Congress Considers Referencing International Prices and More to Lower Drug Costs

Democrats in the US House of Representatives recently reintroduced their comprehensive prescription drug pricing reform bill, HR 3, and held hearings on drug  pricing.  However, prospects for enacting this legislation remains uncertain. In the meantime, states are moving forward with their own efforts to lower drug costs, many of which align with provisions in HR 3. 

First passed by the House in December 2019, HR 3 includes provisions that would, among other things: 

• Allow the US Department of Health and Human Services (HHS) to negotiate with manufacturers for the price of certain high-cost drugs, which would be benchmarked against 120 percent of the average of certain international prices; and  
• Require manufacturers that increase the price of a drug at a rate faster than inflation to pay the difference in the form of a rebate to Medicare, similar to rebates that already exist in Medicaid.  

The Congressional Budget Office (CBO) estimated in December 2019 that the price negotiation provisions of HR 3 would lower total net direct spending across purchasers by about $456 billion over the 2020 – 2029 period. The net savings from Medicare inflationary rebates was estimated to reduce spending by an additional $36 billion over that same period. 

Importantly for states and individuals not covered by Medicare, the negotiated prices would apply to commercial payers, unless they explicitly opt out of the program. This would extend potential savings from negotiated prices to a much broader population, including state purchasers like state employee health plans. HR 3 also directs the Department of Labor and HHS to report on potential models for expanding the inflationary rebates beyond Medicare to individuals in group health plans.

The impact of the negotiated prices on Medicaid is less clear, however.  The December 2019 CBO analysis suggests that, as written, HR 3 could cause Medicaid net spending to increase, though by a small amount. Although negotiated prices in the commercial market would be expected to lower Medicaid’s spending for existing drugs, companies would be expected to raise their launch prices in the future, and Medicaid spending on those drugs would be higher. Despite expectations that manufacturers will raise their launch prices, CBO estimates net reductions in Medicare spending and lower costs for employer-sponsored insurance, resulting in an estimated decline in premiums. 

While keeping an eye on possible federal action, a number of states are pursuing strategies similar to HR 3 to lower drug prices, including looking to international prices to achieve savings.  

Legislators in seven states (PA, OK, ND, HI, RI, NC, ME) have introduced NASHP’s model legislation to establish international reference rates for payers within a state. While HR 3 limits the negotiated price to a percentage of the average of prices in Australia, Canada, France, Germany, Japan, and the UK, the state model establishes a more stream-lined approach using publicly available pricing data from Canada’s four most populous provinces.  

Recent research from RAND shows that US drug prices are 218 percent of Canadian prices, suggesting ample opportunity for state savings from referencing international prices.  NASHP’s savings estimates for states that have pursued this option range from $22 – 52 million in annual savings for just a few dozen drugs in the state employee health plan alone.  

States are also exploring policies like the inflationary rebates in HR 3 that would penalize manufacturers who raise the prices of their drugs more quickly than the rate of inflation. Massachusetts and Connecticut have proposed bills that would penalize manufacturers that increase their prices above the sum of inflation plus 2 percent of the product price. Both bills would impose civil penalties on manufacturers that sell drugs above this threshold. 

To learn more about state action on prescription drug prices, see the Center for State Rx Drug Pricing’s legislative tracker.