Interest in lowering drug costs for patients and taxpayers has led to the recent reintroduction of HR3—the Elijah E. Cummings Lower Drug Costs Now Act. As a result, the potential enactment of international reference pricing is once again the subject of intense policy debate among policy makers and broader health care stakeholders. This proposal would link the price that Medicare pays for select drugs to prices paid by other countries, with these negotiated prices also extending to private plans. Drug manufacturers that do not agree to participate in the reference pricing scheme would be subject to an excise tax up to 95 percent. In addition, manufacturers would be prohibited from deducting the excise tax payments in determining their income taxes. Combined, these policies mean few, if any, drug makers would opt out of the scheme.
Given that biopharmaceutical innovation has historically been a critical driver of improvements in patient health, it is essential to examine how enactment of international reference pricing policies may affect future innovation and patient outcomes. Here, we explore the trade-offs and risks associated with international reference pricing and suggest alternative policy approaches to reduce prescription drug costs while maintaining incentives for innovation.
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