 2029 period, including a reduction of $61 billion in employees’ share of premiums and cost sharing. In addition, people who purchase coverage on their own through the Affordable Care Act marketplaces would save $36 billion in premiums and cost sharing over the same time period.
Estimates of savings on branded drugs from negotiations
To estimate the potential savings associated with H.R. 3, the authors selected 22 drugs that meet H.R. 3’s criteria for negotiation. These drugs are single source, with no generic or biosimilar competition; are among the top drugs by Medicare Part D aggregate spending in 2019; or are insulin products. The authors’ analysis applies the methodology outlined in a 2019 CAP analysis of H.R. 3 to more recent data on drug prices and utilization. (See the methodology appendix at the end of this column for more details)
For patients who have not yet met their deductible, the savings represent a possible reduction in out-of-pocket costs. For others who might owe a smaller copayment or coinsurance, the savings would accrue to the payer and could be passed on to enrollees indirectly through lower premiums or cost sharing.
CAP’s findings point to significant savings on many drugs. The reduction in net price of a 30-day supply for some of the top drugs by Part D spending is shown in Table 2. People with diabetes could expect to see a price reduction between $28 and $176 for a typical monthly supply of commonly prescribed insulin drugs. A patient taking Eliquis, a blood thinner used to prevent blood clots and strokes, could save as much as $98 per month. The savings could amount to thousands per month for other drugs, including for Remlivid ($8,124) and Ibrance ($6,683), both of which are used to treat cancer. For Acthar, which carries a notoriously high list price of roughly $40,000 for a single vial, the savings would be $99,592 for the amount a patient with multiple sclerosis would require for a three-week course of treatment.
New drugs have been among the most expensive, and launch prices have been rising. For example, the list price for Trikafta, a breakthrough treatment for cystic fibrosis that debuted in 2019, remains $23,896 for a 28-day supply, or about $300,000 annually. The recently approved drug for Alzheimer’s disease, Aduhelm, is priced at $56,000 per year. H.R. 3 would reduce prices of new drugs and others that lack international comparison data on pricing by capping negotiated prices at 85 percent of the U.S. average manufacturer price.
H.R. 3 would provide long-overdue relief from excessive drug prices. By empowering the Medicare program to negotiate for fairer prices, both beneficiaries and those with private insurance would benefit from lower costs to important and life-sustaining medications. Policymakers who care about Americans’ health and financial well-being must act swiftly to support this critical bill.
Nicole Rapfogel is a research assistant for Health Policy at the Center for American Progress. Emily Gee is the senior economist and acting managing director of Health Policy at the Center. Maura Calsyn is the vice president of Health Policy at the Center.
This publication was made possible in part by a grant from the Peter G. Peterson Foundation. The statements and the views expressed are solely the responsibility of the Center for American Progress.
The authors would like to thank Sarah Kaminer Bourland and Natalie Litton of Patients for Affordable Drugs for their generous contributions to the analysis of prescription drug pricing and dosage.
Prescription drugs are transacted at various prices during their journey through the pharmaceutical supply chain, including the manufacturer’s sales price and the retail cost at the pharmacy. For this analysis, the authors started with each drug’s wholesale acquisition cost (WAC), also known as the list price, which is the only type of price defined in regulations. There is no single, publicly available catalog of WAC prices. Information on the WAC for a 30-day supply came from AnalySource. For insulin, the authors provided an illustrative example for a typical diabetic patient because insulin dosages vary among individuals. The price for Acthar, which has multiple indications, approximates for a three-week course of treatment for a patient with multiple sclerosis.
The authors estimated the current net Part D price by applying the average discount off WAC for the four quarters ending with the first quarter of 2021, according to an analysis of SSR Health data. In most cases, the authors used a drug-specific discount for calculations; where that information was unavailable, the authors used the average discount by therapeutic class. The dollar savings, which are shown in Table 1, were calculated by applying the CBO’s estimated 55 percent discount to the estimated net Part D price. A recent comparison of data on net prices published in JAMA Health Forum suggests that the SSR Health tends to overestimate non-Medicaid discounts. Therefore, the authors’ estimates of 30-day net prices and expected savings represent conservative estimates.
*Authors’ note: H.R. 3 uses the consumer price index for all urban consumers (CPI-U) “for the first month of the calendar quarter that is two calendar quarters prior to such described calendar quarter” as the rate of inflation. The authors used the CPI-U for June 2020 as the rate of inflation for January 2021.