Washington takes on Big Pharma: Lower drug prices vs. fewer new cures

A liberal plan to force down the prices of prescription drugs is gaining momentum in Washington, promising huge savings for the elderly but risking fewer new cures from a downsized pharmaceutical industry.

House Democrats are proposing legislation to empower Medicare to negotiate down U.S. prices to levels that other countries pay. President Biden wants the bill passed and on his desk by the end of the year.

Scorekeepers say the bill, which wields excise taxes against drugmakers that refuse to negotiate lower prices, will reduce consumer costs of impacted drugs by an average of 55%.

With less revenue, however, U.S. drugmakers will put eight fewer new drugs on the market in 10 years and up to 30 over 20 years, the Congressional Budget Office said.

Drugmakers say setting price limits in the Medicare prescription benefit program and fining companies that refuse to cooperate looks like a form of extortion.

“Under the bill, the government dictates where the negotiation starts and can impose a massive tax penalty on a company that doesn’t accept the government-set price. This isn’t what most people would call a ‘negotiation.’ This is a partisan bill that threatens the future development of new treatments and patient access to life-saving medicines while doing little to fix the broader affordability challenges people are facing,” said Brian Newell, a spokesman for the Pharmaceutical Research and Manufacturers of America, a major industry group and lobbying force.

The pharmaceutical industry said the fallout would be wider and deeper than the CBO anticipates because companies would be forced to either accept the health and human services secretary’s price or leave the market.

Representatives pointed to an analysis by the Trump administration’s Council of Economic Advisers, which estimated that such a plan would result in as many as 100 fewer drugs entering the U.S. market over the next decade, about one-third of the total expected.

“The threat that the pharmaceutical companies are making is obviously not one that anyone takes lightly. Everyone values innovation and treatments for cures for diseases like hepatitis C,” said Juliette Cubanski, deputy director of the program on Medicare policy at the Kaiser Family Foundation, a nonpartisan health care policy organization. “Nobody wants to undervalue that type of innovation.”

Yet if drugs are priced so high that few can afford them, then innovation “isn’t very meaningful,” she said.

Liberals have pushed for years to eliminate a law that bars the federal government from intervening directly in negotiations between drugmakers and private plans that contract with the Medicare program.

The debate took on new life when Donald Trump pledged on the campaign trail to “negotiate like crazy” but proposed lighter measures as president. The idea is gathering momentum again with Democrats controlling the White House and holding narrow majorities in each chamber of Congress.

“This really is the best chance to enact comprehensive and meaningful reform to lower drug prices than we have seen in maybe a couple of decades,” said David Mitchell, a cancer patient and founder of the nonprofit Patients for Affordable Drugs.

Sufficient competition from generic or biosimilar drugs isn’t the issue. Instead, the push for negotiations targets 250 drugs in Medicare prescription benefits, or Part D, that have one manufacturer and represent 7% of all drugs covered by the prescription program for seniors but account for 60% of net total Part D spending, according to a Kaiser Family Foundation analysis.

House Democrats are calling attention to drugs such as Humira, a high-grossing drug used to treat rheumatoid arthritis and other conditions. One year’s course of the medication costs $77,000.

“That is 477% more than when the drug was launched in 2003,” said House Oversight and Reform Committee Chairwoman Carolyn Maloney, New York Democrat. “Drug prices in the United States are unfair, unsustainable and just plain wrong.”

Analysts say giving Medicare the power to negotiate won’t do much but giving the government leverage to lower prices would result in significant changes and unsettle the pharmaceutical industry.

The House bill championed by Speaker Nancy Pelosi and other senior Democrats, H.R. 3, would allow the health and human services secretary to seek lower prices for up to 250 prescription drugs and insulin products per year. HHS would draw from an ever-changing list of costly drugs without competition from at least one generic or biosimilar drug.

The negotiated consumer costs would be capped at 120% of the average market prices in Canada, France, Germany, Japan and the United Kingdom. Negotiated prices would be extended to insurers that offer Medicare Part D plans and to commercial insurance carriers and group health care plans, though those entities could negotiate other discounts.

Drug manufacturers that refuse to participate in negotiations or won’t agree to the government’s desired price would face a noncompliance tax that starts at 65% of the gross sales of the drugs and increases 10 percentage points every quarter to a maximum of 95%.

The industry is worried that the plan would upend a Part D program designed in 2003 to maximize choice for its 46 million beneficiaries compared with federal programs that have stricter price controls and formularies, or lists of drugs that can be prescribed.

“It certainly is unique for a government program to have its hands tied in this way. This was a feature that was very important to the Republicans who crafted the Part D benefit in the early 2000s. This market was designed around a private marketplace, with plans doing the negotiating, not Medicare,” Ms. Cubanski said. “It’s very different from the way drug prices are negotiated in the [Department of Veterans Affairs] and other federal programs. In Medicaid, there is a mandatory rebate.”

The pharmaceutical industry knows that the idea of letting Medicare negotiate prices polls well with Americans but says support tends to drop after trade-offs are posed. Among the scenarios, insurers would no longer cover them or fewer cures would come to market.

A PhRMA-commissioned study by Charles River Associates released in April found that the CBO likely underestimated the impact on the pharmaceutical industry and advised lawmakers to tread warily as they venture into the unknown.

“CRA concludes that there is no sufficient analog to estimate the effect of this policy and the CBO likely underestimates the true impact of H.R.3 on future incentives for innovation,” an April 9 brief said. “Therefore, policymakers have not been provided with sufficiently reliable estimates to adequately assess the risk of such a decision.”

The study said the CBO assumed the government would accept prices at the upper range of options when prices could be set at the lower end. The CBO assumed that drugmakers could make up revenue in other countries “when in reality payers outside of the U.S. are unlikely to accept a higher price.”

The CBO also cited research that shows industry revenue could decline by $1.2 trillion to $1.6 trillion from 2020 to 2029, meaning a drop in U.S. brand-drug revenue of 34% to 44% across the Medicare and commercial markets.

Industry sources said the plan would decimate small and emerging biotechnology companies in particular. They also pointed to a study by Vital Transformation that said it would cost nearly 200,000 biopharmaceutical industry jobs and almost 1 million jobs across the economy.

Democrats pushing for direct negotiation say drug companies seem to have plenty of money to buy back stock shares and advertise their products but claim poverty when pressed on their prices.

“You won’t hear Big PhRMA say that the billions they spend on stock buybacks come at the expense of new cures, but when it comes to lowering prices for American seniors and working families, suddenly they don’t have a penny to spare,” Pelosi spokesman Henry Connelly said. “H.R. 3 simply creates a level playing field for price negotiations that encourage genuine innovation and ensure that, at the end of the day, Americans can actually afford any cure.”

Mr. Mitchell said he pays $18,000 out of pocket each year for Pomelyst, one of his multiple myeloma treatments, and insurers or other parts of the system would have to absorb any policy efforts to give him relief unless the list price comes down.

“High and growing drug prices are affecting all Americans in some way,” AARP, the lobby for older Americans, said in a recent letter in support of H.R. 3. “Their cost is passed along to everyone with health coverage through increased health care premiums, deductibles and other forms of cost-sharing.”

Mr. Mitchell said prices stabilized under the glare of Washington in recent years as Mr. Trump browbeat the companies publicly but remain too high.

“Pharma is acting like I do when I come up to a speed camera and what I do after I pass it,” he said. “Given that we’re paying four times what other countries pay, we could lower prices by a lot and still have the largest market with the highest price in the world, and it’s difficult to imagine these companies who want to make money would walk away from that deal.”

The industry proposes other fixes such as capping out-of-pocket costs in Part D and making sure any savings from negotiations are passed on to consumers instead of middlemen.

“We have proposed a better approach, one that lowers costs at the pharmacy while protecting access to medicines and future innovation,” Mr. Newell said.

The CBO in 2019 said direct-negotiation provisions of H.R. 3 would decrease spending by $456 billion but, given new benefits placed in the legislation, only $5 billion would be left over for deficit reduction or spending from 2020 to 2029. The bill reintroduced in the current Congress no longer includes big-ticket items such as dental, vision and hearing care benefits, so more money would be left in the pot.

Mr. Biden wants to direct some of the money back into seniors’ benefits or to Obamacare. He looks to permanently extend supersized subsidies that the federal government offered for two years under his coronavirus relief package.

“The money we save can go to strengthen the Affordable Care Act — expand Medicare coverage and benefits — without costing taxpayers one additional penny. We’ve talked about it long enough, Democrats and Republicans,” he said in his joint address to Congress. “Let’s get it done this year.”

The pharmaceutical industry has been underscoring the value of innovation by pointing to its herculean effort to speed therapeutics and vaccines to a world reeling from the COVID-19 pandemic. Still, the honeymoon will last only so long.

“They may have rehabbed their reputation, but I think drug prices are still front-of-mind for American consumers,” Ms. Cubanski said. “You know how much you’re paying out of pocket, and it may still sting, even if you have your vaccine and [had] a normal Memorial Day.”