This overview is excerpted from Manatt on Health, Manatt’s subscription service that provides in-depth insights and analysis focused on the legal, policy and market developments. For more information on how to subscribe and to activate a complimentary one week trial to Manatt on Health, please reach out to Barret Jefferds.
On October 4, the Congressional Budget Office (CBO) published a report analyzing the potential fiscal implications of seven policy approaches aimed at reducing the net prices of retail prescription drugs. These approaches fell under two categories:
- Policies to cap drug prices or limit price growth.
- Policies to increase market competition or affect the flow of information in drug marketing.
Based on CBO’s assessment, most of these approaches would have “small or very small effects on prices.” CBO found that setting a maximum price based on the price for a single-source brand-name prescription drug in reference countries1 would lead to a significant reduction (more than 5 percent) in prescription drug prices domestically. The remainder of the policy approaches that CBO analyzed, however, would have a small or very small reduction in drug prices.
CBO also included in its report an entire chapter detailing the factors that “affect manufacturers’ incentives to develop new drugs.” CBO found that policies that would lower net prices—and thereby, manufacturers’ revenue—would disincentivize manufacturers from investing in research and development.
For more information on how to subscribe and to activate a complimentary one week trial to Manatt on Health, please reach out to Barret Jefferds.
1CBO assessed this model based loosely on the Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3), which passed the House in 2019 and used reference pricing based on prescription drug prices in the following countries: Australia, Canada, France, Germany, Japan, and the United Kingdom. A similar approach was also taken by the Trump Administration’s “most favored nation” drug pricing proposal for drugs covered by Medicare Part B, although with a broader set of countries.