Government Price Setting Has Potentially Devastating Consequences for Patients

Government price-setting policies come in a variety of forms, but they all lead to the government inserting itself between patients and providers, threatening access to treatments and chilling research and development of new medicines. In fact, in other countries that have resorted to government price setting, patients have access to fewer new medicines and wait longer to get the medicines they need. Instead of pursuing proposals that could hurt patients and cripple innovation, we need policies that protect access to treatments and make medicines more affordable.

Medicare “Negotiation”

A pharmacist explains the label of a medication bottle to an older patient

Medicare Part D provides seniors and people with disabilities affordable and comprehensive prescription medicine coverage. This is in large part because of a protection in the law known as the “noninterference clause.”

Unfortunately, some in Congress have proposed to repeal or waive this provision in the Medicare statute, claiming they want the government to be able to “negotiate” lower medicine prices.

The Congressional Budget Office has repeatedly said that repealing this part of the law so the government can “negotiate” could only save the government and patients money if access to medicines is sacrificed, for example, through the creation of a restrictive national formulary, or through price setting that would enable the government to pick winning and losing medicines, rather than patients and doctors making choices about appropriate treatments

Reference Pricing

Foreign Reference Pricing

Some government price-setting proposals implement foreign reference pricing, a system that allows the government to set prices based on those paid by foreign governments. This is also sometimes called international reference pricing.

This approach opens the door for the government to determine which medicines are worth providing access to (and which are not) based on the decisions of foreign governments—regardless of what patients and their doctors think.

Foreign reference pricing discourages continued research and development, meaning patients would have access to fewer new medicines and be forced to wait longer to get the medicines they need. One such proposal, known as H.R. 3, is estimated to cause close to a 90% reduction in new medicines developed by small U.S. biotech companies and the loss of more than 1 million U.S. jobs.

Domestic Reference Pricing

Other proposed approaches would implement “domestic reference pricing,” a mechanism allowing the government to set a maximum price for a given medicine using an average domestic price, and then potentially request deeper discounts from manufacturers based on other factors, or using one-size-fits-all, discriminatory judgements of value.

This is the approach used by Congress in the drug pricing provisions of the Build Back Better Act. Its domestic reference pricing scheme would gut the critical incentives necessary to support further investment in R&D after medicines are approved, discourage development of generic and biosimilar medicines and threaten access to future medical advancements.

Prescription Drug Affordability Boards

Prescription drug affordability boards give bureaucrats the power to arbitrarily set medication prices in a given state. As a result, decisions about medicines would be a part of a political process that changes with elections and the whims of politicians.

Under this policy, the state would evaluate whether certain medicines and treatments are “worth” paying for, meaning the state’s bureaucracy could come between patients and the treatments their doctors prescribe. This spells disaster for patients as they could face barriers to obtaining life-saving medication.

Government price setting threatens families’ access to the medicine they need

Photograph of Emily Hanson, PhRMA advocate
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Building a Better Health Care System

Americans deserve better solutions than government price-setting that would help make medicines more affordable for patients without upending the health care system or jeopardizing American innovation. For Medicare Part D, these include capping annual out-of-pocket costs for medicines, lowering cost-sharing, making out-of-pocket costs more predictable throughout the year, and ensuring savings negotiated with health plans and PBMs are passed on to patients at the pharmacy counter.

In the commercial market, insurance should work like insurance, sharing negotiated savings with patients at the pharmacy counter, ensuring cost-sharing assistance applies to out-of-pocket maximums, covering more medicines from day one and making out-of-pocket costs more predictable.

Our goal should be lowering out-of-pocket costs and improving patient access through commonsense, patient-centered solutions that don’t upend the health care system or American innovation. Government price setting isn’t the answer.