Senate Democrats are making a last-ditch attempt before the midterm elections to enact drug pricing reforms, a goal stymied by infighting.
The party is working toward a slimmed-down prescription drug pricing bill after failing to win support for President Joe Biden’s sweeping trademark Build Back Better bill. Sen. Joe Manchin (D-WV) thwarted that bill’s final passage but has signaled support for passing drug pricing and healthcare reforms through the reconciliation process, which allows Democrats to bypass GOP filibusters and pass bills with only a simple majority in the Senate.
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HOW IT WOULD WORK:
The heart of the measure is the Medicare negotiation provisions. The secretary of the Department of Health and Human Services would identify 10 prescription drugs covered under Medicare, the federal healthcare program for seniors, whose prices could be negotiated directly with the drugmaker, with the resulting prices to go into effect in 2026. As many as 10 additional drugs would be added to the pool of negotiable prices by 2029. The reference price for the start of negotiations would be a percentage of the average manufacturer price in 2021.
Companies that refuse to participate in the negotiation process would face an excise tax of up to 95%, a financial penalty so steep that continuing to resist would be unsustainable. In effect, the negotiations would likely impose a cap on prices.
The bill also imposes a penalty that would require manufacturers to pay a rebate to Medicare when the drug’s price rises faster than the rate of inflation.
The bill also stipulates that Medicare beneficiaries would not have to pay more than $2,000 out of pocket annually for prescription drug coverage as part of the Part D program, a move that would save more than 860,000 enrollees an average of $900 annually, according to the Robert Wood Johnson Foundation.
HOW MUCH IT WOULD SAVE BENEFICIARIES:
While there is no estimate of how much this bill would save Medicare beneficiaries yet, actuaries have made savings estimates from previous versions of the bill. House Democrats’ H.R. 3, which would have given the federal government the power to negotiate a minimum of 25 drugs and all insulin in 2024 and a minimum of 50 drugs in the following years, would have reduced spending by Medicare Part D enrollees by $117 billion between 2020 and 2029. That included a reduction of nearly $103 billion in cost-sharing for people who use drugs covered under Part D that are subject to negotiation and another $14 billion reduction in Part D premiums.
Roughly 48 million people who are enrolled in the Medicare Part D drug benefit program would benefit from the lower costs reached through direct negotiations with lower premiums and cost-sharing obligations. Under H.R. 3, drug prices for beneficiaries would have declined by about 57% to 75%, according to the Congressional Budget Office.
HOW IT WOULD SAVE THE GOVERNMENT:
Any policy to reduce drug prices substantially has the potential to save the government a lot of money. The reconciliation bill currently under consideration is expected to save the federal government billions, the CBO reported earlier this month. The negotiation authority would lead to a $287.6 billion net decrease in the deficit from 2022 to 2031. Direct government spending would fall by $249.2 billion, and revenues would climb by $38.4 billion.
HOW THE BILL HAS CHANGED:
The drug pricing legislation makes a notable omission: insulin cost reforms. In its original iteration in the House, the bill included a monthly cap on insulin at $35, a popular provision that has garnered wide support in the Senate. The proposed cap was absorbed by another bill from Sens. Jeanne Shaheen (D-NH) and Susan Collins (R-ME) that would also cap out-of-pocket costs at $35 per month, as well as entice insulin makers to lower their costs to 2021 net Medicare rates by ensuring that pharmacy benefit managers are blocked from negotiating drug rebates or other discounts on the insulin.
Its exclusion has rankled diabetes advocacy groups, which banded together to pressure Senate Majority Leader Chuck Schumer to include a provision in the reconciliation bill addressing high insulin costs. They said it would be an “enormous mistake” not to include insulin negotiation authority and an out-of-pocket cost cap in the final reconciliation bill.
H.R. 3 included an out-of-pocket cap on insulin costs. It would also require selecting a much wider range of negotiation-eligible drugs — at least 50 — but HHS could target up to 125 drugs plus any single-source insulin products not included among those drugs. Price negotiations would be based on an international index, or what other countries have to pay for the same drugs. The bill set the maximum or “ceiling” price for a drug at 120% of the average of prices in other countries such as Australia, Canada, France, and the United Kingdom.
The bill now being eyed in the Senate is also much less ambitious than a proposal from Biden, which would have allowed the government to negotiate with drugmakers on prices for all insurance plans, not just those for Medicare.
THE CASE AGAINST THE BILL:
Opponents argue that government price-setting will have a negative effect on innovation and stifle the generation of life-saving cures.
The CBO has estimated that, if implemented, H.R. 3 would have resulted in 59 fewer drugs coming to the market over three decades.
The influential lobbying arm of the pharmaceutical industry, PhRMA, is pouring millions of dollars into lobbying efforts aimed at squashing drug price negotiation legislation. The industry giant has spent $8.2 million in lobbying and advertisements to block reforms. PhRMA estimated last year that far more drugs would be withheld from the market if H.R. 3 were implemented, 61 over 10 years. Other major pharmaceutical companies have also spent tens of millions on similar lobbying efforts to take down negotiation reforms.
Democrats pushing for direct price negotiations have cited rising costs of everything else from food to fuel due to record high inflation. But prescription drug costs have risen slower than the rate of inflation recently. Drug prices have climbed roughly 2.5% over the past year and just 0.1% last month, far less than the 17% increase in the price of health insurance over the past year or the 9.1% overall rate of inflation, according to the Bureau of Labor Statistics.
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The bill’s language is not set in stone and will be vetted by the Senate parliamentarian this week. The bill will undergo a budget resolution process in which the parliamentarian considers which provisions will be preserved in the bill and which ones will be deemed extraneous under the Byrd Rule. Politicos use the term “Byrd bath” to describe the process of cleansing the reconciliation bill of unrelated provisions irrelevant to the budget.
