# Somebody failed math, Congressional edition **URL:** \ **Category:** Miscellaneous and Personal Stuff I Must Share\ **Created:** [December 12, 2019, 8:15pm UTC](https://boards.straightdope.com/t/somebody-failed-math-congressional-edition/844779 "2019-12-12T20:15:37Z")\ **Posts on this page:** 8\ **Page:** 1
**Author:** ![That\_Don\_Guy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/that_don_guy/32/538_2.png) [@That\_Don\_Guy](https://boards.straightdope.com/u/That_Don_Guy)\ **Post date:** [December 12, 2019, 8:15pm UTC](https://boards.straightdope.com/t/somebody-failed-math-congressional-edition/844779/1 "2019-12-12T20:15:37Z")
The House of Representatives just passed the “Elijah E. Cummings Lower Drug Costs Now Act.” However, there is a provision inside of it that appears to rate a total Picard Facepalm. Apparently, if a drug company does not come to an agreement concerning a negotiated price for a drug included under the plan, then all of its income from selling that drug is subject to a tax such that the amount of the tax is 65% of the sum of the amount of the tax and the sales price of the drug. For example, suppose BigPharmaCo charges $70 for a vial of insulin, and does not have a deal in place. For every vial sold for $70, it will be taxed $130, since $130 is 65% of ($130 + $70). Ninety days later, the tax percentage goes up to 75%, then 85%, and finally caps at 95%. Why, yes, the $130 tax is more than the $70 the company took in for selling the drug, isn’t it - and it can’t simply raise the price of the drug as the tax will always be about 185% (then 300%, then 567%, and finally, a whopping 1900%) of the tax. Any sale will end up costing the company money, and this is true for any percentage \> 50%…so why bother raising the percentages? ---
**Author:** ![DCnDC](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dcndc/32/2842_2.png) [@DCnDC](https://boards.straightdope.com/u/DCnDC)\ **Post date:** [December 12, 2019, 8:18pm UTC](https://boards.straightdope.com/t/somebody-failed-math-congressional-edition/844779/2 "2019-12-12T20:18:14Z")
Link to the Bill: [https://www.congress.gov/bill/116th-congress/house-bill/3](https://www.congress.gov/bill/116th-congress/house-bill/3) ---
**Author:** ![Nava](https://avatars.discourse-cdn.com/v4/letter/n/da6949/32.png) [@Nava](https://boards.straightdope.com/u/Nava)\ **Post date:** [December 12, 2019, 8:21pm UTC](https://boards.straightdope.com/t/somebody-failed-math-congressional-edition/844779/3 "2019-12-12T20:21:33Z")
Math, economics and headology. It’s going to hurt the patients every which way the companies can figure out. I can think of a few already and I’m not even in the business of sucking people’s wallets dry. ---
**Author:** ![gdave](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gdave/32/3683_2.png) [@gdave](https://boards.straightdope.com/u/gdave)\ **Post date:** [December 12, 2019, 8:46pm UTC](https://boards.straightdope.com/t/somebody-failed-math-congressional-edition/844779/4 "2019-12-12T20:46:41Z")
Here’s the relevant section: > [@](#): > > “SEC. 4192. SELECTED DRUGS DURING NONCOMPLIANCE PERIODS. > “(a) In General.—There is hereby imposed on the sale by the manufacturer, producer, or importer of any selected drug during a day described in subsection (b) a tax in an amount such that the applicable percentage is equal to the ratio of— > > “(1) such tax, divided by > > “(2) the sum of such tax and the price for which so sold. > > “(b) Noncompliance Periods.—A day is described in this subsection with respect to a selected drug if it is a day during one of the following periods: > > “(1) The period beginning on the June 16th immediately following the selected drug publication date and ending on the first date during which the manufacturer of the drug has in place an agreement described in subsection (a) of section 1193 of the Social Security Act with respect to such drug. > > “(2) The period beginning on the April 1st immediately following the June 16th described in paragraph (1) and ending on the first date during which the manufacturer of the drug has agreed to a maximum fair price under such agreement. > > “(3) In the case of a selected drug with respect to which the Secretary of Health and Human Services has specified a renegotiation period under such agreement, the period beginning on the first date after the last date of such renegotiation period and ending on the first date during which the manufacturer of the drug has agreed to a renegotiated maximum fair price under such agreement. > > “(4) With respect to information that is required to be submitted to the Secretary of Health and Human Services under such agreement, the period beginning on the date on which such Secretary certifies that such information is overdue and ending on the date that such information is so submitted. > > “(5) In the case of a selected drug with respect to which a payment is due under subsection (c) of such section 1193, the period beginning on the date on which the Secretary of Health and Human Services certifies that such payment is overdue and ending on the date that such payment is made in full. > > “(c) Applicable Percentage.—The term ‘applicable percentage’ means— > > “(1) in the case of sales of a selected drug during the first 90 days described in subsection (b) with respect to such drug, 65 percent, > > “(2) in the case of sales of such drug during the 91st day through the 180th day described in subsection (b) with respect to such drug, 75 percent, > > “(3) in the case of sales of such drug during the 181st day through the 270th day described in subsection (b) with respect to such drug, 85 percent, and > > “(4) in the case of sales of such drug during any subsequent day, 95 percent. ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [December 12, 2019, 8:48pm UTC](https://boards.straightdope.com/t/somebody-failed-math-congressional-edition/844779/5 "2019-12-12T20:48:29Z")
> [@That\_Don\_Guy](#): > > Apparently, if a drug company does not come to an agreement concerning a negotiated price for a drug included under the plan, then all of its income from selling that drug is subject to a tax such that the amount of the tax is 65% of the sum of the amount of the tax and the sales price of the drug. > For example, suppose BigPharmaCo charges $70 for a vial of insulin, and does not have a deal in place. For every vial sold for $70, it will be taxed $130, since $130 is 65% of ($130 + $70). > Ninety days later, the tax percentage goes up to 75%, then 85%, and finally caps at 95%. I admit that the language of the Bill, linked by **DCnDC** , is rather confusing, but it does not appear to say what you think it says. Here’s the relevant section: > [@](#): > > _ **SEC. 4192. Selected drugs during noncompliance periods.** _ > > (a) In general.—There is hereby imposed on the sale by the manufacturer, producer, or importer of any selected drug during a day described in subsection (b) a tax in an amount such that the applicable percentage is equal to the ratio of— > > (1) such tax, divided by > > (2) the sum of such tax and the price for which so sold. Your interpretation appears to use part (2), without acknowledging the contents of part (1). Then you need to look at Section 5 (c), which defines “applicable percentage.” Basically, they seem to have written this section to retrofit their pre-determined tax rate, which is 65%, then 75% after 90 days, and so on. It’s not a tax over over 100%, as your interpretation suggests. ---
**Author:** ![That\_Don\_Guy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/that_don_guy/32/538_2.png) [@That\_Don\_Guy](https://boards.straightdope.com/u/That_Don_Guy)\ **Post date:** [December 12, 2019, 10:08pm UTC](https://boards.straightdope.com/t/somebody-failed-math-congressional-edition/844779/6 "2019-12-12T22:08:52Z")
> [@mhendo](#): > > I admit that the language of the Bill, linked by **DCnDC** , is rather confusing, but it does not appear to say what you think it says. Here’s the relevant section:Your interpretation appears to use part (2), without acknowledging the contents of part (1). Then you need to look at Section 5 (c), which defines “applicable percentage.” > > Basically, they seem to have written this section to retrofit their pre-determined tax rate, which is 65%, then 75% after 90 days, and so on. It’s not a tax over over 100%, as your interpretation suggests. Here’s how I interpret it: “(A)a tax in an amount such that the applicable percentage is equal to the ratio of (1) such tax, divided by (2) the sum of such tax and the price for which so sold.” In my example, the price is $70, and the tax is $130, so the ratio is “such tax,” which is $130, divided by “the sum of such tax and the price for which so sold,” which is $130 + $70, or $200. The “applicable percentage” is 130/200 = 65%. ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [December 13, 2019, 2:54am UTC](https://boards.straightdope.com/t/somebody-failed-math-congressional-edition/844779/7 "2019-12-13T02:54:17Z")
I’ve been doing a bit more reading on this, including both [this Vox article](https://www.vox.com/2019/12/12/21010905/house-democrats-pass-prescription-drug-price-bill) and the [summary of the bill’s main points](https://speaker.house.gov/sites/speaker.house.gov/files/HR3%20Backgrounder%2010.2.19.pdf) (PDF) from Speaker Pelosi’s own official site. Both of them say that the tax starts at 65% of the gross sales. So, basically, they’re not really interested in the cost to manufacture the drug, the profit margin, the wholesale price, or anything like that. If you sell a pill to a consumer for $100 and you don’t sign onto the negotiation process, then the government is going to want $65 for each and every pill you sell. I’m guessing that the government looks at it like this, in the context of the way the bill is written: such tax = $65 sum of such tax and the price for which so sold = $65 + $35 That is, they seem to be assigning an arbitrary value to the “price so sold,” based on its gross price minus the tax. I could be wrong about all this, but it is about the only way I can see to square the language of the bill with the statements about its actual implementation. If that $100 pill cost you $50 per pill to make, you are now making a loss on every $100 sale, because you’re handing over $65 of your gross to the government. So you’ll need to put your prices up. If the $100 pill cost you $1 to make, you’re now going to make $34 in profit per pill instead of $99, and you’ll be handing the other $65 to the government. **Note:** the above is simply my effort to understand the bill. I’m making no claim either way—at least not yet—about whether this is sound policy. ---
**Author:** ![Hari\_Seldon](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hari_seldon/32/5173_2.png) [@Hari\_Seldon](https://boards.straightdope.com/u/Hari_Seldon)\ **Post date:** [December 14, 2019, 8:56pm UTC](https://boards.straightdope.com/t/somebody-failed-math-congressional-edition/844779/8 "2019-12-14T20:56:57Z")
It won’t even be taken up by the senate. And even if did and was passed, Trump has already announced he would veto it. Even though he has made a big point of objecting to drug prices. Why not simply repeal the provisions that prevent the government from entering into negotiations? If that doesn’t work, then come back and try coercion. In Canada, we do get reasonable prices by engaging in negotiations. If a drug is too high priced, it will not be on the provincial formulary. You can get it if you are willing to pay the list price. But this threat is enough to get the negotiations started.