Alec Raeshawn Smith couldn’t afford his insulin medication after he was forced off his parents’ health insurance at age 26. The out-of-pocket costs—about $1,300 for a month’s treatment—were simply too steep for a restaurant manager making $35,000 a year with no benefits. Five days after leaving his local pharmacy without insulin, Alec had picked his apartment clean, extracting whatever medicine he could out of previously used insulin pens. It wasn’t enough; Alec died of ketoacidosis, a buildup of acids in the blood that often occurs in diabetes patients who don’t take their insulin.
Nicole Smith-Holt, Alec’s mother, became an activist with T1 International, a coalition of diabetes patients and their allies, demanding that nobody die in the richest country on Earth from lack of access to prescription drugs. Alec’s death was among the most high-profile cases revealing the crisis of high drug prices, especially insulin. It became one of the most talked-about issues on the campaign trail in 2018, and motivated the new House Democratic majority to make combating drug prices the signature legislative action of their first year in control.
Now, with that bill—known as the Elijah E. Cummings Lower Drug Costs Now Act— on the verge of House passage next week, Nicole Smith-Holt wants Democratic leaders, particularly Speaker Nancy Pelosi, to know something: Their vaunted legislation wouldn’t have helped her son.
“The key factor of this bill is that it’s missing 30 million people who are uninsured,” Smith-Holt tells the Prospect. “I appreciate House Democrats realizing that this is the most important issue, but it’s not the strongest bill possible. People like my son Alec wouldn’t have benefited. It wouldn’t have saved his life. And a lot of other lives would be at risk too.”
How did we get to this point, where a signature initiative to take on drug companies wouldn’t protect the most vulnerable victims of drug company greed? How did we go from a potential bipartisan solution to the prescription drug crisis to a weak messaging bill that wouldn’t stop people who can’t get insulin from dying?
The answer is more like a saga, a winding road of politics and policy that turned a promising effort into something of a mess. There’s still time to salvage the bill, advocates say, with targeted improvements that at least won’t leave large groups of victims behind. But Pelosi’s domineering influence over the bill, and really that of her chief health policy adviser Wendell Primus, may make such fixes impossible. And it may bring down the entire effort in embarrassing fashion.
AT THE BEGINNING of the year, drug prices looked like the most formidable, and maybe the only, area of policy cooperation between the new House majority and the Trump White House. Since his 2016 campaign, Trump has consistently paid lip service to the issue. He’s floated ideas like benchmarking prices for certain drugs to an international index, and taking on pharmacy benefit manager middlemen that increase prices in the supply chain. His policy aide Joe Grogan told conservatives in July, “The president will not be outflanked on the left on drug prices.” This desperation, combined with significant interest from the Democratic caucus, seemed like a recipe for getting something done to curb drug price inflation.
Trump seemed so desperate, in fact, that he would potentially agree to wide-ranging ideas to tackle high drug prices, along the lines of what 2020 Democrats have been proposing. House Democrats had been organizing around this for years. Representative Lloyd Doggett’s plan to have Medicare directly negotiate with drug companies, under threat of having their patents pulled and distributed to generic competitors, had majority support within the Democratic caucus.
But Pelosi commandeered the policy, nixing Doggett’s compulsory licensing plan. At first, her strategy linked Medicare drug price negotiation to a third-party arbitrator, which would set the price if negotiations failed. Even stranger, the arbitrator was pegged as the Government Accountability Office, a research organization with no expertise in drug pricing and no history of arbitrating anything. The number of drugs that would get this arbitration treatment would also be limited to just 25 per year.
Abandoning compulsory licensing against the will of a majority of the caucus appeared to be the work of Wendell Primus, a powerful Pelosi staffer who has an iron grip over health policy. His interest in finding a policy acceptable to the Trump administration led to the more modest package. Primus’s constant defensive crouch —concerned more with deficit reduction and protecting the meager safety net rather than anything bold—defined the path for the Lower Drug Costs Now Act.
“In terms of policy and politics, we question the limited approach to a problem that’s so big for voters,” says Annette Gaudino of the Treatment Action Group, which has advocated for a stronger policy. “Everyone gets sick, everyone goes to the pharmacy. This bill is not addressing any of the fundamental problems with the current system.”
Amid outcry from progressives, Primus and Pelosi tweaked the bill to make it more acceptable. They raised the cap from 25 to 250 drugs per year, although many suspect that setting a floor at 25 would make it operate like a ceiling. Pelosi borrowed the international index from Trump, setting a “maximum fair price” at no more than 120 percent of the volume-weighted average from Australia, Canada, France, Germany, Japan, and the U.K. These negotiations would continue until competition for the drug emerged.
If drug makers refuse to negotiate, they get slapped with an excise tax of as much as 95 percent of the drug’s gross sales. This was borrowed from Topher Spiro at the Center for American Progress. The negotiation/arbitration concept was taken from a process that involved the foundation of Laura and John Arnold, billionaire hedge funders who financed a project on drug prices with the think tank Waxman Strategies, run by former House stalwart Henry Waxman.
If it sounds like legislation by committee, it was. And the fact that an outside think tank paid for with billionaire cash is the primary avenue for developing signature legislation speaks to the relative poverty of legislative acumen inside the Capitol. But the real problem for the Lower Drug Costs Now Act was that the circumstances inside Washington dramatically changed.
The Trump administration initially embraced the House bill. “It’s great to see Speaker Pelosi’s bill today,” Trump tweeted in September. But a couple months later, he had soured on it: “Pelosi and her Do Nothing Democrats drug pricing bill doesn’t do the trick. FEWER cures! FEWER treatments!”
Trump’s Council of Economic Advisers released a broadside against the bill this week, claiming that it would “keep 100 lifesaving drugs from American patients.” Grogan, the staffer who said that nobody would get to Trump’s left on drug pricing, called the bill “hyperpartisan” and “unworkable” in November.
The culprit may have been Representative Greg Walden (R-OR), a key ally of the industry and major recipient of industry cash, who met with Trump about the bill in November. Or Trump may have just retreated to the safer ground of a bipartisan Senate bill led by Chuck Grassley (R-IA) and Ron Wyden (D-OR), which really only benefits seniors in Medicare. However, even that has run aground in the legislative graveyard of the Senate. Majority Leader Mitch McConnell (R-KY) has no interest in the Grassley-Wyden bill, and it lacks enough Republican support to pass.
That completely changes the rationale for the Lower Drug Costs Now Act. Previously it was seen as an effort to get to bipartisan progress on drug prices. With that hope all but gone, the only purpose the bill can serve is as a marker for future action. Political considerations should go out the window if Republicans are dead-set against the policy. But if you were designing such a marker from scratch, you would likely not use the arbitration/international indexing mechanism on such a small number of drugs. And you really wouldn’t design a bill that segregates large populations from any of the benefits. “If this is a messaging bill,” says Annette Gaudino of Treatment Action Group, “the message they seem to be sending is we’re going to change things, as long as nothing changes.”
Gabriele Holtermann-Gorden/Sipa USA via AP Images
A rally outside the New York Stock Exchange demanding that the pharmaceutical industry stop price-gouging life-saving insulin for diabetics, November 2019
SEVERAL ADVOCATES whom the Prospect consulted over the past week identified loopholes and gaps in the Lower Drug Costs Now Act. First, the negotiated price on the 25-plus prescription drugs per year is available to Medicare, group, and individual market health plans. But people without insurance are not covered.
Even though the bill purposefully singles out insulin as a category of products that must be negotiated, uninsured diabetes sufferers who have trouble affording insulin would see no benefit from the negotiated price. Many of those who have died over the years from lack of insulin have been uninsured. “Even if it isn’t going to pass and become law this would set a precedent for moving forward,” says Nicole Smith-Holt, the mother of Alec Raeshawn Smith, who died from lack of insulin. “But this puts 30 million lives in jeopardy.”
The solution would take up just a line of text in the bill. “I think it would be a very easy fix, say across the board, all prices negotiated includes the cash price out of pocket,” says Smith-Holt. But congressional sources tell the Prospect that House leadership has not committed to allowing amendments on the floor for the bill, meaning that whatever ends up in the final text would be the only thing up for a vote.
Second, there are parameters for which drugs would actually get negotiated each year. Those selected for negotiation are supposed to be the ones with the greatest market impact. That seems to neglect high-priced drugs that affect smaller patient populations, sometimes known as “orphan” drugs. “It’s going to be total dollar volume on the drugs,” says Brook Baker, a senior policy analyst with HealthGAP, an advocate for lower drug prices. “The orphan drugs that treat relatively small populations, some make a ton of money, but they won’t have the patient volume, even with super-high prices.”
For example, Daraprim, the drug that “Pharma Bro” Martin Shkreli purchased the rights to and raised from $13.50 to $750 per pill, would almost certainly not have the market impact necessary to be eligible for negotiation. Therefore, one of the most-used examples of high drug prices would not be lowered in the Lower Drug Costs Now Act.
Drug companies would have the ability to game the negotiation system as well. If they delayed introduction of blockbuster drugs in the countries in the international index, there would be no reference point for negotiations. Newly introduced drugs that take time to reach the volume to make them eligible for negotiation would get to keep all those profits. There would be incentives to set a high introductory price, to capture all the gains until negotiations proceeded. “It doesn’t get at the heart of the problem,” Baker says.
Plus, the minimum 25 drugs per year, which increases to 35 by year ten, still falls well short of the pace of new drugs coming on the market, let alone how many negotiations other countries execute. This year, Germany has negotiated prices on 62 drugs, according to information from the German government.
The bill does not even strike the non-interference clause that is the reason Medicare cannot negotiate over prescription drug prices in the first place. The bill just creates an exception to the non-interference clause, making it literally illegal to negotiate on price for drugs outside the exception. This may seem like a minor point. But if you’re trying to rebuild the interplay between the government and drug companies, maintaining a legal ban on negotiation seems foolhardy. A more ambitious HHS would have more flexibility if the non-interference clause were stricken.
Tom Williams/CQ Roll Call via AP Images
Wendell Primus, health care policy adviser for Speaker Pelosi, in 2009
PERHAPS THE STRANGEST odyssey about the bill involves an amendment from Representative Pramila Jayapal (D-WA), the co-chair of the House Progressive Caucus. Jayapal’s amendment expands a section of the bill that mirrors the Grassley-Wyden legislation in the Senate. It would generate rebates to Medicare on excessively priced drugs that rise above the rate of inflation. Jayapal wanted those rebates extended to group health plans. That way everyone would benefit from the rebates, and drug companies would have incentives to keep cost increases below the rate if inflation, since they would lose any profits above that threshold.
House leadership came down on Jayapal for seeking this change. Speaker Pelosi’s staff, particularly Wendell Primus, didn’t want the amendment to pass, and this trickled down to the staffs of the Ways and Means and Energy and Commerce Committees, two of the three with jurisdiction over the bill. Jayapal got the third, the Education and Labor Committee, on board, and the amendment passed there. Even then, it had to be watered down, forcing the Secretary of Labor to conduct a feasibility study for extending the rebates to group plans, and then regulations coming subsequently on the expansion.
The leadership resisted keeping the amendment in the final bill, even after passage. The reason why is one of those around-the-bend, up-is-down consequences of a broken legislative apparatus in Washington. Pelosi’s staff has been obsessed with getting a good score on the legislation from the Congressional Budget Office (CBO). They accomplished that, with just the negotiation provisions saving the government $345 billion over a ten-year period. The more money that the bill saves, the more that can be plowed into improvements in Medicare, another priority of the bill.
However, if the rebates were extended to group plans, drug companies would have incentives to lower costs. That means less money in rebates going to Medicare, and less for Medicare to spend on other matters. So, insanely, Wendell Primus would rather keep drug costs higher outside of Medicare, so Medicare can get more rebates and use the money. The bill is called the Lower Drug Costs Now Act, but this provision, if the Jayapal amendment is removed, would incentivize higher drug costs.
“What you’ve hit on is one of the many perverse incentives in the U.S. system,” says Annette Gaudino of Treatment Action Group. “We’re robbing Peter to pay Paul to have health infrastructure in this country.”
Jayapal, in a personal meeting with Pelosi, got what she thought was a commitment to keep her amendment in the final bill. But subsequently, staffers started to back away from that commitment, suggesting that it wasn’t made at all. Incredibly, Primus at one point suggested that the House would strip out the Jayapal amendment because the feasibility study made it too weak, even though that version was given to Jayapal as the only one that would pass muster.
One option that was always on the table is to keep the feasibility study in but remove the requirement to promulgate regulations, which would water down the amendment to nothing. And on Thursday afternoon, the hammer came down: the amendment would only require the study.
Jayapal on Thursday publicly demanded that her amendment stay in the bill, to no avail.
THESE ARE BARE minimum concerns: increasing the minimum amount of drugs negotiated, keeping in the full Jayapal amendment, striking the non-interference clause, allowing the uninsured to benefit from negotiated prices. They don’t disrupt the framework of the bill, which many advocates don’t really favor. They don’t attempt to smuggle in the Doggett bill on compulsory licensing. They’re just simple, targeted tweaks that would open up the bill to a much larger population.
But there’s been no commitment to have an open rule for the vote, with amendments allowed. Pelosi, and by extension Primus, have taken an unusual level of control over the process, freezing out committee chairs that would normally have a say in the matter. Progressives have begun to grumble they would vote against the bill on the floor if improvements are not made. Given the fact that Republicans are likely to be unanimously opposed, that could threaten passage of what is a critical priority for Pelosi, especially as she tries to prove her party can govern amid the impeachment inquiry.
Any problems with the outcome will fall squarely on Pelosi. From the convoluted legislative framework developed outside of Congress to the fixation on the CBO score above practically everything, to the designing of a policy Donald Trump could sign onto and the unwillingness to alter the strategy once Trump came out in opposition, Pelosi must answer for everything critics see in the end result: a weak, gameable first offer that doesn’t represent the kind of bold policy necessary if political considerations are secondary.
“You have this lopsided system with really high list prices,” says Brook Baker of HealthGAP. “Pelosi said we can get a deal with Trump, we won’t do anything radical. What’s the prospect of Trump going along, zero at this point. Now you have to put good ideas on the table rather than tinkering at the margins.”
Of course, the need to entice Trump is just the fig leaf Pelosi needs to keep moderate Democrats who may get support from the pharmaceutical industry on board. Playing for bipartisanship is an excellent way to take the teeth out of legislation.
The craziest part is that this was the signature issue of midterm elections that Democrats resoundingly won. You would think they’d have to pay attention to that by delivering a legitimate policy that advocates could get behind, to pressure Republicans either into a vote or another dismal election loss. At the least it would wedge Republicans between an electorate crying out for help and the corporate base. But a mushy policy with critical gaps is difficult to use as a rallying cry.
“Voters and patients have gotten wise to the inequities in the system,” says Guadino. “Drug pricing is something where people don’t want the slogans, they want to see intervention in the marketplace. This bill doesn’t speak to the public mood.”
The saga of the drug pricing bill reflects how Pelosi has handled legislation throughout the year, setting aside top priorities for allies and bolder, more transformative policy positions in favor of “tentpole” legislation that barely holds up the tent.
Speaker Pelosi’s office has not yet responded to a request for comment.
As for Nicole Smith-Holt, mother of drug price victim Alec Raeshawn Smith, she says she appreciates Pelosi’s dedication to make the issue a priority. “But one in six prescriptions are unfilled at the pharmacy,” she adds. “People are gambling with their lives because of the cost.”
