The US House of Representatives previously passed a measure called “H.R. 3, the Lower Drug Costs Now Act of 2019” which would require HHS to negotiate the price of between 25-125 brand-name drugs without generic competitors. That negotiated price would be available Medicare, Medicaid, and private payers. Importantly, HR 3 also provides negotiating leverage to HHS.
It would have set an upper limit for the negotiated price equal to 120% of the Average International Market price paid by Australia, Canada, France, Germany, Japan, and the UK.
It would have also imposed financial penalties on drug companies that don’t comply with the negotiating process. Manufacturers that don’t negotiate would face an escalating excise tax on the previous year’s gross sales of the drug in question, starting at 65% and increasing by 10% every quarter to a maximum of 95%.
President Biden’s plan went even further than H.R. 3 by allowing Medicare to negotiate drug prices across the board, not just on 25–125 drugs (ending the drug companies into a panic).
He proposed allowing Medicare to negotiate a fair drug price for all drugs – including the costs of the research and development and a reasonable profit. Drug companies could then only set prices based on the rate of inflation after it’s determined how much they’ve invested and what a reasonable profit constitutes. Once Medicare negotiates a lower drug price, employer-based plans would get access to the same drug for the same price as Medicare.
Sadly, deep-pocketed lobbyists have the upper hand in the Senate- and if drug pricing reform happens this session in Reconciliation- it’s likely to be the watered-down version negotiated by Senator Sinema that makes some changes to drug pricing but is far less transformational than H.R. 3 would have been.