The US House of Representatives is expected to clear on Friday a massive legislative package that includes steps for easing the giant Medicare program into the realm of negotiating for better drug prices, which has long been an aim of Democrats.
Titled the Inflation Reduction Act, this package also includes measures intended to reduce carbon emissions and shift the nation toward greater use forms of energy productions that pollute less. The Senate passed the measure 51-50 along partisan lines on August 7, with Vice President Kamala Harris casting the decisive vote. The package contains many measures for which House Democrats have pressed for many years.
In a statement, House Energy and Commerce Chairman Frank Pallone, Jr. (D-NJ), said he expects to see the measure soon signed into law by President Joe Biden. The legislative package contains provisions that will help Americans maintain health insurance coverage under plans created through the Affordable Care Act (ACA) of 2010. It also includes a $2000 per year out-of-pocket cap for people enrolled in Medicare Part D pharmacy plans and a provision to limit their monthly spending on insulin to $35.
But the marquee health provisions of the package are those that set the stage for what Senate Finance Chairman Ron Wyden (D-OR) called “a seismic shift in how Medicare pays for medicine.”
These provisions essentially give drugmakers strong incentive to quickly restrain their pricing of medicines. Unlike most insurers, traditional Medicare would not use formularies but would establish a system exposing the most costly drugs to negotiations.
The new price negotiations kick off in 2026, with Medicare then negotiating on 10 drugs, with an eventual expansion to 20 such drugs in this pool.
This policy would mark the first such major pushback from Medicare’s Part B, which covers drugs administered by physicians. Its policy for many years has been to add a premium to prices reported by drugmakers for their products. The Senate-passed bill also beefs up the negotiating clout of the insurer-run Medicare Part D plans.
Republicans have for years favored using health plans as intermediaries in negotiations, whereas Democrats have argued that this approach squanders Medicare’s bargaining clout as a giant purchaser of medicine.
The Democrats’ approach to drug negotiations won praise from Avik Roy, president of the Foundation for Research on Equal Opportunity and a former policy adviser to prominent GOP lawmakers, including current Sen. Mitt Romney (R-UT).
In an August 8 editorial in The Washington Post, Roy noted that the Democrats’ approach would favor “smaller companies where most innovation actually takes place” in terms of drug development.
The package exempts “orphan drugs” for treating rare diseases as well as drugs that cost the Medicare program less than $200 million per year and medicines that represent 80% or more of a company’s sales to Medicare Part B or D, Roy wrote. And the bill requires Medicare to focus its negotiations on drugs whose monopolies have lasted 12 years or longer, which in Roy’s view is “more than enough time for genuinely innovative companies to generate a return on their R&D investment.”
Roy wrote that the Democrats’ bill would help repair “distortions” that have thwarted the development of a free market in medicines.
“It carefully targets only 20 of the 4100 drugs covered by Medicare Parts B and D, allowing the government to negotiate prices for those that are costliest to seniors and taxpayers,” Roy wrote.
Roy was not a complete fan of the bill, criticizing a corporate income tax provision that he said “would force younger, innovative biotech companies to spend less on R&D.”
“And overall, the bill’s deficit reduction potential has been undermined by about $400 billion over a decade in new energy subsidies, and more than $300 billion in federal loan guarantees that may never be repaid,” Roy wrote. “Nevertheless, fiscal advocates have fought for years to improve Medicare’s sustainability. Medicare drug reform — as a standalone effort — could do just that.”
Criticism From GOP Senators, Pharma, and Bernie Sanders
Sen. Bernie Sanders (I-VT) said the bill fell short of what he would have liked in terms of Medicare drug negotiations. Sanders, who voted for the bill on August 7, outlined some of what he considered its shortcomings in an August 6 speech on the Senate floor.
Sanders reiterated his preference for a more direct approach, in which Medicare would adopt the approach of the Veterans Administration and negotiate more broadly and directly on the cost of medicines. Sanders also noted that the bill offered little in terms of drug costs for those not enrolled in Medicare, which covers senior citizens and people with disabilities.
“So if you are under 65, this bill will not impact you at all, and the drug companies will be able to continue to go on their merry way and raise prices to any level that they want,” Sanders said.
“At a time when the drug companies are enjoying huge profits, the pharmaceutical industry will still be allowed to charge the American people by far the highest prices in the world for prescription drugs,” he added.
Republicans argued that the Democrats’ approach to Medicare drug negotiations will reduce funds needed to develop new medicines.
“Everybody wants prescription drugs and complex medicines to be more affordable. Everybody wants to help struggling families. That’s a goal that we all share,” Senate Minority Leader Mitch McConnell (R-KY) said in an August 6 floor speech. “But you know what will not achieve that goal? Empowering some Biden Administration bureaucrat to sit down at a desk and arbitrarily name the price that manufacturers can charge.”
Drugmakers also objected to the Medicare negotiation proposal. In a statement, Stephen J. Ubl, president and chief executive officer of the Pharmaceutical Research and Manufacturers of America said that the bill “gives the government unchecked authority to set the price of medicines.”
“And they say the bill won’t harm innovation, but various experts, biotech investors and patient advocates agree that this bill will lead to fewer new cures and treatments for patients battling cancer, Alzheimer’s, and other diseases,” Ubl said.
Support of Medical Groups
As of Tuesday afternoon, the largest physician group, the American Medical Association, had not yet posted a statement on the package. Many groups in Washington are still examining the final version of the package sent from the Senate to the House.
But some medical associations were quick to praise the package, among them the Endocrine Society.
Representing 18,000 members, including scientists, physicians, educators, nurses, and students in 122 countries, the society urged swift enactment of the Democrats’ bill. The group praised the provision that remained in the measure to address insulin costs for people in Medicare, while also lamenting the loss of language during the legislative process that stripped a provision regarding private insurance and the cost of the diabetes medicine.
“We are pleased the Inflation Reduction Act includes provisions to lower the price of insulin and a cap on out-of-pocket insulin costs for people on Medicare. Unfortunately, the Senate missed an important opportunity to also help children and adults with type 1 diabetes. Forty-three Republicans voted against including a provision that would have capped out-of-pocket costs for individuals with private insurance that the Society supported,” the group said in a press release.
The JDRF, which focuses on juvenile diabetes, also criticized this vote, saying that insulin “access is a matter of life or death. The group said in a statement that it was
“unconscionable” to strip from the bill a cap on the out-of-pocket costs of insulin for those with commercial health insurance.
“While the Senate removed the $35 per month cap for commercial plans, the Inflation Reduction Act still contains other critically important insulin affordability measures, including a Medicare provision to cap the monthly cost of insulin and limit overall drug costs to $2,000 per year,” JDRF said.
Insurance Expansion
The Senate-passed legislation also would provide $64 billion to extend the expansion of ACA premium tax credits through 2025, noted David J. Skorton, MD, president and chief executive of the Association of American Medical Colleges, in a statement.
The subsidies earlier were extended through 2022 under the American Rescue Plan Act of 2021. Skorton highlighted this provision in a statement that also praised the attempts to address drug costs through the legislation.
“As the COVID-19 pandemic has highlighted many disparities in access to coverage and care, we commend senators for agreeing on a bill that will allow patients and families to maintain access to affordable coverage, empowering them to seek care before treatable conditions become more complicated and costly,” Skorton said. “Additionally, the high cost of prescription drugs often prevents patients from obtaining the medications they need.”
Kerry Dooley Young is a freelance journalist based in Miami Beach, Florida. She is the core topic leader on patient safety issues for the Association of Health Care Journalists. Follow her on Twitter at @kdooleyyoung.
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