By NextBestFitPhase 1: Enactment & build · Step 1.9
Create the national formulary & negotiate drug prices
Months 0–18 for the initial formulary; continuous negotiation · National Formulary and Pricing Board; HTA InstituteDiscuss this step
Pros & cons of this step
Pros
- +Patients pay $0 for formulary drugs: no deductibles, no coinsurance on insulin or cancer drugs.
- +Eliminates the PBM rebate system and its opaque spread pricing.
- +U.S. stops paying about 4x other countries' prices for brand drugs.
Cons
- −Pharmaceutical revenue falls (about $113.1B a year at retail alone), which reduces R&D investment. CBO estimated a narrower policy (H.R. 3) would mean about 8 fewer new drugs in its first decade and about 30 fewer in the next; this plan is broader.
- −Some drugs may launch later in the U.S. or not at all if the price offered is too low.
- −Formulary exclusions mean some patients can't get a specific brand without an exception.
- Lower prices today vs. fewer new drugs tomorrow. The plan accepts some loss of future innovation in exchange for affordability now, and partly offsets it by raising NIH funding (optional; not in the base ledger).
low confidence
Pharmaceutical & device innovation
Lower drug prices reduce manufacturer revenue: about $113.1B a year in retail drug prices alone, more counting physician-administered drugs. That reduces expected returns to R&D, so fewer new drugs get developed.
Today
The U.S. pays about 422% of other OECD countries' brand-name prices and supplies a large share of global pharmaceutical profits.Under the plan
Prices negotiated toward value-based levels, still above other countries' prices (we assume a 35% brand cut, not a 75% cut).Who gains
- Patients today
- Taxpayers
Who loses
- Pharmaceutical shareholders
- Future patients who would have benefited from drugs not developed
- Biotech workers and investors
Magnitude: CBO estimated a narrower negotiation policy (H.R. 3) would mean about 8 fewer of about 300 new drugs in 2020–2029 and about 30 fewer in the following decade. This plan is broader, so a plausible range is 2–5x that effect.
- CBOFewer new drugs, with effects growing over time.Sources: Congressional Budget Office (2019)
- EuropeValue assessment (NICE, AMNOG) delays or prevents some launches; Europe's share of global pharma R&D has declined relative to the U.S. over decades.
Mitigations
- Optional: increase NIH and BARDA funding (not in the base ledger).
- Higher prices for drugs with large demonstrated benefit (value-based pricing).
Risk that remains: Long-run innovation losses are the hardest cost to measure and could be larger than estimated.
Trade-off behind each cost item
- Retail prescription drugs+$380.1BProviders of this service receive $113.1B less for the same care; patients receive $26.2B more care.
- Front-loaded to have prices ready for Year 1.
- Lower prices now vs. fewer new drugs later (CBO: a narrower policy meant about 8 fewer of ~300 new drugs in a decade).
Trade-off behind each system change
- Medicare Part D (drug plans)No premiums or cost sharing; formulary choice moves from plan competition to one public formulary with an exceptions process.
- 340B Drug Pricing ProgramEnds an opaque subsidy that partly flows to well-off systems and contract pharmacies; covered entities lose flexible revenue.
- Medicare Drug Price Negotiation (IRA)Large savings; lower innovation incentive.
- Physician-administered drugs (Medicare Part B ASP+6%)Removes the incentive for costlier drugs; oncology practices lose margin.
- Manufacturer rebates and Medicaid Drug Rebate ProgramSimpler and transparent; 'best price' cross-market spillovers end.
- Medical devices & durable medical equipment pricingLower prices; device makers' U.S. margins fall.
- Group purchasing organizations & drug wholesalersLess opaque fee income in the supply chain; less room for hospitals to negotiate below reference prices.
- Biosimilar and generic substitutionLarge savings; some patients must switch products, and brand makers lose market share faster.
- Vaccines for Children & adult vaccine coverageUniversal vaccine coverage; politicization of vaccine recommendations directly affects coverage.
- FDA drug and device approvalKeeps approval science-based; a drug can be approved but priced or covered narrowly, delaying patient access.