Democrats inched closer to moving along their $1.75 trillion social spending when they announced on Tuesday a compromise to lower prescription drug costs. As we previously noted, significant political and electoral support exists for lowering the cost of prescription drugs. So, the consternation that ensued among congressional Democrats over its omission from the framework President Biden announced last week came as little surprise. Congressional leaders engaged in a flurry of weekend negotiations that produced a compromise much narrower in scope than the House’s original more expansive provision.
The inclusion of a narrow drug pricing provision in reconciliation has remained our core view. As we have laid out, tight voting margins in Congress and opposition from centrists last month guaranteed any provision would be watered-down from the original House bill. Progressives take two hits related to prescriptions drugs with their compromise and commitment to passing the president’s plan: (1) disappointment over the limited scope of the prescription drug provision and (2) the loss of revenue offsets they hoped would fund other healthcare priorities. The savings from giving the Department of Health and Human Services (HHS) the power to negotiate prices of prescription drugs has always been an attractive offset. While we won’t know until the Congressional Budget Office (CBO) scores the compromise provision, the savings will be a fraction of the more than $450 billion over ten years estimated for a provision like the original House proposal.
Overall, slimming down the original provision is a hard-fought win for the pharmaceutical industry. But Democrats will take a victory lap over the provision’s inclusion because it gives new authority to HHS to negotiate prices of some high-cost prescription drugs. However limited, it represents a meaningful cost-saving start for a longtime Democrat policy priority to allow price negotiations in Medicare. As we wrote yesterday, Democrat gubernatorial candidates would have welcomed the announcement weeks or months ago rather than yesterday as voters were at the polls casting ballots. Nonetheless, it will be a welcomed policy victory especially for vulnerable Democrats campaigning in 2022.
In its statement, the White House outlined the broad strokes of the agreed upon proposal. Two categories of a limited number of the most expensive drugs will be affected: (1) drugs in Medicare Part D that seniors purchase at the pharmacy counter; and (2) drugs in Medicare Part B that are administered in the doctor’s office. By contrast, the original bill would have allowed HHS to directly negotiate the cost with manufacturers for all parts of Medicare.
A House Rules Committee summary of the revised legislative text states that the HHS secretary would each year identify for negotiation a list of 100-brand name drugs that lack price competition. The eligibility for price negotiations would vary by the type of drug after it has been on the market for a specific amount of time: nine years for small-molecule drugs and twelve years for biologics. Medicare would negotiate the cost of up to 10 drugs per year starting in 2023 with prices taking effect in 2025. The number of drugs for negotiation would increase to 15 in 2026 and 2027, and up to 20 drugs thereafter. This would include insulin products. Under the original House bill, at least 25 drugs would have been eligible for a negotiated price in 2025 and at least 50 drugs in the subsequent years. Notably left out of the bill is the contentious provision opposed by the industry that linked the negotiated price to an international reference price.
Among its other provisions, the drug plan would impose an excise tax on companies that are noncompliant with the price negotiations. It would also require drug companies to pay rebates if they increased their prices faster than inflation. In addition, the bill includes provisions that would directly reduce the out-of-pocket costs to seniors: it places a $2,000/year cap on how much seniors pay under Medicare Part D beginning in 2024, caps the cost of insulin at $35/month, and lowers their cost-sharing for all types of drugs without increasing their premiums.
The agreement on the prescription drug provision brings the reconciliation bill another step closer to a vote in the House. House Speaker Nancy Pelosi wants it considered on the floor this week which continues to be an ambitious goal. This is especially true in the context of recent centrists’ demands to have 72 hours to review the revised legislation (the 2135-page text was made available late yesterday afternoon) and CBO scoring of the bill—which could take as long as 10 days. Enactment of the reconciliation bill remains weeks not days away, in our best estimate.
