The Medicare prescription drug pricing plan that Democrats introduced in the first week of November is not as ambitious as many lawmakers wanted, but they and experts say the measure opens the door to reforms that could have dramatic effects.
Cutting drug spending has long been a rallying cry for consumers beset by rapidly rising prices. Although people with private plans had some protection, those with Medicare did not. They had no out-of-pocket caps and often complained that federal law prevented them from using drug manufacturer coupons or any cost-cutting strategies.
A plan offered earlier this year by House Democrats, which included strong bargaining on Medicare drug prices, was blocked by a handful of moderates arguing that price controls would stifle innovation. The legislation also seemed destined to run into obstacles among senators.
The moderates supported more limited bargaining on Medicare Part B drugs, that is, those administered in doctor’s offices and hospitals. Most Medicare members obtain their drugs through Part D, which covers drugs dispensed at a pharmacy.
When it appeared that the bill to fund President Joe Biden’s social agenda would go through without a drug price proposal, pressure mounted, there were intense negotiations and a hybrid proposal was unveiled.
It includes the identification of 100 of the most expensive drugs, and the selection of 10 of them to negotiate a price reduction starting in 2025. It will also cap inflation on prescription drug prices for all insurance plans, restrict Insulin copays to no more than $ 35 and will limit Medicare beneficiaries’ annual drug expenses to $ 2,000.
“It seemed as if the government had its hands tied. Now a precedent is being set, ”said Senate Finance Committee Chairman Ron Wyden, Democrat of Oregon, who led the senators’ talks. “It is going to negotiate on the most expensive drugs: those for cancer, arthritis or blood thinners. And that is a precedent, and once the precedent is set that it can be negotiated, a major turnaround is taking place ”. Drug makers say the changes could hamper consumer choices.
“The pretext of ‘bargaining’ gives the government the power to dictate how much a drug is worth,” said Stephen Ubl, CEO of the PhRMA trade group, in a statement, “and leaves many patients facing a future with less access to drugs. drugs and fewer new treatments ”. But how exactly will these changes affect the majority of Americans, and who will they help? Answers vary, and many details will have to be clarified by government agencies if the legislation is passed.
Members of the House of Representatives warned, on November 4, that some minor changes were still being made and that the approval of both houses is required.
Control in the price of insulin
One of the most obvious benefits will be for those who need insulin, the life-saving drug for people living with type 1 diabetes and some with type 2. Although the drug has been around for decades, its price has risen rapidly in the US. last years.
Lawmakers heard dramatic accounts of people dying from not being able to afford insulin or having to drive to Canada or Mexico to get it cheaper. Under the bill, starting in 2023, the out-of-pocket cost for a 30-day supply of insulin would be $ 35 maximum. And the benefit would not be limited to Medicare beneficiaries. That cap is the same as that set in a model five-year program in Medicare. In it, the Centers for Medicare and Medicaid Services (CMS) estimated that the average patient would save about $ 466 a year.
Detailed analyzes of the proposals are not yet available, so it is unclear what the fiscal impact or savings would be for non-Medicare patients.
Limitation of out-of-pocket expenses
Another obvious help for Medicare beneficiaries is the $ 2,000 limit on out-of-pocket costs for prescription drugs. Today, prices for Part D prescription drug plans are calculated using a complicated formula that includes a gap in coverage, the infamous “donut hole,” with no limit to what patients can spend.
This has led consumers with serious illnesses, such as cancer or multiple sclerosis, to pay thousands of dollars to cover their medication, according to a recent KFF analysis. Under current law, when an individual beneficiary and their plan spend $ 4,130 this year on drugs, the beneficiary enters the “donut hole” coverage gap and pays up to 25% of the price of the drug. After $ 6,500 is spent on medications, you will be responsible for 5% of the cost until the end of the year.
Limiting that spending is especially important for people who receive little help for low incomes and suffer from expensive illnesses, said Dr. Jing Luo, a professor of medicine at the University of Pittsburgh Center for Healthcare Research. “The patient pays 5% of all drug costs, and 5% of $ 160,000 is still a lot of money,” he added.
The legislation would alleviate that fear for consumers. “Instead of having to face a bill at the end of the year of more than $ 10,000, maybe the bill at the end of that year for that very expensive multiple myeloma treatment is $ 2,000,” he explained.
Negotiate drug prices
The negotiation of Medicare prices is probably the most prominent provision in the legislation, and the most controversial. Under the bill, the Department of Health and Human Services (HHS) would be in charge of identifying the 100 most expensive drugs and choosing the 10 that would be negotiated. That effort would not start until 2023, but the new prices would take effect in 2025. Another 10 drugs could be added in 2028. No drugs have yet been identified.
To address the concerns of some legislators, the legislation makes specific provisions about how HHS will select the drugs to include. Only drugs identified as unique in their genre or as the sole remedy for a specific health problem would be included.
The list would also be limited to drugs that have been on the market beyond the period of exclusivity that the government grants them to be free from competition and recover costs. For most drugs, the exclusivity can last for nine years. For the more complicated biologics, the period would be 13 years. The use of the exclusivity term allowed legislators to sidestep the question of whether drugs were still under patent protection.
The measure allows prices to be negotiated at a lower level for older drugs chosen for the program. Thus, for example, the negotiated price for a non-biological medicine that has been available for less than 12 years would be 75% of the manufacturer’s average price. This percentage would be reduced to 65% in the case of drugs that have exceeded 12 to 16 years of initial exclusivity, and to 40% in the case of drugs that have exceeded 16 years of initial exclusivity.
Drugs from smaller companies, with sales below $ 200 million, are excluded because lawmakers fear that lowering their prices will hurt innovation.
Some experts wonder if the negotiated prices will have a direct impact on consumers.
“It certainly helps Medicare reduce spending,” said William Comanor, professor of health policy and management at UCLA’s Fielding School of Public Health. But how does that affect consumers? Sure, Medicare doesn’t change the copay. ”
However, he added, the copayment is less problematic if the cost of prescriptions is limited to $ 2,000 for the consumer.
Linking prices to inflation
Under the bill, manufacturers would have to report their prices to the HHS secretary, and if prices rise faster than inflation, drug manufacturers would have to pay a rebate to the government. Those who do not pay the refund would face a civil penalty of 125% of the value of the refund.
The rules would apply to drugs purchased through Medicare plans and those that are not.
In the long term, the idea is to curb drug price inflation, which has outpaced headline inflation for decades.
Drug prices would be tied to what they were in March, and the system would go into effect in 2023, so there would be little immediate impact. (Some lawmakers had hoped to lock the program at prices several years ago, which could have a bigger effect, but that was changed in negotiations the last weekend in October.)
The long-term impact is also difficult to judge, because under today’s complicated system, many people who pay for drugs get help from drug companies, and most generics in the United States are relatively cheap, Comanor said.
In the long term, however, the savings are expected to be substantial for the government, as well as for consumers who are not entitled to other programs to help pay for their drugs and need high-end drugs.
At the very least, the legislation would move the United States in the direction of the rest of the world.
“The longer the drug is on the market, the lower the price,” said Gerard Anderson, professor of health policy at Johns Hopkins School of Medicine. “In all other countries, the price goes down over time, whereas in the United States it is common for prices to increase.”
KHN (Kaiser Health News) is the newsroom of KFF (Kaiser Family Foundation), which produces in-depth journalism on health issues. Along with Policy Analysis and Surveys, KHN is one of KFF’s top three programs. KFF is a nonprofit organization that provides health information to the nation.