by Joyce Frieden, Washington Editor, MedPage Today March 17, 2022
WASHINGTON — Will Medicare drug price negotiation quash innovation of new drugs, or allow innovation to continue while also saving seniors from having to stop taking needed medicines or cut their pills in half? That was the focus of a Senate Finance Committee hearing on high prescription drug prices in the Medicare program.
“Medicare negotiation is just that — it’s a negotiation process,” said Sen. Ron Wyden (D-Ore.), the committee’s chairman, at Wednesday’s hearing. “It’s not some sort of price control. It is a market-based approach to come to a price between a purchaser — Medicare — and a producer, and it’s not setting prices. We’re asking manufacturers to prove their product’s value and earn their keep. That’s what this is about.”
Under the current system, Wyden said, “it’s clear that Big Pharma is treating Medicare like they’ve cracked an ATM … It may be the only case across the entire government where negotiating a fair price is actually legally prohibited.”
“If the prescription drug market prices out millions of patients and bankrupts many others, how can anybody say that is healthy or functional for our country? This has been the longest-running battle since the Trojan War; it’s time for action,” he added.
Fewer New Treatments, or Just About as Many?
Not so, said Sen. Mike Crapo (R-Idaho), the committee’s ranking member. Allowing Medicare to negotiate drug prices, as Democrats have proposed, “would do nothing to tame inflation,” he said. “In fact, they would trigger a launch price increase for new medications. By enacting these drug price controls, we would hand a competitive edge to our global rivals. … At home, we would see fewer new treatments and cures, higher prices for new drugs, more healthcare provider strain and burnout, and an alarming expansion of the federal bureaucracy, giving Washington, D.C. more control — again — over our healthcare system.”
Rena Conti, PhD, associate professor of markets, public policy, and law at Boston University, argued that Medicare negotiation would not hurt drug innovation. “Prior debates on how to make drugs more affordable have been weighed down by unproven industry claims that reducing drug prices will also reduce the number of new cures,” she said. “These claims are greatly exaggerated, particularly for negotiation.”
In actuality, “our system balances innovation with competition,” she noted. “Negotiation will modestly reduce revenues for companies selling a small number of very high-priced and old drugs. These drugs are targeted for negotiation because their companies took excessive price increases for years, have harmed patients, and have forestalled competition. These behaviors go directly against the fundamentals of our system.”
Conti cited a study by the Congressional Budget Office (CBO) that found that under the Democrats’ negotiation proposals, “the number of drugs that would be introduced into the U.S. market would be reduced by ‘over one’ in in the first decade, approximately four in the subsequent decade, and approximately five over the decade after that, while in the same time period under current law, approximately 1,300 new drugs will be approved.”
High Prices’ Effects on Patients
But Douglas Holtz-Eakin, former director of the CBO, disagreed, noting that when he was running CBO, “I wrote letters … indicating that in the absence of something else, giving the Secretary of HHS the power to ‘negotiate’ would have little impact on the overall level of prescription drug prices.” Something else would be needed to really affect prices, “and that ‘something else’ was a formulary — thus telling America’s seniors they can’t have some drugs — or another instrument of some sort.”
In the case of the Democrats’ proposal, the instrument “is a draconian tax of up to 95% on the domestic revenues of those [pharmaceutical] firms who are somehow not negotiating ‘in good faith,’ where the secretary gets to decide what that is,” continued Holtz-Eakin, who is the president of the American Action Forum, a right-leaning organization. “That’s not a good negotiation. And no one should confuse this with negotiation. This is a government price-setting mechanism that will reach in every corner of the healthcare sector. And government pricing mechanisms have a long track record of having unintended consequences and being detrimental.”
Steffany Stern, MPP, vice president for advocacy at the National Multiple Sclerosis Society, talked about how her mother, an MS patient, has to beg for charity from drug companies so she and her husband can afford her MS medications, even though they have health insurance. “Without the charitable assistance that they receive, they could not pay the $2,400 they owe for her medication month after month,” Stern said. “It just seems wrong to us that people with healthcare coverage still need charitable assistance. And my parents aren’t alone.”
Use of a Formulary
Sen. Debbie Stabenow (D-Mich.) pointed out that “Americans pay the highest drug prices in the world and it isn’t even close. We pay three times more for brand-name drugs, and every year it gets worse … According to AARP, over the past 15 years, the price of the most common brand-name drugs has risen 300%,” way beyond the increase in the inflation rate. “This is devastating for the financial and physical health of American families, especially our seniors,” she said.
“You’re going to hear a lot today from my Republican colleagues who say there are ways to cut costs, that negotiation is going on. I would suggest based on the incredibly high prices, they’re pretty bad negotiators,” she added.
The Democrats’ proposal is straightforward, Stabenow noted. “Allow Medicare to really start negotiating drug prices like the VA [Department of Veterans Affairs] does — and they pay 40% less — put in place a $2,000 out-of-pocket cap for seniors in Medicare Part B, a cap on insulin at $35 a month, and penalize drug companies who raise prices faster than inflation. That’s the plan.”
However, Sen. John Cornyn (R-Ariz.) pointed out that the VA has a closed formulary and covers only about 52% of the top 200 drugs listed in the Medicare Part D drug program; Part D plans themselves cover three-fourths of those drugs on average, he said. Cornyn also asked Holtz-Eakin why negotiation wouldn’t solve the problem of high drug costs.
“It’ll solve the cost problem in the near term, but it will have detrimental effects down the road, particularly on innovation and competition in the pharmaceutical sector,” replied Holtz-Eakin. “A great example of this debate is a $35 cap on insulin, which would end innovation in insulin tomorrow; we would not see any advancement versus what we’re seeing right now, with one biosimilar, two authorized generics, and insulin prices down 6.2% over the past 2 years. Create entry, create competition, and lower costs — that’s the solution.”
Joyce Frieden oversees MedPage Today’s Washington coverage, including stories about Congress, the White House, the Supreme Court, healthcare trade associations, and federal agencies. She has 35 years of experience covering health policy. Follow
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