Julio Cortez/AP Photo
Differences have emerged between the House’s conception of drug price reform and a more modest Senate proposal.
Centrist Democrats have spent weeks balking at the tax measures slated for the $3.5 trillion Build Back Better Act, using the linkage set up by President Biden between revenues and spending (Biden has said for months that the bill “will be fully paid for”) to force cuts to the wide array of social programs. But one policy that isn’t accounted for in that equation would bring needed relief to the public while also saving the government hundreds of billions of dollars.
That would be the prescription drug reforms. For well over a decade, Democrats have been running on allowing Medicare to negotiate with drug companies, something that was barred in 2003 when Republicans passed the Medicare prescription drug benefit. High drug prices are almost always at the top of opinion polling about Americans’ biggest concerns.
Succeeding on drug prices would mean defeating the powerful pharmaceutical lobby and the cadre of Democratic lawmakers who represent states with the headquarters of large U.S. drug companies. But because it’s a budget savings, it has become extremely important for the overall bill. “They really need a lot of drug price revenue to make the numbers add up,” said Steve Knievel, an advocate in Public Citizen’s Access to Medicines program.
Yet differences have emerged between the House’s conception of drug price reform, a brokered compromise between leadership and the Progressive Caucus, and a more modest Senate proposal, which comes out of the Finance Committee, whose senior members disproportionately hail from pharma-heavy states. The differences amount to hundreds of billions of dollars in drug company profits. Who wins out could determine not only what Americans will pay for medications, but the size of health care, education, climate, and housing measures in the package.
Interestingly enough, the answer may come down to the role of the disability community. One of the more contentious differences between the House and Senate intersects with a metric for determining the value of prescription drugs that is highly controversial and that advocates see as ableist. “We can’t use ableist tools, we can’t harm patients in ensuring that there’s access,” said Matthew Cortland, a disability rights advocate and a senior fellow with Data for Progress.
THE BASICS OF DRUG PRICE REFORM mirror a signature bill the House assembled in 2019, known as H.R. 3, the Elijah E. Cummings Lower Drug Costs Now Act, named after the late congressman from Maryland, who was instrumental in investigating the drug industry.
The main part of the bill allows Medicare to annually negotiate the price of 25 high-cost drugs in the first year of enactment, and 50 in each subsequent year. Getting to that level involved a huge fight, with Speaker Nancy Pelosi (whose office really drove the legislation) initially allowing ten drugs to be negotiated in the first year, and progressives agitating for a higher cap. The universe of eligible drugs for negotiation includes any of the 125 on-patent medications accounting for the highest spending in Medicare Part D or the health care system in total, or an insulin product. There would be large excise taxes on drug companies that refused to negotiate.
Progressive members of Congress and advocates successfully added language stating that drugs presumed to reach that threshold upon launch can also be negotiated. They also won the application of these lower prices not only to Medicare patients, but to anyone with commercial insurance. While they preferred more far-reaching ideas, like much higher caps on how many drugs can be negotiated, and seizing patents from drug manufacturers that didn’t agree to negotiate, they see H.R. 3 as a legitimate advance. “Even within these bounds, you do accrue serious savings,” Knievel said.
Several other ideas were added on top of this signature reform. First, any pharmaceutical company that increases prices on a particular drug above the rate of inflation would have to pay the excess back to the federal government. Out-of-pocket expenses for Medicare Part D recipients would face a cap of $2,000. A provision separate from H.R. 3 would roll back the Trump administration’s “rebate rule” that prevents kickbacks between drug companies and middlemen known as pharmacy benefit managers, mainly because the Congressional Budget Office (CBO) found that it would cost Medicare and Medicaid about $180 billion over ten years. (One problem here is that lawmakers took this “pay-for” in the bipartisan infrastructure bill, delaying the rule by two years and using that to offset spending. So any savings in the Build Back Better Act would be lower.)
Add that to H.R. 3’s reforms, which the CBO found would save $456 billion, and you have around $600 billion that can offset social spending in the Build Back Better Act, more than one-sixth of the $3.5 trillion price tag. Some estimates go even higher.
But a couple of factors cut against maximizing revenue and the lowest prices for consumers. Critically, the House bill does not begin Medicare negotiation with drug companies until 2025. That severely reduces the savings you can derive and puts off meaningful changes to prices through the duration of this presidential term. It’s unclear and frankly baffling why negotiations would have to wait so long.
And then there are the differences between the House and Senate versions.
IT IS NOT SURPRISING that the Senate Finance Committee would seek a reform that allows drug companies to hang on to more profits. Two of the committee’s five most senior Democrats hail from major pharma states and have been outspoken against aggressive drug price reforms: Sens. Robert Menendez of New Jersey and Tom Carper of Delaware. (Menendez’s office didn’t return a request for comment.)
That said, the frameworks are mostly similar, as you can see from this outline of principles for reform from Finance Committee chair Sen. Ron Wyden (D-OR) in June. Both include Medicare negotiation with drug companies, the cap on price hikes above inflation, the out-of-pocket cap for Part D recipients, and blocking the rebate rule. Wyden confirmed that he supports applying the benefits of drug negotiation to everyone with commercial insurance, according to a spokesperson. “Chairman Wyden is fighting to send the strongest possible drug pricing reforms to the President’s desk that would hold Big Pharma accountable for decades of price gouging and deliver lower health costs to families at the pharmacy counter,” the spokesperson said over email.
However, there are key differences. According to sources with knowledge of the situation, the Senate would shrink the universe of drugs eligible for negotiation, and would allow fewer drugs to be negotiated at any one time. Penalties for drug companies that won’t negotiate could also be more lenient in the Senate draft.
But the big difference concerns drug price referencing. As this markup draft from the Ways and Means Committee indicates, the House bases negotiation on an international index of prices for a particular drug, which are typically much lower than prices in the U.S. The six industrialized nations in the index are Australia, Canada, France, Germany, Japan, and the United Kingdom. The U.S. would pay no more than 120 percent of the average price of those six countries, under the House version.
As STAT News reported last Thursday, however, an internal slide deck from the Senate Finance Committee (which has jurisdiction on drug price reform) indicated that it wants to use a domestic price standard, based mainly on the prices the Veterans Health Administration secures. While VA drugs are significantly discounted relative to what Medicare or private payers pay, they are higher than prices in industrialized nations.
Rep. Lloyd Doggett (D-TX), who has led the most aggressive efforts to lower drug prices in the House, sharply criticized the Senate proposal in a statement to The Intercept on Friday. “Every step to weaken negotiation means consumers will continue to pay too much and government will have too little in savings to reinvest in health care improvements,” Doggett said.
But a more obscure part of the slide deck bears scrutiny. It referred to Medicare using clinical effectiveness and cost-effectiveness analysis in negotiating with drug companies, “potentially including a controversial metric to determine a drug’s value called the Quality-Adjusted Life Year (QALY).”
That would spark an enormous fight. QALYs are nowhere to be found in the House draft. And my sources indicate that there’s no chance that QALYs will be specifically identified as a metric in the legislation. But QALYs are indirectly factored into how the VA handles drug negotiations. And that’s a huge problem for the disability community.
The QALY combines into a single measure both life extension and quality-of-life improvements. If a drug provides a single year of perfect health, it is given the highest QALY. “Any health state less than a non-disabled life is discounted,” said Ari Ne’eman, a doctoral student in health policy at Harvard and a former member of the National Council on Disability. “If you have a condition that’s discounted at 20 percent, extending your life by ten years is the same as extending the life of a non-disabled person by eight years.”
How this plays into drug pricing is that a medication that manages but does not cure a disease would have lesser perceived value. That could mean that an insurance payer wouldn’t cover those discounted drugs, or that profit-maximizing drug companies would focus on cures over symptom-management medications.
For these reasons, disability advocates are implacably opposed to the use of QALYs. “When you use them, you’re saying that because we refuse to do the things that we can do to make pharma drop the price, we are going to harm patients,” said Cortland, who lives with Crohn’s disease and fears he would be directly affected by such a change. Advocates forced a provision into the Affordable Care Act that prohibited Medicare from using QALYs, and barred it from ACA-funded comparative effectiveness research.
But since 2017, the VA has had a formal partnership with the Institute for Clinical and Economic Review (ICER), a Boston-based think tank that is one of the main proponents of QALYs. ICER insists that “the VA has never used a negative ICER report to limit access to a medication, but instead has used our work to achieve better pricing from manufacturers.” But if the Senate version, with its negotiation standard based on VA rates, wins out, then metrics in some way tied to QALYs will be used to generate Medicare’s drug prices, even if it’s not explicitly in the legislation.
ICER has added a supplementary measure to QALYs called Equal Value of Life Years Gained, which gives the option of undiscounted life years. “That doesn’t really address the problem,” said Ne’eman. “Under equal value you don’t really value symptom reduction. If the pill or biologic isn’t going to cure you and make you live longer, then in fact the value ascribed to extending your life would be lower.”
The disability community is working on many other parts of the Build Back Better bill, including the halving of funds for home and community-based services and the boosting of Supplemental Security Income for people with disabilities. But QALYs have traditionally been a huge red flag, even indirectly, which could make use of VA prices as a reference standard problematic. “Anything that uses the QALY or opens the door by not prohibiting it is going to be a source of very serious concern,” Ne’eman said.
THE FACT THAT ALL SENATORS are needed for passage of the Build Back Better Act under budget reconciliation rules gives a lot of leverage to Menendez and Carper to contour drug price reform to their liking and weaken the overall reform. But a third player in this, the White House, missed a golden opportunity to put pressure on them.
As mandated by Joe Biden’s executive order on competition in the U.S. economy, last week the Department of Health and Human Services (HHS) issued a “comprehensive plan” for lowering drug prices. This plan, as expected, endorsed the congressional framework to allow Medicare to negotiate with drug companies, and to apply those savings to all insurance payers.
But HHS has many other levers to reduce drug prices using its own authority. It could, for example, employ “compulsory licensing,” seizing patents on high-priced drugs and giving them to generic rivals to produce more affordably, using Section 1498 of the U.S. Code or a provision of the Bayh-Dole Act of 1980, which relates to drugs developed with federal funding. Doggett, along with Sens. Elizabeth Warren (D-MA) and Amy Klobuchar (D-MN), urged HHS to endorse that authority in the report back in July.
Not only could this help lower drug prices, but it would impact the current negotiations. Members of Congress don’t like the executive using authority when they can act instead. Strong executive action could be a spur to get centrists to agree to bold Medicare price negotiation, if only to hold off the patent seizure.
But the report is nearly silent on patents. The executive actions outlined are weak tea, mostly involving testing various models, collecting data, and working on drug importation programs. On compulsory licensing, HHS only said that they “have been petitioned to take actions” and “will continue to give such petitions due consideration.” Section 1498 is only mentioned in a footnote.
“On executive action, they didn’t do anything that would ruffle feathers,” Knievel said. “They mentioned a lot of policies that they don’t have any intention of doing anything about.” He added that the executive actions contemplated aren’t much different than what the Trump administration offered.
It’s disappointing to drug price reformers especially because HHS Secretary Xavier Becerra has been such an advocate of aggressive executive action on drug prices. Last year, when he was attorney general of California, Becerra led a letter demanding that HHS use compulsory licensing to seize the patents of remdesivir, then seen as a key therapeutic for COVID-19. “In a competition executive order, it is a pretty major oversight,” Knievel said. “They do mention patents a bit, but it is kind of an afterthought. It’s a gross oversight not to really talk more explicitly about the monopoly power of drug corporations and their pricing.”
The report fails to signal to Congress to either take strong action legislatively, or risk more aggressive executive action. That’s a significant piece of leverage that the administration just decided not to use. Now it’s up to Congress to fight it out.
