Delaney plan would levy 100% excise tax on the price difference for US patients and OECD average
FRIENDSHIP HEIGHTS, MD – John Delaney announces today his plan to lower drug prices.
Delaney’s plan will lower prescription drug costs through a 100% excise tax on the difference between the cost charged in the United States and the average cost in the developed world. For example, if a drug costs $100 in the United States, but only an average of $40 in
“The American people are paying too much for prescription drugs, period. This is a major health care issue and a major economic issue and we have an obligation to act. The drug companies allow the citizens of other wealthy nations to free ride on the backs of US citizens.
“While I support the idea that the pharmaceutical industry – like most industries – needs a strong profit incentive to continue to invest in the research and development of innovative and critical new treatments, U.S. patients should not continue to subsidize those costs for the benefit of citizens in other developed, wealthy countries,” said Delaney.
“This is a market-friendly approach, without burdensome regulations – unlike other proposals that involve price or profit margin caps or threaten patent laws – that allows pharmaceutical companies to find the equilibrium price on their own, while still resulting in lower prices for U.S. patients. I hope they never pay the tax,” Delaney added.
The Delaney plan is designed to specifically address huge discrepancies in drug prices and the much higher prices paid by American patients. Humira, for example, costs an average of $822 in Switzerland and $2,669 in the United States.
The Delaney Plan to Lower Prescription Drug Prices
The Problem: Rising Pharmaceutical Costs and American Patients Paying More
The amount of money Americans spend on prescription drugs has nearly doubled since the 1990s with pharmaceutical companies raising the cost of life-saving drugs. Americans currently pay significantly more for prescription drugs than individuals in comparable countries, such as those in the Organization for Economic Co-operation and Development (OECD). The U.S. government has failed in implementing policies to ensure Americans have affordable access to needed drugs. The U.S. should approach pharmaceutical prices as companies in the private sector approach buying goods, by using their purchasing power as leverage to negotiate down on costs. It is astounding that the U.S. government, the largest single purchaser of prescription drugs, does not use its leverage to ensure American patients are not being taken advantage of when buying needed medicine.
While pharmaceutical companies have limited interference for setting drug prices in the U.S., European governments have negotiated with the companies to set the costs. According to analysis from the University of Liverpool, the world’s 20 top-selling medicines are three times more expensive in the U.S. than in Britain, on average, and consistently higher than in other European markets. On a per capita basis, pharmaceutical spending accounts for over $1200 per person in the U.S., according to OECD data, compared to just $860 in Canada and $640 in Australia. Drug costs are also accounting for more of an American’s health care spending over time. In 2015 retail prescription drug expenditures in the U.S. accounted for 12% of total personal health care spending, up from just 7% through the 1990s. While revenue from pharmaceutical sales contributes to research and the development of new drugs, the U.S. has been subsidizing the rest of the developed world.
The Delaney Solution:
In order to address the rising drug prices, Delaney would:
- Allow the federal government to negotiate drug prices with pharmaceutical companies.
- To address the unfair cost differential between the U.S. and other OECD countries, the government would institute a 100% excise tax, levied on the pharmaceutical company on the difference between the average price of a drug sold in the U.S. and the price of that drug in similarly economically developed countries. Because of the nature of a 100% excise tax on the price differential, the pharmaceutical companies would not have the option of passing on the burden of the tax to the American
people,and instead would have a strict incentive to balance global prices.
- Developing countries would be excluded from the policy as access to low-cost medication is critical.