Kamala Harris’s plan to reduce prescription drug costs, explained

The United States has some of the highest prescription drug prices of any developed country in the world. And for many, the costs are only continuing to climb.

Sen. Kamala Harris’s latest plan, which would enable the US government to set lower prices for all prescription drugs and boost competing alternatives, is one of the latest 2020 offerings to address this problem.

Harris’s proposal takes on two of the reasons drug prices have gotten so high: Currently, the US government has limited power when it comes to setting drug prices. Additionally, many pharmaceutical companies benefit from monopolies on certain drugs that are granted by the Food and Drug Administration, enabling them to effectively pick the prices that work for them.

Harris’s plan would empower the secretary of Health and Human Services to set new top prices for all drugs sold in America based on those used in other developed countries like Germany, Canada, and the UK. Additionally, if Congress is unable to approve legislation that would achieve these goals, Harris intends to use existing powers that both the agency and the president currently have to introduce more competition to the market.

Harris is one of several Democratic presidential candidates to unveil a proposal that targets the growing costs of prescription drugs. Sen. Bernie Sanders’s bill would set lower prices for drugs based on a median cost in other countries, Sen. Kirsten Gillibrand’s proposal would create a new pharmaceutical czar who would go after companies’ predatory practices, and Sen. Elizabeth Warren’s would enable the government to produce a more affordable version of some generic drugs. Former Vice President Joe Biden has also introduced a plan that would enable HHS to get more involved in negotiations on behalf of Medicare.

There’s no one way to obtain lower drug prices,” University of Washington at St. Louis professor Rachel Sachs told Vox, noting that Harris’s approach is a “very strong proposal with great potential.”

This plan is the latest from Harris to include a recurring stopgap: executive action. Given the number of votes needed in the Senate to pass any legislation, it’s possible that many ambitious Democratic ideas would not have the support needed to advance. Harris’s latest plan — and others that she’s released on gun control, equal pay, and immigration — would enable her to implement a hefty chunk of them by capitalizing on existing executive authority.

What Harris’s plan would do

As one of its main tenets, Harris’s plan would attempt to do something that House Democrats have been working on as well: enable the US government to play a bigger role in lowering the staggering cost of prescription drugs.

Under current law, the HHS secretary has little direct regulatory control over drug prices. The secretary has no authority to set them, and is even barred from directly negotiating the prices of prescription drugs covered by Medicare, an arrangement established in 2003 as part of the Medicare Modernization Act that set up Medicare’s prescription drug benefit.

Getting the government involved in both drug negotiations and price-setting would dramatically change how the system for determining prices currently works.

Harris’s plan would enable the HHS secretary to use an “international reference price” to set the prices of different medicines, reducing the prices of any that are sold for less in other developed countries. Additionally, if any company tried to increase the cost of a drug at a higher rate than that of inflation, it would be barred from doing so.

Specifically, Harris’s plan would not allow drug companies to sell a medicine in the US for more than 100 percent of the average price that it was being sold for in other countries that are part of the Organisation of Economic Cooperation and Development, an international group of 36 nations including the US.

This idea has been used in a number of countries — to great effect, says Sachs. Currently, Germany, France, and Norway use international reference prices as a means of maintaining fair drug costs.

Congressional plans, including the Sanders one, also use international reference prices as a means of pegging a particular drug’s price. The proposal House leadership is currently considering would enable Medicare to negotiate drug prices, and also uses the international reference price as a benchmark — as does a plan from President Donald Trump for drugs covered by Medicare Part B.

“To use an international reference price is quite a common strategy to lower prescription drug prices,” Sachs told Vox.

In order to ensure that companies adhere to this price-setting, Harris’s plan would impose a penalty if they don’t. Any profits that a company makes beyond a medicine’s set price would be taxed at 100 percent and ultimately returned to the customer as a rebate. A backstop like this is something that progressives especially have clamored for in the House.

One potential downfall of reference pricing, however, is that companies can adapt to this mechanism by driving up prices in other places, says George Mason University health policy professor Len Nichols.

“The downside of any formulaic pricing rule, whether the president’s or Senator Harris’s, is that this is not a one-time pricing game,” he told Vox. “PhRMA [Pharmaceutical Research and Manufacturers of America] will know that US prices will be linked to other countries’, and I and most economists would expect future EU/OECD prices to reflect that knowledge of follow-on effects.”

Harris intends to use existing executive authority if Congress does not approve the bill

Currently, House Democrats are in the process of developing their own bill to tackle prescription drug costs. And one of the biggest obstacles it could face is the Republican-controlled Senate, where Majority Leader Mitch McConnell is unlikely to consider anything that’s pushed by House leadership, let alone House progressives.

Harris has been among the 2020 candidates to most directly acknowledge this challenge. In her gun control plan, she would use an executive order to require gun vendors to conduct background checks. In her equal pay plan, she’d bar federal contractors from obtaining work using executive action if they failed to demonstrate that they’d closed their gender pay gap. In her plan to establish a path to citizenship for DACA recipients, she would use executive action to do away with bans that DREAMers face when they attempt to apply for a green card from their home country.

The prescription drugs plan is no different.

If Congress does not pass this measure, Harris says she intends to compile a report documenting the pharmaceutical companies that are price-gouging. Once the drugs in question have been identified, Harris would issue a warning to these companies, with the threat of introducing a competing alternative into the market as a punishment if they don’t voluntarily reduce their prices.

Presently, HHS already has the authority to offer such an alternative. It could provide patients a drug from Canada if one from the US was overpriced, for example. Additionally, the federal government already has the ability to dole out licenses for specific drugs to potential competitors if a company does not agree to reduce its prices. Harris says she intends to use both of these authorities, if needed.

“The law already gives the president and the executive branch great power to make a lot of these changes, but the current administration hasn’t been willing to exercise many of them,” says Sachs.

Despite claiming that the reduction of prescription drug prices was a major priority of his administration during the 2016 campaign, Trump’s efforts to address this issue have struggled to come to fruition. Harris’s proposal is designed to ensure that this wouldn’t happen if she were elected president.

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