By Lori Robertson
Posted on October 20, 2021
In TV ads, the pharmaceutical industry claims congressional plans to allow the federal government to negotiate drug prices in Medicare would deny beneficiaries’ access to medicines their doctors prescribe. Experts say that’s unlikely, and an inaccurate portrayal of recent legislation.
Under current law, the federal government is barred from negotiating prices with drug manufacturers for Medicare. Instead, the prescription drug program, called Part D, consists of many privately run plans that conduct their own negotiations and each set their own formulary, or list of drugs they cover — though they are required by Medicare to cover many medications.
The relevant provision of the law is called the noninterference clause. It says the secretary of the Department of Health and Human Services “may not interfere with the negotiations between drug manufacturers and pharmacies and PDP [prescription drug plan] sponsors” and “may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.”
Many politicians say it’s long past time to create an exception to that clause, allowing the secretary to negotiate prices for some drugs, in order to lower the high cost of medicines in the U.S. and save both the government and seniors money.
Estimates vary on how much more U.S. consumers pay for prescription drugs than many other countries. When we wrote about this issue in 2017, one expert told us on average brand-name drugs were about 10% to 40% more in the U.S. than in similar industrialized countries. But individual drugs can vary considerably.
More recently, a 2021 RAND report, funded by HHS, said that U.S. prescription drug prices in 2018 were 256% of the prices in 32 comparison countries in the Organization for Economic Cooperation and Development, when considering all the drugs available in the U.S. and those countries. For brand-name originator drugs, meaning drugs manufactured by the company that first got approval for that drug, U.S. prices were 344% those in the comparison countries, while generics were cheaper in the U.S. — at 84% the prices in the other countries.
The leading legislative proposal now — H.R. 3 — passed the House in December 2019, but went nowhere in the Senate. It was reintroduced in April. It’s unclear if Democrats will include that proposal — or a different one on Medicare drug negotiation — in the broad reconciliation bill they are crafting. The Biden administration has backed the policy idea, though a proposal it released on Sept. 9 included very few specifics on how this should be done.
But the pharmaceutical industry remains opposed to any effort to allow Medicare to negotiate drug prices.
Recent TV ads — paid for by PhRMA, the Pharmaceutical Research and Manufacturers of America trade association — raise a familiar claim in debates about changing Medicare: rationing.
“Politicians say they want to negotiate medicine prices in Medicare, but make no mistake,” one TV spot begins. “What politicians mean is that they’ll decide which medicines you can and can’t get regardless of what your doctor prescribes, regardless of which medicine has been working, regardless of what new treatments become available.” (Another version of the ad is also on social media.)
Another features a woman named Sue from Ohio. Sue says she’s a diabetic and that “some in Congress … 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.”
But the House bill wouldn’t repeal the noninterference clause.
The Kaiser Family Foundation says the ads are not accurate. “In fact, the proposed drug price negotiation program does not authorize the federal government to decide which medications people on Medicare can and cannot get and does not establish or require a particular prescription drug formulary,” KFF’s Juliette Cubanski, deputy director of the program on Medicare policy, and Larry Levitt, executive vice president for health policy, wrote in an Oct. 7 post. “The legislation under consideration leaves in place the non-interference clause and its specific restrictions with the exception of the proposed drug price negotiation program,” which would concern “a relatively small number” of drugs.
We asked Fiona Scott Morton, professor of economics at the Yale University School of Management, whether price negotiation in Medicare generally could lead to more limited access to drugs. She said she didn’t think this was something seniors should be worried about, saying the “likelihood that anything is omitted is small, and actually what we really hope is that there are some medicines that are omitted because there are three others that do the same thing” but one is six times the price of the others. She said she wished there was more work done to identify “those products that are not really a good deal.”
As for the claims in the PhRMA ads, Scott Morton said they are not factually correct. “They’re making up a whole bunch of stuff that is unlikely to happen based on everything we know about the way the law is structured.”
It is true that the nonpartisan Congressional Budget Office, and other experts, expect a negotiation policy to lead to a reduction in revenue for drug manufacturers and a decrease in new drugs coming to market — about an 8% annual average decrease by the third decade after the policy is implemented, CBO said. But we don’t know which drugs might be affected. And that doesn’t mean Sue won’t be able to get the medicine she uses now or that politicians will “decide which medicines you can and can’t get … regardless of which medicine has been working.”
H.R. 3, “Elijah E. Cummings Lower Drug Costs Now Act,” would require the HHS secretary to negotiate prices for at least 25 brand-name drugs in 2024 and at least 50 in 2025 and later years – specifically drugs that don’t have generic or similar competitors. The drugs selected would come from a list of 125 drugs that account for the greatest national spending or Medicare spending, and the secretary must negotiate the price of insulin products.
Both Medicare and private insurers, if they chose to, would pay the negotiated prices.
Under past proposals, the HHS secretary would have lacked the leverage needed to force drug manufacturers to negotiate Medicare drug prices, and CBO said simply asking drug companies to come to the table would produce “negligible” savings, as we’ve reported before. But H.R. 3 does contain leverage — a high excise tax if a drug manufacturer refuses to participate. And CBO estimates the legislation would save at least $456 billion over 10 years (perhaps nearly $530 billion under the latest version of the bill, which increased the number of drugs to be negotiated, as KFF explains).
Drug companies that don’t comply face a steep 65% tax on the previous year’s gross sales of the drug, an amount that would increase to a maximum of 95%.
The CBO says Medicare premiums and cost-sharing in Part D should go down, and drug prices in other countries should increase.
Rachel Sachs, a professor at the Washington University in St. Louis’ School of Law whose expertise includes food and drug regulation, and health law, told us that CBO predicts the bill would save “significant amounts” and “that’s because they think these financial impositions will help companies be encouraged to come to the bargaining table.”
H.R. 3 would use international prices in six countries — Australia, Canada, France, Germany, Japan and the United Kingdom — to set a target price and a maximum price for negotiations. That maximum price would be 120% of the average international market price in those countries.
The CBO has said there would be pressure on the HHS secretary, too, to reach an agreement on a price. The CBO and the Joint Committee on Taxation “expect that a manufacturer would take its drug off the U.S. market rather than pay the excise tax, so that [the] tax would have the same effect as if the drug had not been approved for sale or as if the drug was excluded from a national list of drugs (that is, a formulary) that any insurer could cover,” the CBO said in a February report. “The potential use of the excise tax and anticipated removal of the drug from the United States would serve as a source of pressure on both parties to reach an agreement.”
Sachs pointed out that the legislation “is based on prices that companies are already accepting in other countries. So we’re not talking about setting a price that is far below the company’s cost of production.” The pharmaceutical companies make profits at these prices in other countries, she said. “Do we really think that they would walk away from the table and not accept those prices here given the size of our market? … The Medicare program alone is larger than many European countries individually.”
And the legislation doesn’t change anything regarding the existing requirements that Medicare cover many medications.
“By law, Medicare Part D plans are required to cover certain drugs per class and in some classes to cover essentially all drugs,” Sachs said. Medicare Part B, which includes coverage for physician-administered drugs, has to cover all drugs that are “reasonable and necessary” for the treatment of illness and injury. Part D plans are allowed to prioritize some of these drugs. “Nothing in H.R. 3 changes any of these rules.”
Scott Morton said under this proposal, “I don’t think there will be any products that aren’t on the formulary so to speak … unless something isn’t adding value.”
For newer drugs that lack an international price, the maximum price would be 85% of the average manufacturer price, which is “the average price charged by drug companies to wholesalers and pharmacists, net of discounts,” KFF explains.
Despite what the experts say about H.R. 3 not reducing current access to medications, Debra DeShong, executive vice president of public affairs at PhRMA, said in a statement to FactCheck.org that the proposal, or other methods of drug negotiation, would limit drug choices for beneficiaries.
“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.
Rep. Lloyd Doggett introduced a bill in March that would require Medicare drug price negotiations and actually establish a formulary for what drugs would be covered, or require the private Part D plans’ formularies to incorporate the negotiated prices. The bill was referred to committee; CBO has not analyzed it.
There is still not a consensus on what proposal would be part of the Democrats’ reconciliation bill, which aims to tackle several issues, including health care, the environment, child care and tax policy. Sen. Ron Wyden, chairman of the Senate Finance Committee, released some general principles of a drug negotiation policy in June, and has said some Senate Democrats won’t support H.R. 3. In mid-September, moderate House Democrats introduced another bill that would allow for very limited drug negotiation — for some Part B drugs that lack competition.
Politico reported on Oct. 9 that it’s unclear what policy could garner the necessary unanimous support by Senate Democrats in order to pass. It said that “many lawmakers” believe they can find “a middle ground” between H.R. 3 and the much more limited proposal from moderates.
In the statement to FactCheck.org, DeShong cited older CBO analyses, saying the CBO “has said that allowing the government to negotiate could only result in savings if the government can remove patient protections and/or restrict access to certain medicines, such as through a formulary.” But CBO didn’t say H.R. 3 would limit access. Even in its analyses of past proposals, CBO said “some source of pressure” would be needed to secure lower prices, such as a formulary, setting prices administratively or taking “other regulatory actions against firms failing to offer price reductions.”
She further said that Part D plans would naturally favor the better-priced drugs. “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.”
PhRMA also pointed us to a Sept. 9 report from STAT News that said another legislative option could be tying Medicare drug prices to those offered to other government programs, such as the Department of Veterans Affairs. That was “one of seven options outlined in a June 7 slide deck detailing an influential Senate committee’s drug pricing deliberations,” STAT reported.
Veterans Affairs does set a national formulary and a ceiling on prices for its health care network. PhRMA cited a December 2020 Government Accountability Office report that found the VA paid “about half” what Medicare Part D paid on average for a sample of 399 prescriptions, both branded and generics, in 2017. One reason for the VA’s lower prices was its single, national formulary, which “can steer utilization toward a limited number of drugs within a given therapeutic class.” The many Part D plans, meanwhile, “generally have broad networks of pharmacies and as such may have broader formularies,” the GAO said.
But it’s unknown what shape such a proposal would take. None has been introduced.
Finally, PhRMA noted that patients in other countries don’t always have the same access to new medicines as those in the U.S. But in its analysis of H.R. 3, CBO said one of the impacts would be a delay in new drugs for the other six countries named in the bill, and higher prices for the new drugs in those countries as well.
The CBO did estimate a reduction in new drugs being introduced to the U.S., and global, market. It said H.R. 3 would lead to a reduction in global revenue from new drugs by 19%, and “and in some cases the prospect of lower revenues would make investments in research and development less attractive to pharmaceutical companies.”
In an August paper on its simulation model, CBO said a policy like H.R. 3 would cause a 0.5% decrease in new drugs in the first decade, a 5% decrease in the second decade and 8% in the third decade. The admittedly “uncertain” estimate from CBO would amount to 59 fewer new drugs over 30 years.
This reduction in innovation, or research and development, has long been an argument against negotiated drug prices for Medicare. The CBO didn’t estimate what type of drugs wouldn’t come to market, however. “CBO did not predict what kind of drugs would be affected or analyze the effects of forgone innovation on public health,” it said.
There’s certainly a debate to be had about how these proposals would affect drug research and development, but the PhRMA ads claim seniors need to be concerned about politicians deciding “which medicines you can and can’t get,” despite their doctors’ wishes.
Rena Conti, associate professor of markets, public policy and law at Boston University’s Questrom School of Business, said in an Oct. 7 briefing held by the nonpartisan Alliance for Health Policy that “scare tactics” about rationing –“raising the specter of people not being able to get drugs now that they need” — don’t accurately describe the current proposals. “This is not really reflective of any of the bills that we are aware of, or proposals that are on the table.”
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