US Government Poised for Long-Awaited Powers on Drug Pricing
Via Bloomberg: Drugmakers have long said R&D will suffer if prices regulated
Pharma rarely loses in Washington. For years, the industry has successfully defeated US government efforts to rein in drug pricing, arguing any such moves would prevent companies from developing newer and better medicines. That argument doesn’t seem to be enough anymore.
The Senate is poised to pass sweeping legislation as soon as this weekend that would give the US government power it has never had before: the ability to negotiate the prices seniors pay for some drugs, like cancer treatments. Drug companies have repeatedly fought such change, saying it will sap money they need to invest in new discoveries. But Democrats have pushed forward anyway, hoping to make good on their promise to ease costs for patients.
“It’s really a culmination of years and years of discussion and debate about what can be done to address drug prices,” said Tricia Neuman, who leads Medicare policy research at the Kaiser Family Foundation, adding it represents a “big step forward in that the government was unable to negotiate drug prices before now.”
Some of the world’s largest drug companies — including Eli Lilly & Co., AstraZeneca Plc and AbbVie Inc. — may end up being required to negotiate drug prices with Medicare, the government insurance program for seniors. Starting next year, the legislation would require drug companies to pay back money if they increase prices by more than the rate of inflation.
Senate parliamentarian Elizabeth MacDonough, the chamber’s top rules official, has cleared Medicare to negotiate prices, though the Democrats’ proposal intended to cap price increases for prescription drugs in the commercial market was blocked. A separate provision capping out-of-pocket costs for insulin at $35 per month for those with private insurance also was blocked, a person familiar with the matter said Saturday.
Beginning in 2026, the 10 most expensive prescription drugs dispensed at the pharmacy counter without a generic substitute that have been on the market for nine or 13 years, depending on drug type, would be subject to price negotiation. Should companies refuse, they would need to pay a tax of 65% to 95% on sales they made the previous year. By 2029, Medicare could tackle up to 20 drugs, including those that are administered by doctors.
Drugs that could end up a target include AbbVie and Johnson & Johnson’s cancer pill Imbruvica, AstraZeneca’s competing drug Calquence, Gilead Sciences Inc.’s HIV treatment Biktarvy and Lilly’s breast cancer medicine Verzenio, among others, according to SVB Securities. The Congressional Budget Office estimates the negotiation policy would save Medicare about $102 billion over a decade.
Still, even with such eye-popping savings at the government level, companies have largely downplayed the potential financial implications on earnings calls in recent weeks.
“In the short term, speaking for our company, but probably the industry, it doesn’t do much,” said Lilly Chief Executive Officer David Ricks, adding that once the negotiations start in 2026 there will be some drugs with shorter windows of profit and “that will cause some headwinds for the industry.”
Not in favor
Even so, drugmakers have been quick to criticize the negotiations and warn this could discourage them from developing new treatments.
“It’s not negotiation, we should just call it what it is: it’s price controls,” AbbVie CEO Richard Gonzalez said on a call with analysts last week.
The policy will bring the US “down a slippery slope of beginning to set prices for medicines” and “significantly impact how innovators approach important areas of high unmet need,” Dave Fredrickson, who leads AstraZeneca’s oncology business, said on the company’s earnings call last week.
A Sanofi spokesperson said the bill “will have a negative effect on innovation while doing little, if anything, to help most Americans.”
Americans spend more than anyone in the world on prescription drugs –around $1,300 per person a year on average. It’s also home to the world’s most expensive treatments. The median price of a newly approved drug in the US in 2021 was $180,000 for a year’s supply. Drugmakers also continue to hike prices on existing drugs by around 5% a year in the US, data from 46brooklyn Research shows.
In other countries, governments limit how much drug companies can charge for a given product. That’s led pharma companies to rely on the US to provide much of their sales.
US lawmakers have been calling for reform for years, particularly after public scandals such as when hedge fund manager Martin Shkreli raised the price of an old drug to $750 from $13.50 or when Mylan took huge price increases on its life-saving EpiPen for allergic reactions. Drug companies use other tactics to retain monopolies on drugs like adding patents or cutting deals to keep competitors from introducing cheaper options.
The industry has come under scrutiny for these practices yet has still managed to stave off attempts at regulation like price controls. The drug industry is one of the biggest lobbying forces in Washington. According to OpenSecrets.org, pharmaceuticals and health products are the single biggest donor with some $187.4 million of lobbying spending in 2022, nearly double the amount spent by the next biggest industry.
Lobbying groups for the drug industry — Pharmaceutical Research & Manufacturers of America, or PhRMA, and Biotechnology Innovation Organization, or BIO — have sharply criticized the drug pricing bill for destroying an industry without fixing other drivers of health-care costs. Another group, led in part by life sciences investor Peter Kolchinsky of RA Capital Management, argues the curbs will stunt investment, especially in pills, which would be subject to negotiation four years sooner than biologics.
Could Be Worse
The bill isn’t as bad as it could be for the industry, says Spencer Perlman, director of health-care research at consulting firm Veda Partners. The legislation won’t touch companies’ ability to set sky-high prices on new drugs, for example. As it is, Medicare’s spending on drugs is expected to double in the next decade.
“It’s definitely taking money out of the system, but I don’t view it as being a death knell,” Perlman said.
Rena Conti, a drug-pricing expert at Boston University, points to a Congressional Budget Office report showing that pharmaceutical innovation won’t truly be harmed by this bill. The agency estimates the bill would result in two fewer drugs in the coming decade, five in the decade after and eight after that.
The reality is, an estimated 5 million seniors enrolled in Medicare struggle to pay for drugs, according to a government estimate from January.
“Even if there might be some potential worry about innovation loss in the future, right now there are people who cannot afford the products that do exist,” Conti said.
And the legislation actually strikes a middle ground between giving Medicare the power to negotiate while trying to preserve innovation by limiting the scope to older drugs without a generic option, said Mark Miller, who oversees health-care policy at Arnold Ventures, a group that funds drug price reform advocacy.
There is one policy in the bill that pharma does support: capping the amount seniors pay at the pharmacy at $2,000 a year, far less than currently. About 1.4 million seniors spent more than that on drugs in 2020, according to the Kaiser Family Foundation.
That’s especially helpful for seniors on costly drugs. “They’ll know their expenses are not unlimited,” Neuman says.
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