Medicare may curb drug prices under Democratic bill

Democratic senators recently took a formal step toward reviving President Joe Biden’s economic agenda, starting with a measure to let Medicare negotiate prices with drugmakers and to curb rising drug costs more broadly.

A similar proposal died in December when Sen. Joe Manchin, D-W.Va., decided to oppose Biden’s $1.9 trillion Build Back Better bill, which also included provisions allowing for Medicare drug negotiations.

Reining in drug costs has long been wildly popular with the public, with more than 80% of Americans supporting steps such as allowing Medicare to negotiate and placing caps on drug price inflation.

The bill revealed in early July would do both. It would also limit annual out-of-pocket drug costs for Medicare beneficiaries to $2,000, make vaccines free for people on Medicare and provide additional help for lower-income seniors to afford their drugs.

The heart of the bill is the negotiation provisions.

Under the legislation, Medicare could start the new pricing procedures next year, with the secretary of Health and Human Services identifying up to 10 drugs subject to bargaining. The resulting prices would go into effect in 2026. As many as 10 additional drugs would follow by 2029.

The plan, expert observers said, was both politically impressive, considering the competing interests at stake, and important for consumers

in Medicare — the federal health insurance program for older adults and some people with disabilities — and beyond.

“They did an amazing job of threading the needle to get all 50 (Democratic) senators,” said Gerard Anderson, a professor at the Johns Hopkins Bloomberg School of Public Health. “I mean, it was a herculean task to get everybody on board on this.”

Several Democrats in the House of Representatives and Democratic Sen. Kyrsten Sinema of Arizona had balked at earlier versions of the drug provisions in the defunct Build Back Better bill, threatening to oppose them or the bill. They agreed with drug industry arguments that limiting profits would stifle drug innovations. Eventually, most Democrats coalesced around a version of the Build Back Better bill.

When asked about the bill revealed July 6, a spokesperson for Sinema did not comment directly but pointed to the Arizonan’s embrace of the final Build Back Better provisions.

Although negotiations between Medicare and manufacturers would focus on a maximum of 20 drugs, they could easily have an outsized impact, Anderson said.

“A relatively small number of drugs are responsible for a large portion of (Medicare) Part D spending,” he said, “and if they tackle those, they will do a significant job of controlling drug prices.”

The bill also would require drug companies to pay rebates if they raise prices too swiftly.

“If this bill becomes law, it would be a clear win for people with Medicare and private insurance,” since prices would be prevented from increasing more than inflation, said Tricia Neuman, executive director of the Kaiser Family Foundation’s Program on Medicare Policy. (Kaiser Health News is a major operating program of KFF.)

The lobbying and public policy agency for the drug industry, PhRMA, criticized the bill, saying its provisions are worse than those in the original Build Back Better legislation. Debra DeShong, PhRMA’s executive vice president of public affairs, repeated concerns about innovation and said the Democratic plans “went from bad to worse for patients.”

“Democrats weakened protections for patient costs included in previous versions, while doubling down on sweeping government price-setting policies that will threaten patient access and future innovations,” DeShong said in a statement.

She appeared to be referring to the elimination of a Trump administration rule that would have sent drug rebates directly to consumers, at a cost of hundreds of billions of dollars to the government, and to other items not in the new bill, like caps on insulin costs.

But policy summaries that were used by Democrats writing the bill and shared by Democratic staffers — on the condition that they not be published — suggested that Democrats believed ending pricing monopolies on 15- and 20-year-old drugs would spur innovation by encouraging companies to develop new drugs.

Advocates for reform also hailed the work.

“Big Pharma has made money off of gimmicks and abuses for years while consumers have suffered the consequences,” said Frederick Isasi, executive director of Families USA. “This reform would help make sure when companies profit, they do it because they are innovating and serving their customers, not hiring the best lawyers and lobbyists.”

Senate Majority Leader Chuck Schumer said he hopes to pass the bill by the end of July, but the path to that goal could be rambling.

Schumer intends to pass the bill through a process known as budget reconciliation. Under reconciliation, bills can move on an expedited basis, avoiding a Senate filibuster. Democrats could approve the measure with the support of all 50 Democratic senators and the tie-breaking vote of Vice President Kamala Harris.

The caveat is that reconciliation bills must have a connection to budgets and must pass muster with the Senate parliamentarian. Schumer’s office has delivered the Medicare bill to Parliamentarian Elizabeth MacDonough, who could strike portions of it.

Since Democrats have considered these provisions before, they are not expecting large changes.

Caps on drug prices, however, are only one part of what they hope to have in the reconciliation bill.

Schumer is still negotiating with Manchin to come up with elements that address climate change, energy production and taxes. Exactly what those provisions turn out to be could affect the bill’s reception in the House, where progressives have been angered by Manchin’s stances.

At the very least, advancing the drug bill would make some other Democratic goals easier to achieve, since it would save the federal government a lot of money, which could then be applied to other programs.

Although new estimates are not yet available, drug provisions carried over from the older Build Back Better proposal were estimated to reduce federal spending by about $300 billion over 10 years.

And with Democrats facing a grim midterm election outlook this fall, they have good reason to unite around the popular drug-related measures.

“I think the pressure is on for the Democrats to deliver,” Anderson said.

Senate Minority Leader Mitch McConnell has already threatened to block other pieces of legislation if Democrats proceed with the reconciliation process, but he can do little to stop the drug-pricing bill if the 50 Democratic senators remain united.

The most that Republicans could reasonably hope for is to offer amendments. Under reconciliation, each side is guaranteed votes on numerous amendments.

Democrats and some advocacy groups would like lawmakers to use the reconciliation bill to address other health-related issues, such as extending the enhanced premium subsidies for coverage bought on the Affordable Care Act marketplaces and expanding coverage for low-income residents of states that have declined to expand Medicaid under the ACA.

“We expect additional legislation to be released shortly that reinvests the savings from ending drug company abuses,” Isasi said. “Taken together, these reforms will be an historic opportunity to create affordable health care and economic security for families.”

Kaiser Health News is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at Kaiser Family Foundation. KFF is an endowed nonprofit organization providing information on health issues to the nation.