Jacquelyn Martin/AP Photo
Sen. Amy Klobuchar (D-MN) speaks about prescription drug prices during a news conference, April 26, 2022, on Capitol Hill in Washington.
This week, something unusual happened in the long and ignominious history of what was once known as the Build Back Better Act. For the first time in seven months, action was taken. Unfortunately, it wasn’t much.
Senate Democratic leadership sent a 190-page draft prescription drug reform bill to the parliamentarian for a scrub to prepare it for reconciliation. This would constitute one prong of a three-part package, scheduled to include tax increases and energy investments. The other two will likely be much harder to negotiate, given everyone in Washington’s belief in themselves as a tax expert, and the tiny needle that has to be threaded between Democratic desires on climate solutions and Sen. Joe Manchin’s (D-WV) “all of the above” energy approach.
But at least one is done, and if the other two components fall apart (which they very well might), Manchin has said in the past that the Senate should at least do drug price reform. Senate Majority Leader Chuck Schumer (D-NY) has told the caucus that his goal would be to go to the floor with a reconciliation bill as soon as late July, according to a source familiar with the negotiations.
Part of the reason for going to the parliamentarian now reflects this desire to get moving before the August recess, but it also puts Democrats in position for a stand-alone drug price bill as the entirety of a reconciliation package, perhaps with a short-term extension of Obamacare exchange subsidies on the side, to avoid an October surprise of huge insurance premium increases.
That said, the drug price reform mostly resembles the limited, not-very-ambitious reform that came out of the House of Representatives’ Build Back Better bill last year. That’s the only way you could get Sen. Kyrsten Sinema (D-AZ) on board with it; she blessed the House approach last year.
Here are the basic outlines of that approach. The bill would mandate drug price negotiation through Medicare for the first time. But annual negotiations start with only ten drugs chosen by the Department of Health and Human Services in 2026, rising to 15 drugs per year by 2027 and 20 by 2029 and all subsequent years. While negotiations technically start in 2023, the prices aren’t applicable until three years later.
In earlier versions of the bill, the negotiated prices would have been accessible to all insurance payers. But in this bill, the prices are only available to Medicare recipients. Part B (for drugs given at hospitals) and Part D (the Medicare prescription drug benefit) drugs that Medicare spends high amounts on are eligible; the House bill had only Part B drugs involved. So-called “small biotech” drugs are exempted from this until 2029, and both low-spend drugs and costly “orphan drugs” that only a small population of people need are exempted permanently.
The drugs eligible for negotiation also have to be at least 7 to 11 years beyond their approval stage, meaning that there’s still an exclusivity buffer where newer drugs can charge whatever they want. Since no drug can get a negotiated price at launch, this is likely to lead to higher launch prices.
None of this would affect anyone but seniors; everyone 65 and under is left out of the reforms.
Another problem is that the reference price for the start of negotiations is not an international index but a percentage of the average manufacturer price in 2021, when prices were already high. This probably skews the price higher than an international index would. If the drug company does not comply with negotiations, there is a rather large excise tax, though a deal sheet on the House agreement stated that it was assumed “never to be levied.”
The Senate bill does tighten up the language so that a future HHS secretary cannot decline to negotiate on the maximum number of drugs, closing what Democrats have called the “rogue HHS secretary” loophole.
The other elements of the bill include a cap on Medicare patient out-of-pocket costs at $2,000 per year, with an option to pay that in installments; an “inflation rebate” in Medicare Parts B and D that requires givebacks on any prices that go up above the annual rate of inflation (but with a base year of 2021, so it’s already somewhat inflated); free vaccines in Medicare for all seniors; incentives so high-cost drugs don’t lead to high premiums in Medicare (including Medicare Advantage); and attempts to end “pay-for-delay” situations where monopoly patent holders effectively bribe generic companies to stay out of the market for a particular drug. The latter one is done through requiring lower discounts in negotiation if a monopoly drug company blocks competition.
A final piece, newly added in the Senate bill, expands the “low-income subsidy” program for seniors needing co-pay assistance to those earning under 150 percent of the poverty level.
As you can see, none of this would affect anyone but seniors; everyone 65 and under is left out of the reforms. That includes a $35 monthly co-pay cap for insulin, which was initially in the House version but was taken out of this one. That’s because a separate bipartisan bill on the insulin co-pay cap, introduced by Sens. Susan Collins (R-ME) and Jeanne Shaheen (D-NH), has been promised a Senate floor vote. But just yesterday, five Senate Republicans wrote a letter urging a delay on the insulin bill, and nobody involved in prescription drug policy on the Hill sees a path to 60 votes on that.
Presumably the insulin piece could make it back into reconciliation, once it fails a floor vote under regular order. But that insulin bill isn’t all that attractive either. The vast majority of people who struggle with access to and affordability of insulin—in many cases rationing medications and/or dying from ketoacidosis—are uninsured, and therefore get no benefit at all from a co-pay cap.
So that’s what we’re left with: a milquetoast bill that only helps seniors and a few insured insulin patients, doesn’t do much price negotiation, and really only slightly tackles the waste and outsized profits in the system. The House bill scored at a government savings of close to $300 billion over ten years; that’s not nothing, but earlier versions were much higher.
Drug company trade groups, for their part, hate the bill. The fact that you can have this light of a touch and still get $300 billion out shows just how much money is in drug manufacturing.
That’s why it’s imperative that President Biden takes his own action on drug prices to supplement this modest deal. The government has the authority to determine how Medicare dollars and other government resources (like research and development costs through the National Institutes of Health) are spent in a variety of ways, as the Prospect has explained repeatedly. Now that we know this is the best Congress can do, it’s incumbent upon the executive to take up the slack.
“We’re thrilled to see that drug price negotiation is out of the deep freeze,” said Steve Knievel with Public Citizen’s Access to Medicines program. “But simultaneously, policymakers made compromises to secure the votes for some members who are closely aligned with pharmaceutical corporations, so it is only a starting point. President Biden needs to supplement this legislation with executive action.”
As for the rest of reconciliation, whether deals can be reached on taxes and energy is anybody’s guess. Democrats are now talking about “as much as $300 billion” in clean-energy tax incentives, rather than the $550 billion from the House version of Build Back Better. The hope is to get an energy deal next week, though no deadline has been binding throughout this entire episode. Manchin and Schumer don’t appear to be particularly close to a deal when you look at the particulars still up for debate.
Meanwhile, a secondary issue is that Minority Leader Mitch McConnell (R-KY) has vowed to block consideration of a bipartisan supply chain and advanced manufacturing bill, known as the U.S. Innovation and Competition Act (USICA), if Democrats go forward with reconciliation. Hill sources presume he has the wherewithal to do this, even though the bill got 68 Senate votes a year ago. Presumably the pressure to deliver on a bill intended to maintain economic competitiveness with China, which a number of manufacturers favor, would rise in the shadow of the election, but the House and Senate, both of which have passed versions of the bill, are pretty far off in resolving the differences in the conference committee, so any resistance could kill that effort.
Given the work product from Congress this year, that this parade of pitiful quarter-measure reforms, imminent collapses, and endless wrangling can count as major progress isn’t that much of a surprise.
