Pelosi's plan wouldhave Medicare pay no more than 1.2 times the average prices paid inthe U.K., Germany, Australia, Canada, Japan and France for manydrugs. (Photo: Shutterstock)

(Bloomberg Opinion) –Every time Congress tries to take ondrug prices, it runs into the pharmaceuticallobby's timeworn objection: Lowering prices even a penny would endall drug innovation, allowing cures to slip through our fingers anddimming the flickering hopes of desperate patients.

This doomsday argument has worked for decades, but House SpeakerNancy Pelosi's drug-price negotiation legislation is putting it tothe test. A Congressional Budget Office analysis finds that thelower prices envisioned by her bill would barely slow new drugdiscovery at all.

Related: States pass record number of laws to curb drugprices

Pelosi's plan is to finally use the market power of Medicare,which is effectively the largest purchaser of drugs in the world,to push prices down. As things stand, multiple laws preventMedicare from negotiating prices with drugmakers. One of themforbids the agency from negotiating the prices of medicines sold inpharmacies, another mandates paying whatever prices companies setfor the intravenous drugs that doctors administer in their offices,and a third says the cost of drugs given in the hospital, no matterhow high, should be directly incorporated into the hospital'sreimbursement.

Commercial insurers largely follow the same rules, which is whyaverage drug prices in the world's largest market are also theworld's highest. U.S. prices are four times those of Switzerland,for instance.

Pelosi's plan would have Medicare pay no more than 1.2 times theaverage prices paid in the U.K., Germany, Australia, Canada, Japanand France for many drugs. For those not sold overseas, Medicarewould get automatic discounts similar to those that state Medicaidsystems receive today. Negotiation would be used only for thosedrugs that lack robust generic competition and account forconsiderable taxpayer costs.

This change could save Medicare more than $300 billion dollarsin the first decade, the CBO found. A parallel report card from theindependent Office of the Actuary of Medicare estimates thathouseholds, state governments and businesses would save anadditional $243 billion.

To no one's surprise, the drug industry has declared the bill a"nuclear winter" for pharmaceutical innovation. But this timeCongress's accountants looked into that possibility and found it tobe a whopping exaggeration. After consulting with experts,including many in the pharmaceutical industry, they found that,under the legislation, drug discovery would carry on at95-97 percent of its current pace.

So hundreds of billions in savings to taxpayers, businesses andpatients would mean a real but very small decline in the rate atwhich new treatments are discovered. Would such a tradeoff makesociety sicker in the long run, or healthier? The bookkeepersdidn't say, but they dangled certain clues.

A significant share of the projected health-care savings fromthe legislation — some $42 billion — would come from patients morereliably taking the drugs they need, because they would cost less.As things stand today, insured American patients are up to seventimes more likely than patients in other high-income countries toskip doses because they can't afford them.

Consider, too, that Congress could make sure that the hundredsof billions in savings from the bill are reallocated toward health— perhaps by funding vision, dental and hearing coverage inMedicare, as the House Committee on Energy and Commerce hasproposed. Some of the money could be dedicated to biomedicalresearch and additional treatment for victims of the opioidepidemic.

We can't be certain exactly which drugs would be slower todevelop under Pelosi's plan, but we can guess, based on the way thelegislation would anchor prices to those paid in othercountries.

Highly effective drugs are expensive even outside the U.S. Forinstance, the CAR-T cell therapy Kymriah, which is effectiveagainst childhood leukemia, is reimbursed at nearly the same pricein the U.K. as it is in the U.S. So companies will always haveincentives to develop new useful medicines.

They will have reduced incentive to pursue the kinds ofless-effective drugs that other countries refuse to buy. TheDuchenne muscular dystrophy treatment Exondys 51 that costs nearly$1 million a year in the U.S., for example, isn't even available inEurope, because the data on its effectiveness are unconvincing.

Pelosi's bill may never make it to the Senate, such is theinfluence of pharma's fear campaign. But it is already a success:It has demonstrated that the U.S. can lower its pharmaceutical billat little cost to drug discovery.

Read more: 

• Brand-name prescription drug prices double in 6 to8 years
• Majority of Americans support current efforts tobring down drug prices
• Is killing drug rebates really the answer to highdrug prices?

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