Late last week, House Democrats passed Speaker Nancy Pelosi’s Elijah E. Cummings Lower Drug Costs Now Act. This bill would, among other things, permit the Department of Health and Human Services (“HHS”) to negotiate lower prices for 250 of the costliest drugs on behalf of Medicare beneficiaries and other consumers. Although this particular legislation appears to have little chance of passing the Senate and appears to lack support from President Trump, it comes on the heels of several other efforts aimed at reducing prescription drug prices. For instance, the Trump administration has released its drug pricing blueprint to use similar price control mechanisms to lower Medicare drug prices. Additionally, just last month, Senator Cory Booker, along with Senators Bernie Sanders and Kamala Harris, introduced the Prescription Drug Affordability and Access Act (“Act” or “Prescription Act”) to regulate the cost of prescription drugs and threaten the abolishment of patent protections for non-compliant drug manufacturers. The current version of the proposal raises significant questions.
The Prescription Act proposes to create two new bodies: (1) the Bureau of Prescription Drug Affordability and Access (“Bureau”) within HHS to determine list prices for new and existing drugs; and (2) a Consumer Advisory Council (“Council”) comprised of patients, patient organizations, and medicine and health care finance experts to oversee the Bureau. Before a new drug can go to market, the Act obligates drug makers to provide the Bureau with sensitive information regarding the cost of research and development, the cost of the drug and comparable medications in other countries, and the federal investments of the drug’s discovery and production, among other things, in order for the Bureau to determine an “appropriate” price. For drugs already on the market, the Bureau would review the drug manufacturer’s cost profile and set an appropriate price based on the lesser of the Bureau-determined price or the median list price of eleven listed drug reference countries including Japan, Germany, the United Kingdom, France, Italy, Canada, Australia, Spain, the Netherlands, Switzerland, and Sweden. If drug makers charge an “inappropriate” price for a drug – i.e., a price above the amount determined by the Bureau, they must remit a rebate based on the surplus revenue earned to patients affected by the higher price. Further, if a drug maker fails to comply with the Bureau’s list price or remit excessive revenue earned within 30 days of receiving a notice that its price is “inappropriate,” HHS may void any patent related to the medication or clinical trial data or end other government-granted exclusivity. In the event HHS invalidates the patent, the Act contemplates that third parties should provide “reasonable compensation” to the patent holders, but the Act does not discuss how reasonable compensation would be determined.
In addition to the uncertainty regarding the calculation of “reasonable compensation,” the Act (like other similar proposals) does not appear to ensure that a drug product’s price reflects its true value. For instance, although the Bureau may take into account the cost of research and development for the particular drug at issue, there is no guarantee that the Bureau will account for (1) the often significant investment made in unsuccessful attempts to bring other drugs to market, or (2) the savings that a drug might bring to the healthcare market by preventing future illness or avoiding more costly treatment options. Also, the Act’s incorporation of reference pricing does not account for the nuances in healthcare systems in the reference countries, including the availability of alternative treatment methods in those countries.
Providing HHS the authority to invalidate patents and government licenses based on drug maker’s failure to abide by a drug price set on what appears to be an incomplete list of relevant factors promises to create further uncertainty for companies investing in drug product development. Companies would be well advised to continue monitoring progress on the Prescription Act, as well as drug pricing reforms more generally, as we head into an election year where government action on drug pricing appears to remain a central issue.