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Drug industry poised for rare political loss on prices

Senate deal giving Medicare limited authority to negotiate prices would chip at power of Big Pharma

Bottles of medicine at a mail-in pharmacy warehouse in Florence, N.J. (Julio Cortez/AP)

Year after year for most of two decades, proposals to allow the government to negotiate lower prices from drug companies for Medicare recipients have wound up dead in Congress, defeated by the powerful pharmaceutical industry and its allies. Now the Washington drug lobby is on the cusp of a rare political loss.

After winning the support of Sen. Joe Manchin III (D-W.Va.), Senate Democrats say they will pass a sweeping bill as early as next week that, along with climate and deficit-reduction measures, would give Medicare powers to negotiate prices on select numbers of the costliest drugs for the first time since Congress passed the prescription drug benefit for seniors in 2003.

Although it is limited in scope and wouldn’t go into effect until 2026, the measure if enacted would represent a significant step away from the government’s hands-off approach to drug pricing that has stoked drug company profits while fueling popular outrage. Polling has shown for years that huge majorities of Americans from both parties support Medicare negotiation of drug prices.

“Now, finally, like every other country in the world, we’ll be able to negotiate with drug companies on expensive drugs. It is a truly historic breakthrough many, many years in the making,” said David Mitchell, president and founder of Patients for Affordable Drugs, one of the advocacy groups that has been pushing Congress to act.

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Seniors with high drug costs would receive significant relief from another part of the bill. By 2025, it would cap their out-of-pocket costs for Medicare Part D (the prescription drug pharmacy benefit) at $2,000. By 2024, it would eliminate a 5 percent co-pay on drugs for catastrophic coverage, saving thousands of dollars for patients with serious diseases like cancer who require very expensive drugs. Those are not the controversial parts.

The industry fight over pricing is what has attracted the most heat. Drug companies have lobbied heavily to avoid anything that resembles government price controls for its products. They are on pace to break records in 2022 with $187 million in lobbying activity reported so far, with an army of 1,587 registered lobbyists (57 percent of them former government officials), according to Open Secrets, a nonprofit group that tracks political spending.

The industry argues that price caps, negotiating or other government curbs on profits will sap the industry’s will to pursue new innovations. But the Congressional Budget Office, an official scorekeeper for the impacts of legislation, said the impact on industry innovation would be modest: a reduction of 15 drugs coming to market out of an expected 1,300 over 30 years, based on the limited scope of negotiations being proposed.

That has not stopped the industry from stepping up dire warnings.

“This bill will decimate the hope of curing cancer and other deadly diseases,” Stephen Ubl, president and chief executive officer of PhRMA, the industry’s largest lobbying group, said at a forum on Wednesday. Faced with dwindling returns, drug companies would lack incentives to seek new uses for approved drugs, Ubl said. He added that “negotiating” is a misnomer in the bill, because the “deck is stacked” in the government’s favor with a proposed tax on the sale of medicine if manufacturers refused the government’s price. Michelle McMurry-Heath, president and chief executive of the Biotechnology Innovation Organization, said in a news release this month the legislation “could propel us light-years back into the dark ages of biomedical research.”

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The industry received a public relations boost during the coronavirus pandemic when Pfizer and Moderna rolled out effective vaccines, using novel technology discovered in government-funded research, in record time.

But frustration has continued to build in recent years as drug companies fought hard to protect practices that critics called abusive: strategies to avoid competition by paying generic manufacturers to delay their products, larding on multiple patents to extend monopolies, and rolling out improved versions of drugs just as generic competition is due to emerge. Democrats and Republicans, including former president Donald Trump, have railed against drug company behavior.

“I’m not sure that we would be here if industry hadn’t fought more modest reform bills as hard as they have,” said Rachel Sachs, a law professor at Washington University in St. Louis and nonresident fellow at the Brookings Institution who studies the drug industry.

Still, the Senate’s Medicare pricing has major limitations. Negotiated prices will only apply to a narrow category of expensive drugs with no generic competition, and then only in relatively small numbers.

The first negotiated prices would take effect on 10 drugs in 2026, 15 additional drugs in 2027, 15 more in 2028 and 20 more in 2029, according to a detailed explanation of its contents by the Kaiser Family Foundation. Through negotiations and other provisions, the bill is expected to equal net revenue for the government of $288 billion over 10 years.

Moreover, negotiated prices would not be permitted until nine to 13 years after a new drug’s introduction, so the launch price of new drugs will remain unfettered. After launch, drug companies would face financial penalties if they continue to raise prices faster than the rate of inflation. Drug companies an incentive to capture as much profit as possible in those initial years.

“It is clear that if this legislation passes it will lead to higher drug prices at the time drugs are first launched on the market,” the investment firm Raymond James wrote this month in an analysis.

Another point of contention: Insulin would not be covered under the negotiation provisions, because the drugs will have generic competition. Also left out is a $35 proposed cap on the co-pay for consumer purchases of insulin. Groups including Public Citizen continued this week to press the Senate to restore the insulin provisions, which were included in earlier versions.

A separate bipartisan insulin effort led by Sens. Jeanne Shaheen (D-N.H.) and Susan Collins (R-Maine) appears to be taking precedent in the Senate’s strategy, even though the outcome of that measure remains uncertain, said Peter Maybarduk, director of the access to medicines project at Public Citizen. Democratic leaders were considering adding an insulin provision back into the reconciliation bill.

Public Citizen is among those who have pressed Senate Majority Leader Charles E. Schumer (D-N.Y.) to restore the insulin provision in the reconciliation bill, which will not require 60 votes to pass. Excessive insulin pricing is causing a “rationing crisis that has killed a number of people in the United States and is a needless cause of suffering, since we’re talking about a 100-year-old medical technology,” Maybarduk said.