Industry gets the edge: Medicare drug price negotiations will only cost biopharma 10 drugs over the next 30 years
The House on Friday morning passed a bill that will allow Medicare to negotiate prescription drug prices for a limited number of single source drugs, but it’s a deal that will only make a minor dent in the pocketbook of the biopharma industry.
The negotiations and other pricing provisions, like insulin and senior out-of-pocket caps, are part of a sprawling $1.8 trillion spending package that the Democrats and Biden have been pushing for all summer. The bill, which relies on the pharma-related savings to help pay for it, now moves to the Senate.
PhRMA immediately blasted the bill’s passage Friday, saying it will “throw sand in the gears of medical progress,” but the bill is largely a victory for the industry.
CBO said Thursday that allowing Medicare to negotiate drug prices — the plan is to start with negotiations on 10 of the most expensive drugs in 2025 and work up to 20 drugs by 2028 — will save the government (and cost industry) about $76 billion over 10 years, and about $85 billion in inflation rebate penalties if drug prices rise above certain levels.
That’s a far cry from House Speaker Nancy Pelosi’s former drug price negotiations bill, known as HR3, which the CBO scored in August as $456 billion in savings over 10 years. The latest bill and CBO score show the extent to which the pharma industry’s lobbyists watered down the Build Back Better Act.
Loren Adler, associate director of the USC-Brookings Schaeffer Initiative for Health Policy and a drug pricing expert, told Endpoints News, “Definitely interesting to see that even the scaled-back negotiation policy is expected to save $76 billion over 10 years,” or about 17% of what the full HR3 negotiation would save in an apples-to-apples comparison.
Even with the rebates, totaling about $160 billion over 10 years — which is about what the total cost will be to the pharma industry (since the rebate rule was going away anyways), “is a pretty small slice” of the industry’s total revenues, Adler said.
PhRMA, which managed to turn certain members of Congress with funding and alter the negotiations with an army of lobbyists, previously estimated about $560 billion in total revenue from biopharmaceutical businesses in 2017 alone, so $150 billion over 10 years would be about 3% of industry revenue over the same period.
Similarly, the CBO estimated that about 10 fewer drugs (out of a calculated total of 1,300 drug approvals) over 30 years would not be developed as a result of the lost funds.
“The amounts in this estimate are in the middle of the distribution of possible outcomes, by CBO’s assessment, and they are subject to uncertainty. CBO did not predict what kind of drugs would be affected or analyze the effects of forgone innovation on public health,” the score said.
This is worth emphasizing.
CBO says the drug pricing provisions in the #BBBA would lead to less than a 1% reduction in drugs coming to market in the next 30 years.
In theory, CBO's new estimate will make it harder for the drug industry to press the point about innovation. https://t.co/egIREu4Rrh
— Tricia Neuman (@tricia_neuman) November 18, 2021
While House Republicans said Thursday evening that the CBO warned these lost drugs could spell the end for important cancer or Alzheimer’s treatments in development, the reality is that the bill’s enactment could just as well spell the end of developing 10 more me-too drugs, or 10 more expensive drugs with no improved benefits over current treatments.
What the passage of such a bill might do, however, is open up the floodgates for more drug pricing negotiations in the future.
“BBBA’s negotiation process will certainly give us experience with drug price regulation that will provide a lot of information and inform future reform efforts. As a result, it probably increases the odds of negotiation getting expanded in the future, especially because relatively small changes to the process could generate substantial deficit reduction,” Adler noted.
Other provisions in the bill would cap out-of-pocket spending for seniors at $2,000, beginning in 2024, and limit what people pay out-of-pocket for insulin to $35 per month, beginning in 2023 (but that doesn’t include a cap for those who have diabetes and are uninsured). The bill also provides $300 million for FDA infrastructure.