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1 Phillip L. Swagel, Effects of Drug Price Negotiation Stemming From Title 1 of H.R. 3, the Lower Drug Costs Now Act of 2019, on Spending and Revenues Related to Part D of Medicare 1 (October 11, 2019)

handle is hein.congrec/cboeffdp0001 and id is 1 raw text is: CONGRESSIONAL BUDGET OFFICE Phillip L. Swagel, Director U.S. Congress Washington, DC 20515 October 11, 2019 Honorable Frank Pallone Jr. Chairman Committee on Energy and Commerce U.S. House of Representatives Washington, DC 20515 Re: Effects of Drug Price Negotiation Stemming From Title 1 of H.R. 3, the Lower Drug Costs Now Act of 2019, on Spending and Revenues Related to Part D of Medicare Dear Mr. Chairman: In response to your request, the Congressional Budget Office and the staff of the Joint Committee on Taxation (JCT) have been analyzing the effects of H.R. 3, the Lower Drug Costs Now Act of 2019, as introduced on September 19, 2019. This letter describes a preliminary estimate of the effects of title I of the bill on federal direct spending and revenues related to Part D of Medicare, the outpatient drug benefit. CBO is working on analyses of other effects of that title and of other titles of the bill, but that work is not complete. Title I of H.R. 3 would require manufacturers of certain prescription drugs to negotiate prices with the Secretary of Health and Human Services (HHS). Prices for those drugs could not exceed 120 percent of the average price in certain other countries. Other provisions also would affect prices for drugs, including limits on prices of drugs for which international prices are not available. If manufacturers did not enter into negotiations or agree to prices by specified dates or if they did not meet other conditions, they would be subject to an excise tax of up to 95 percent of the sales of those drugs. CBO estimates that applying the provisions in title I to prescription drugs covered under Part D of Medicare would reduce federal direct spending for Medicare by $345 billion over the 2023-2029 period (see Table 1). JCT estimates that revenue collections from the excise tax in title I would not be significant. The largest savings would come from lower prices for existing drugs that are sold internationally, for which the price ceiling would be binding in most but not all cases, CBO estimates. The lower prices under the bill would immediately lower current and expected future revenues for drug manufacturers, change manufacturers' incentives, and have broad effects on the drug market. A manufacturer that was dissatisfied with a negotiation could

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