The Congressional Budget Office (CBO) has just released a report that seems to cast shade on recent legislative proposals that aim to reduce drug prices by restricting drug company activities that purportedly delay the market entry of generic and biosimilar versions of brand name drug products. 

The CBO report, Alternative Approaches to Reducing Prescription Drug Prices (Oct. 2024), 

“discusses the economics of prescription drug prices and the global pharmaceutical market and evaluates a set of policy approaches aimed at reducing the average prices of prescription drugs distributed through the retail channels in the United States,” and 

“examines seven policy approaches to reduce the net prices of retail prescription drugs in the United States.”

Of the seven policy approaches discussed in the report (see list at end of this column), one stands out as particularly relevant to both innovator and generic drug companies; namely, CBO analyzed the potential cost savings from policies aimed at “[f]acilitating earlier market entry for generic and biosimilar drugs;” specifically, “the spectrum of” recent legislative proposals targeting practices “such as patent thickets, pay-for-delay arrangements,…citizen petitions,” ”product hopping" and so-called “parking” of 180-day generic exclusivity periods. 

The CBO's conclusion with respect to such policies may not be well-received by some members of Congress and governmental policy makers (including officials at the Federal Trade Commission (FTC), which has been an active proponent of many such policies). Notably, CBO concluded that

“recent proposals to accelerate generic and biosimilar entry that have been introduced in the Congress and analyzed by CBO would each reduce average drug prices in 2031 by a very small amount (0.1 percent to 1.0 percent) or by less than 0.1 percent”

CBO's conclusions seem at odds with the Federal Trade Commission's longstanding position that restricting these types of activities would generate significant drug price savings. For example, FTC has stated that “Pay-for-delay agreements have significantly postponed substantial consumer savings from lower generic drug prices.” FTC has also taken the position that product hopping can “obstruct generic competitors and preserve monopoly profits on a patented drug,” and thus "raise antitrust concerns" and threaten cost savings from generic competition. 

To be fair, CBO, FTC and others may be proceeding from different economic assumptions and analyzing different data sets in reaching their seemingly inconsistent conclusions, and it is not necessarily an apples-to-apples comparison. For example, the CBO report focuses on “net retail prices” of drugs as experienced by consumers and their insurers for a single unit of drug product, whereas policy makers often focus on the total governmental spending burden of drug coverage. FTC focuses on “competition” which can encompass and implicate both pricing and other stakeholders' costs. And as the old joke goes, “what happens when you put 10 economists in a room? You'll get 11 opinions.”  So it's worthwhile to mention some of the underlying bases for CBO's conclusions. Of particular relevance is the CBO's focus on the small number of drug products that would be affected by the various legislative proposals, at least in any given year. As the CBO report states:

“Policies that CBO examined would affect a very small percentage of overall drug spending for two reasons. First, brand-name drugs that become subject to generic or biosimilar competition in a given year account for only a limited share of total spending. For example, in CBO’s estimation, drugs experiencing first generic or biosimilar entry in 2031 would account for less than 5 percent of total drug spending in that year. Second, only a fraction of the drugs experiencing entry each year would be affected by any particular policy. Different barriers to entry prove binding for different drugs, so a policy that aims to address only one particular barrier to entry is unlikely to affect a large number of drugs. Of the proposals that CBO examined for this report, none would affect more than 10 percent of spending on the drugs experiencing entry each year.” 

The CBO report contains another important caveat that bridges the seeming differences in policy positions described above. While “CBO found that most of the [seven policy] approaches examined would have small or very small effects on prices,” the report also acknowledged that “[b]ecause of the size of the retail prescription drug market, even very small price changes could reduce drug spending by billions of dollars.”  In other words, policies that may have negligible impact on individuals in terms of drug costs may nevertheless generate significant governmental budget relief in the current U.S. healthcare system.

From a political perspective, however, CBO's report is fairly damaging to the arguments of those who seek to justify the cited legislative proposals as “kitchen table” solutions to families and individuals struggling to pay for prescription drugs. Politics being politics, however, it is unlikely that such arguments will be deterred by this CBO report.

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Further reading warranted: The generic competition policies discussed here are only a small part of the overall CBO report, which also addressed potential cost savings from six other sets of policies: 

• Setting maximum allowed prices based on prices outside the United States; 
• Expanding the Medicare Drug Price Negotiation Program;
• Requiring manufacturers to pay inflation rebates in the commercial market;
• Allowing commercial importation of prescription drugs distributed abroad; 
• Eliminating or limiting direct-to-consumer (DTC) advertising of prescription drugs;
• Increasing transparency in brand-name drug prices.

Of these additional policies, CBO found that only price controls based on ex-U.S. pricing would have a “large” (i.e., >5%) effect on retail drug pricing. All other policies analyzed would, in CBO's estimation, have only a “small or very small” effect on pricing.