Drugmakers will respond to changes proposed in US health reform legislation by charging higher prices for new drugs, particularly breakthrough products which are the first to use new mechanisms to treat illnesses, a government report forecasts.

Under America’s Affordable Health Choices Act of 2009 (HR 3200), the House health reform bill which was introduced on July 14, enrollees in the Medicare prescription drug programme (known as Part D) would see their premiums rise about 5% in 2011 and this increase would reach about 20% by 2019, according to Douglas Elmendorf, director of the Congressional Budget Office (CBO). Nevertheless, overall, their spending on prescription drugs would fall, he adds.

In all, the CBO estimates that the changes proposed in the bill would save the federal government about $30 billion during 2010-2019, he says, in a letter to Representative Dave Camp, the leading Republican member of the House Committee on Ways and Means, who had requested the estimates.

Under current law, the standard Medicare Part D outpatient prescription drug benefit includes an annual deductible for which the beneficiary is responsible, a dollar range of coverage in which the beneficiary pays 25% of the cost of covered drugs and a catastrophic threshold above which the beneficiary pays about 5% of the cost of covered drugs. In the gap between the end of the initial coverage range and the catastrophic threshold - the “doughnut hole” - beneficiaries generally must pay all their drug costs. For their Part D insurance coverage, most enrollees pay premiums that finance about 25% of the cost of the coverage on average, with the federal government paying the remaining 75%. For those on low incomes, the government subsidizes a larger share, including their premiums and their spending in the doughnut hole.

HR 3200, which is opposed by the pharmaceutical industry, would make changes to Part D including phasing out the doughnut hole and requiring drugmakers to provide beneficiaries who are not eligible for the low-income subsidy programme with a 50% a discount on their spending in the doughnut hole for covered brand-name drugs.

The responses of drugmakers to these changes would contribute to increases in Part D premiums and in beneficiaries' payments for cost-sharing, says Mr Elmendorf. This is because, while firms would be constrained from increasing prices for existing drugs, they could offset the rebates they would be required to pay for full-benefit dual-eligible individuals by charging higher prices for new drugs, particularly “breakthrough” drugs. In addition, drugmakers would probably lower the rebates they pay to prescription drug plans; they would continue to have an incentive to provide rebates in exchange for having their products designated as “preferred” on the plans’ formularies - which leads to higher sales volumes - but the rebates would probably decline because these added sales would be reduced by the new discounts and rebates which makers would have to provide, he adds.

Responding to Mr Elmendorf's letter, Mr Camp said the CBO’s findings showed that the vast majority of seniors will experience the pain of higher premiums without lowering drug costs.

“Instead of saving seniors money, this bill will force the vast majority of seniors to pay more to see their doctors and more to get their prescription drugs,” he said, and added: “health care reform should make health care more affordable, not more expensive. Clearly, it is time to scrap this bill and start over with open, bipartisan talks.”