The manufacturer rebates on brand-name drugs required by the US health reform law will increase the prices paid by pharmacies for drugs supplied through the Medicare programme by 1%, say new government figures.

The rebates will also increase by an average of 4% the prices paid by pharmacies for newly-introduced drugs purchased under Medicaid, the government health programme for people on low incomes, the Congressional Budget Office (CBO) estimates.

However, for currently-available drugs purchased through Medicaid, other provisions of the law will “constrain manufacturers’ ability to raise prices to offset the new rebates,” and Medicaid will therefore likely pay less for such drugs than it would without these provisions, says the CBO.

The Office has provided these estimates in response to a request by Representative Paul Ryan (Republican) of the House Budget Committee for an analysis of the effects the health reform legislation signed into law by President Barack Obama in March are likely to have on prescription drug prices.

The reform bills - the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 - require brand-name drugmakers to provide new discounts and rebates for medicines purchased under Medicare (the federal health programme for the over-65s) and Medicaid, with the amounts of discounts and rebates being based on the drugs’ prices, notes the CBO. “Manufacturers thus have an incentive to raise those prices to offset the costs of providing the new discounts and rebates, although other forces will limit their ability to do so,” Office director Douglas Elmendorf tells Rep Ryan, in a letter sent to him last Friday (November 4).

The legislation also contains several other provisions that will affect prescription drug prices, notes Mr Elmendorf. For example, it establishes an abbreviated pathway for approving “follow-on” biologics drugs, and while the resulting increase in competition will yield substantially lower prices for certain drugs, these products will represent a relatively small share of total projected drug spending in the US over the next decade, says the CBO. Therefore, it estimates that the average effect on drug prices will be modest - a reduction of about 2% in 2019.

The legislation also imposes an annual fee on manufacturers and importers of brand-name drugs, and the Office forecasts that this will likely increase the prices of drugs purchased through Medicare and of newly-introduced products supplied through Medicaid and other federal programmes by around 1%, in addition to the increases expected to arise as a result of the new discounts and rebates.

The CBO has not estimated the potential effects on drug prices of the reforms’ plans to gradually fill in the Medicare coverage gap – the “doughnut hole” – nor of extending health coverage, by the middle of the decade, to more than 30 million people who are currently uninsured. The Office has limited its examination to the overall likely effects of these measures on insurance premiums and federal spending, Mr Elmendorf tells Rep Ryan.

Nor does it provide any detailed forecasts of the effects the legislation will have on prices paid in the private market, stating only that it expects the overall impact on those prices to be “small, on average.”