According to a leaked draft, House Democrats will propose drug pricing legislation that imposes broad government price controls, imports foreign pricing, and imposes on a new tax on manufacturers.

The draft summary falsely claims that this proposal will facilitate “negotiation” between the government and manufacturers. In reality, manufacturers have little recourse and no ability to walk away under the legislation.

Non-compliance with this faux negotiation would result in an imposition of a 75 percent excise tax. This tax would be calculated as a percentage of a drug’s annual gross sales of the previous year. This scheme would apply to the top 250 drugs. 

In addition to the threat of an excise tax, the proposal contains an international pricing index which would prohibit the “negotiated” price from rising above 1.2 times the volume weighted average price of six countries (Australia, Canada, France, Germany, Japan and the UK). This allows the pricing proposals adopted in foreign countries to be imported into the U.S.

Finally, the legislation calls for an inflationary rebate penalty for Medicare Part D and Part B retroactive to 2016. This would punish manufacturers for past decisions made and would create further distortions in the Medicare system that will harm existing private sector negotiation. 

In sum, these provisions will mean that no actual negotiation will take place. Rather, prices will be set by the government and manufacturers will be forced to submit to the decisions made by bureaucrats.

This proposal is not the way to lower drug prices. Rather than delivering meaningful results for seniors, it represents a government takeover of the system that will ultimately suppress innovation and lead to shortages and higher prices.