• Freedom
  • Innovation
  • Growth

Pelosi Drug Pricing Scheme 'Most Radical Government Takeover of Health Care System Yet'

Institute for Policy Innovation

DALLAS – House Speaker Nancy Pelosi’s drug pricing scheme slaps government price controls on Medicare Parts B and D, financially punishes any drug manufacturer that cannot accept the government-imposed price, and puts Washington’s financial interests before the well-being of actual patients.

Demands to let the government "negotiate" drug prices are actually demands for the government to dictate drug prices. The legislative summary for the Democrats' new bill, "Lower Prescription Drug Costs Now" (H.R. 3), states, "If a drug manufacturer refuses to participate in any part of the negotiation process or does not reach agreement with HHS, they will be assessed a Non-Compliance Fee starting at 65 percent of the gross sales of the drug in question and increasing by ten percent every quarter the manufacturer is out of compliance, up to a maximum of 95 percent." (emphasis added)

In other words, if a drug manufacturer disagrees with the government's proposed price for its drug, it will be taxed 65% of the gross sales of that drug, rising to 95% within a year. 

"This is dictation, not negotiation," said IPI resident scholar Dr. Merrill Matthews. "Either the company accepts the government's price or it forfeits nearly all of the revenue it would receive from the sale of the drug. Since the government subsidizes most of the cost of drugs under Medicare Parts B and D, it has a very strong financial incentive to lowball the price." 

“Forcing a company to hand over 95% of a drug's gross sales isn't a penalty, it’s extortion," said Matthews.

But H.R. 3 doesn’t stop at just dictating the price of drugs purchased through government programs—it attempts to dictate the prices of drugs sold in the private sector, as well. 

"If a manufacturer agrees to a price and then overcharges Medicare or fails to offer the negotiated price to other payers, the manufacturer will be subject to a civil monetary penalty equal to ten times the difference,” according to the summary. 

This is the most radical government takeover of the health care system yet. Up to this point, Democrats tried to claim they were still allowing the market to function. No one can seriously claim that under H.R. 3.

“These changes do patients more harm than good,” said IPI president Tom Giovanetti. “Price controls may save the government money in the short term, but they would slow the rate of medical progress. If the federal government is free to dictate lower drug prices, drug developers will have a harder time recouping those investments once a drug hits the market.

And the greatest harm will be to the drugs that are never developed because manufacturers know that under government-imposed price controls they will never recoup their costs. “We are seeing some amazing cures emerging from the manufacturers,” said Matthews. “We need to devote our energies to developing ways to pay for them. Pelosi's bill will end that innovation before it even starts."

“Let this be a warning to any industry,” Matthews said. “This bill sets the precedent that if the government thinks a company's—any company's—prices are too high, it can dictate new prices.”