Reports

Government Scorekeepers Likely Underestimate the Impact of Lower Drug Costs Now Act (H.R.3) on Investment in Innovative Medicines

May 7, 2021
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In 2019, the U.S. House of Representatives passed the “Lower Drug Costs Now Act” (H.R.3), which would require the federal government to set the price of many prescription medicines. The Congressional Budget Office (CBO), which is charged with calculating the costs of potential legislation to guide policymaking, estimated that if H.R.3 were enacted, government-set prices for medicines would reduce direct federal spending by nearly $500 billion between 2023 and 2029. H.R.3 would also significantly impact biopharmaceutical industry revenues. In contrast, other research suggests that industry revenues could decline by $1,275 billion to $1,655 billion between 2020 and 2029, which translates to a reduction in U.S. brand drug revenue of 34 percent to 44 percent across the Medicare and commercial markets.

Despite H.R.3’s unprecedented impact on the U.S. market, the world’s leading market for biopharmaceuticals, CBO projected that only 8 to 15 fewer new medicines would be developed over the next 10 years, with an additional 30 new medicines failing to reach the market in the following decade. Given the challenges inherent in forecasting the impact of a policy change of this magnitude on future innovation—and the potentially serious implications for drug development and consequently the health of the U.S. population—CRA was retained by the Pharmaceutical Research and Manufacturers of America (PhRMA) to review CBO’s approach to estimating the impact of H.R.3.

Following a review of the methods and related literature along with expert interviews, CRA concludes that there is no sufficient analogue to estimate the effect of a policy of H.R.3’s magnitude and that CBO likely underestimates the true impact of H.R.3 on future incentives for innovation. Therefore, policymakers have not been provided with sufficiently reliable estimates to adequately assess the risk of such a decision.

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