The House of Representatives will vote soon on a bill that would lower the costs of prescription drugs for millions of seniors by requiring Medicare to negotiate prices and by capping out-of-pocket expenses.
Forcing prices down
The House bill is intended to make prescription drugs more affordable for those on Medicare and Medicaid by forcing drug companies to negotiate a reasonable price.
• The bill will also shift more prescription drug costs toward manufactures and insurance companies thereby helping to maintain the financial stability of Medicare for future retirees.
The bill is not expected to go anywhere this year since Senate Republicans are staunchly opposed to anything thing that even remotely smells of price controls. Still, the American people have hope that one day our politicians will come together and show a little courage and stand up to the pharmaceutical industry.
December 12 - The bill passed the House 230 to 192 with unanimous Democratic support. It has been declared "dead on arrival" in the Senate.
♦ Current law prohibits the Centers for Medicare & Medicaid Services (CMS) from negotiating prices for drugs. This bill would give the Secretary of Health and Human Services (HHS) limited negotiating powers.
The Secretary would be permitted to negotiate a maximum price for some of the more expensive drugs. The scheme for deciding which drugs would be negotiated is a bit complicated.
• Every year, the Secretary would identify 250 brand-name drugs which represent the greatest cost to both Medicare and the U.S. health system in general. To come up with this number, the Secretary would use cost data provided by Medicare, Medicaid and commercial insurance companies.
♦ Brand-name drugs which do not have a generic or biosimilar alternative will be at the top of the list. Insulin is also included.
The bill allows an escape for Big Pharma in that once a single generic appears the brand-name version could dodge price negotiations. History has shown that a single generic competitor is not enough to significantly bring down prices. As a rule, several competitors are needed to make a price impact.
• In prioritizing drugs, the HHS Secretary would be instructed to consider first the drugs that would yield the greatest savings. The Secretary would be required to negotiate at least a minimum of 25 drugs annually. The Secretary would be limited to a maximum of 250 drugs annually. This is only a pittance considering nearly 8,000 drugs are covered under Medicare Part D.
The bill’s sponsors believe a low number of 25 drugs is a good starting point because 23% of all Medicare Part D spending is on 25 drugs. The other 77% of spending could potentially go unchecked.
Maximum fair price
The HHS Secretary would negotiate with drug manufactures a maximum fair price. The legislation sets an upper price limit at no more than the average price paid for the same drug in six wealthy countries (Australia, Canada, France, Germany, Japan, and the United Kingdom).
• These countries have been able to provide their citizens somewhat better pricing through negotiation, price controls, and use of therapeutic formularies. A maximum price could be set as much as 20% above the average. The bill does not explain why U.S. citizens should pay a 20% premium.
If the manufacturer refuses to negotiate there could be some hefty excise taxes based on their gross sales. Steep penalties are expected to force manufactures to negotiate and to abide by the final price.
After a price is negotiated, it cannot be raised faster than the rate of inflation. The Secretary or the manufacturer could request a re-negotiation if new information becomes available.
Medicare B & D rebates
The bill has a provision that could catch many drugs that have experienced unfair rate increases in the years passed. It calls for manufacturers of all 8,000 drugs in Medicare Part B & D to review their price increases starting from 2016. It the prices rose faster than inflation then the manufacturers would need to reduce prices to the rate of inflation or be required to pay the entire price above inflation back to the U.S. Government in the form of a rebate. … no not to the people who were stiffed.
The bill would benefit seniors with large drug expenses by limiting the maximum out-of-pocket they pay for Part D drugs. The annual limit would be set at $2,000. Currently Medicare does not have an out-of-pocket limit. In 2017, 370,000 Medicare beneficiaries spent nearly $5,000 on prescriptions.
Government pays less
The bill makes a major change to the way drugs are paid for when a Medicare beneficiary reaches the Catastrophic phase of Part D coverage. Right now, the government’s share has risen from $8.0 billion a year in 2007 to nearly $41 billion in 2018. This portion represents the largest part of Medicare Part D spending.
♦ Cutting the government’s portion, the bill would require drug manufacturers and insurance plans to pay more. In theory, this would free up a lot of money that could be redirected back into government funded research.
The House bill calls for using some of the savings from lower drug prices to increase the National Institute of Health (NIH) research budget to accelerate the development of innovative life-saving drugs.
Big Pharma is crying
The House bill doesn’t drastically attack Big Pharma’s profits because it limits the number and types of drugs that can be negotiated. Even a nibbling has cause them to hit the airwaves with ‘the sky is falling’ announcements.
♦ The drug industry would like everyone to believe that any action to lower prescription drug prices will lead to less innovation on new drugs. Their proxies are out in force promoting this story.
This narrative is hard to believe when the 10 largest drug companies spend twice as much on advertising, overhead and profit-taking than they do on actual research.
♦ The industry and our politicians forget to explain to the American people the predominate role of public funding that continues to go into the research and development of new medicines. Discoveries which our government owns but pharmaceutical manufacturers license, monopolize and reap exorbitant profits from.
Where is this legislation going?
The H.R. 3 bill was introduced in the House on September 19, 2019. It is being crafted by three separate committees. At this time, there are 106 sponsors with the vast majority being Democrats. Progressives and moderates within the Democratic Party are expected to have some conflicts before a final bill is completed.
♦ A vote will be held after the Congressional Budget Office (CBO) completes its full analysis. Initial analysis suggests the bill would save Medicare $345 billion over a decade and non-Medicare households $158 billion.
Update:: The Congressional Budget Office (CBO) came back with a projected savings of $465 billion between 2020 and 2029.
The bill is expected to be passed by the House. Disagreement over the bill with Republicans is certain.
The bill is expected to die upon arrival in the Senate. Senate Republicans have indicated no desire to take on Big Pharma.
Senate Republicans lead by Senator Chuck Grassley (R-IA) are hurrying to compose their own bill before the House votes on theirs.
♦ The Senate bill is called S.2543 - Prescription Drug Pricing Reduction Act of 2019. The Senate bill is directed toward Medicare Part B drugs and does very little for Part D drug costs.
• The Senate bill is shaping up to be one of those 'we don't have plan, but we have to hurry and try to show we are doing something' media event.
The Senate bill pretty much lets pharmaceutical companies off the hook. It pushes physicians and hospitals to cough up some money when they administer Part B drugs.
♦ The Senate bill has a $3,100 out-of-pocket cap for Medicare prescription drugs which is less generous to seniors than the House bill.
The Senate bill is much more charitable to manufacturers and insurance companies by requiring them to pay far less than the House bill when a Medicare beneficiary's prescription costs reach the level of Catastrophic Coverage.
♦ By giving pharma and insurance companies a break, the Federal government ends up paying much more in the Senate bill. Medicare’s financial future will not be as certain with the Senate bill.
The House bill calls for starting in 2022. The Senate bill would start some benefits in 2022 and push others out to 2024.
• The Senate bill will pass in the Senate and die in the House. Nothing will get done before the elections next year.
The 2020 elections will see the Democrats blaming the Republicans for cozying up to Big Bad Pharma. The majority of America loves to hate Big Pharma so it should be interesting to see how Republican candidates spin this one.