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PhRMA’s misleading description of Medicare drug-price legislation

An ad posted by the Pharmaceutical Research & Manufacturers of America on Aug. 5 mischaracterizes the impacts of pending legislation related to Medicare. (Video: PhRMA | YouTube)
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“They want to repeal a protection in Medicare that protects access to my medicines. They call it negotiation, but it really means the government decides what medicines I can get.”

— Sue from Ohio, who says she had Type 1 diabetes, speaking in a television advertisement sponsored by Pharmaceutical Research and Manufacturers of America (PhRMA).

This ad is appearing in heavy rotation on cable news networks and during public-affairs programs like CBS’s “Face the Nation” and NBC’s “Meet the Press.” It’s part of a PhRMA initiative called “Voters for Cures,” which features the voices of ordinary Americans.

Sue (a real person) is also featured in a PhRMA YouTube video in which she describes how she was diagnosed with Type 1 diabetes, an autoimmune disease, when she was 36, just after her youngest sister died of cystic fibrosis. “Tell Congress to Stand Up,” the video declares at the end. “Protect Medicare NOW.”

In the ad, Sue says that she depends on Medicare to obtain her medicines and that proposals in Congress “would make it harder for people on Medicare to get the medicines we need.”

For years, lawmakers and presidents have tried to change the way prices for drugs are negotiated in Medicare, with little success. It might finally happen this year. President Biden, in an executive order, said that it is the “policy of my Administration to support aggressive legislative reforms that would lower prescription drug prices, including by allowing Medicare to negotiate drug prices.” The outline of the budget reconciliation bill supported by Biden, released Aug. 9, said it “reduces prescription drug costs for patients and saves taxpayers hundreds of billions.”

The details still need to be negotiated, and ads like this one show that lobbyists will be out in force seeking to shape the outcome.

We obviously take no policy position on these proposed changes. But our antenna is alerted whenever we see “Mediscare” ads that seek to frighten seniors about possible changes in Medicare. Does PhRMA have a basis to make this claim?

The Facts

At issue is something called “the noninterference clause.” When Part D of the Medicare program, which helps pay for prescription drugs, was created under President George W. Bush, lawmakers included a provision that prevents the federal government from having a direct role in negotiating or setting the prices for drugs in Medicare Part D, which are offered through pharmacies via private health plans. The prices currently are negotiated between manufacturers, private health plans, and pharmacies. (Note: an earlier version of this article had incorrectly described the process for another part of Medicare.)

Many Democrats have never been happy with the noninterference provision and have long sought to repeal it. The theory is that if the health and human services secretary were given the authority to directly negotiate drug prices, it could help bring down the cost of drugs, especially newer, high-priced medications.

The Congressional Budget Office in 2007 determined that the impact would be negligible unless the HHS secretary was also given tools to exert pressure on drug manufacturers. So policymakers have sought ways to ensure that the government had some sticks in its negotiating arsenal.

One bill, the Elijah E. Cummings Lower Drug Costs Now Act, passed the House last session and has been introduced again. It would empower the HHS secretary to negotiate prices for selected drugs — 25 at first, with the number growing larger over time — that have little competition and account for substantial spending. In theory, government negotiation would be limited to a subset of drugs that don’t have generic alternatives, such as expensive oral cancer drugs that account for a relatively large share of spending but have relatively few users.

The cost of the drugs in six high-income countries — Australia, Canada, France, Germany, Japan and Britain — would be used as a benchmark, with a goal of negotiated prices no higher than 120 percent of the international price.

Moreover, the secretary would have the right to impose financial penalties, an escalating excise tax, on companies that do not reach an agreement.

That last provision impressed the CBO enough that the nonpartisan agency concluded that the secretary would have enough leverage to reduce the cost of expensive drugs. The CBO said the bill would save more than $450 billion in government-provided health plans between 2020 and 2029. The CBO also said the law would add $45 billion in revenue because lower drug prices would reduce premiums for employer-provided health insurance, thus allowing for more taxable compensation.

In a 2021 working paper, CBO analysts described how they had modeled the negotiations to determine that prices would fall between 57 percent and 75 percent, relative to current prices. “The gain to the government was estimated to be the avoided cost of purchasing the next-best alternative treatment, plus the incremental clinical value of using the drug of interest instead of the alternative (measured in dollars), minus the agreed-upon price of the drug,” the paper said. “The manufacturer’s gain was estimated to be the revenue from selling the drug in the United States.”

In the Senate, Ron Wyden (D-Ore.), chairman of the Finance Committee, in June issued “principles” for drug pricing reform, including that Congress must give the HHS secretary “both tools and guidelines to negotiate a fair price” and “create the right incentives to ensure that pharmaceutical companies participate in the negotiation process.” He has not released legislation yet; drug-price negotiation is a harder sell in the Senate than the House.

PhRMA officials said that the ad’s language was based on provisions in the House bill, known as H.R. 3, as well as Wyden’s principles, as both would repeal the noninterference clause. (There are other bills as well, such as one offered by Democratic Rep. Lloyd Doggett of Texas.) But congressional aides involved in the legislation were mystified by Sue’s claims in the ad, saying the proposals would not allow the government to remove drugs from what is known as the formulary, the list of drugs that may be prescribed by a Plan D sponsor.

“If you review the principles document they are referring to, I think it will be apparent that there is no policy suggesting that we are planning to ‘repeal a protection in Medicare that protects access to my medicines’ or let ‘the government decide what medicines I can get,’ ” said Taylor Harvey, a spokesman for the Finance Committee.

Medicare Part D is supposed to cover at least two drugs in each therapeutic class that treats a condition. But six classes of drugs — anticonvulsants, antidepressants, antineoplastics, antipsychotics, antiretrovirals and immunosuppressants — have been deemed “protected” so that Part D plans are required to cover “all or substantially all drugs” available. “There’s nothing in our principles document that references the six protected classes or any potential changes to that part of the law,” Harvey said.

Juliette Cubanski, deputy director of the program on Medicare policy at the Kaiser Family Foundation, was also puzzled by the ad’s claim.

In H.R. 3, “there’s no requirement for the government to establish a formulary, as private Medicare Part D plans do, or make decisions about which drugs to cover and not cover under Medicare. Those decisions would still be made by individual Part D plans,” she said, noting that “most drugs would not even be subject to the negotiation process.”

“The framing of the noninterference clause — which prohibits the government from being involved in price negotiations between manufacturers and plan sponsors — as a ‘protection’ is interesting, since in the 15 or so years since the MMA [Medicare Modernization Act] was passed, I don’t think that adjective has ever been used to describe it, since that provision doesn’t have anything to do with access to medications,” Cubanski added. “While PhRMA may want to frame the discussion around drug price negotiation as one of access to medication, this framing doesn’t accurately reflect the process of negotiation as laid out in H.R. 3.”

Debra DeShong, PhRMA’s executive vice president for public affairs, defended the ad by arguing that removing the noninterference clause would have long-term consequences that are not fully understood. In effect, PhRMA is saying that the ripple effects of government price-setting ultimately could lead to fewer options for patients.

“Government negotiation, whether through a price-setting policy like H.R. 3 or as outlined in legislative proposals from Rep. Doggett or principles released by Senator Wyden, inevitably limits patient choice, especially if that policy is intended as a cost-saving measure,” DeShong said. “Even if health plans are left to make formulary choices, if government-negotiated drugs are cheaper, health plans will steer patients to the government-selected drugs to keep their costs and premiums low. The long-term implications for the marketplace are that the government is picking winners and establishing a de facto group of preferred medicines that limits access and choice.”

The CBO as recently as 2019 said that one way to put pressure on companies would be “authority to establish a formulary,” though as we noted that is not envisioned in the legislation. DeShong asserted that “such proposals move the United States closer to a single national formulary for Medicare, similar to how some governments in other countries heavily control which medicines are and are not available to their citizens.”

PhRMA officials pointed to a 2020 analysis by the Hayden Consulting Group, which concluded that H.R. 3 could lead to a preference for drugs whose prices had been negotiated downward by the government, leaving non-price-controlled drugs with a sliver of the market and reducing incentives for innovation.

The Pinocchio Test

PhRMA is trying to put a human face on a public relations problem for the industry. There’s a lot of anger at high drug prices, leading to the political pressure to do something. The ad starring Sue is intended to warn that — someday down the road — the changes being contemplated would lead to fewer options.

You obviously don’t get something for nothing. If drug prices are cut because of government pressure, then there will be an impact. To a large extent, the impact is unknowable. Health plans currently steer enrollees to their preferred medications, but the drug manufacturing market may adapt in ways not yet understood.

The ad misleadingly suggests that legislation is designed to restrict Sue’s drugs and make it harder for Medicare patients to get drugs. That’s not the intention at all. Drug manufacturers don’t want to have to negotiate with the government. But they shouldn’t describe a worst-case scenario as a legislative provision. The legislation does not call for a government-mandated formulary, notwithstanding Sue’s concerns that the government one day would choose her medicines.

We wavered between Two and Three Pinocchios. We ultimately tipped toward Three. The market implications are impossible to predict, giving PhRMA a foothold to warn about the possible impact. But that’s not an excuse for claiming there are provisions in the legislation that do not exist.

Three Pinocchios

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