Alternative Approaches to Reducing Prescription Drug Prices
CBO discusses prescription drug prices and approaches aimed at reducing those prices. Some of the approaches would cap prices or limit their growth, and other approaches would promote price competition or affect the flow of information.
Summary
In this report, the Congressional Budget Office discusses the factors underlying prescription drug prices and examines a set of policy approaches aimed at reducing those prices. The agency assesses how each approach, if implemented in 2025, would affect average drug prices for purchasers in the United States in 2031. Inclusion or exclusion of any approach does not imply an endorsement or a rejection by CBO.
Some of the approaches that CBO examined aim to reduce prescription drug prices by capping them or limiting their growth; others would reduce prices by promoting price competition or affecting the flow of information.
One examined approach would reduce prices by more than 5 percent—and possibly substantially more. That approach would set maximum allowed prices based on prices outside the United States.
An approach that expanded the Medicare Drug Price Negotiation Program would lead to a small reduction (1 percent to 3 percent) or a very small reduction (less than 1 percent) in average prices. An approach requiring manufacturers to pay inflation rebates for sales in the commercial market would lead to a small price reduction.
Four approaches would lead to a very small price reduction, no reduction, or a price increase. Those approaches would:
- Allow commercial importation of prescription drugs distributed outside the United States,
- Eliminate or limit direct-to-consumer prescription drug advertising,
- Facilitate earlier market entry for generics and biosimilar drugs (which are analogous to generic drugs but are made from living organisms), or
- Increase transparency in brand-name drug prices.
Reducing drug prices would save money for patients and payers, but reducing manufacturers’ expected revenue from drugs that are not yet on the market would make investments in pharmaceutical research and development less profitable, thus decreasing the number of new drugs developed and introduced. Larger reductions in expected revenue would have a greater effect than smaller reductions.
Some approaches would have smaller effects on the prices of drugs launched after the approach was implemented than on those that were on the market beforehand. Additionally, some approaches would disrupt the availability of drugs in other countries, increase foreign drug prices, or both.