Hiltzik: The Flaws of Medicare Drug Price Negotiation

Among the health care provisions of the Cut Inflation Act just signed by President Biden, one shiny object stands out.

This is the provision allowing Medicare to negotiate pharmaceutical prices directly with pharmaceutical companies for the first time.

Journalists and some consumer advocates rave about the provision, which has been on the wish list of Democratic policymakers for decades. Health care news site Stat called it a “the crowning glory of healthrealization of care » for Biden.

There are tons of ways we already know drug companies play with the system to maximize their profits. It’s hard to believe they won’t find a creative way around this provision to make it less effective.

—Simon F. Haeder, Texas A&M

The idea still garnered overwhelming support among the public, who interpreted the banning of Medicare’s bargaining power as a crystal clear indication of Big Pharma’s corrupt influence over Congress; drug manufacturers spend approximately $160 million a year to lobby lawmakers and did about $150 million in campaign contributions to congressional candidates and office holders since 1990, according to the Open Secrets database.

A Kaiser Family Foundation survey last year, 83% of Americans favored lifting the ban, including 95% of Democrats, 82% of independents and 71% of Republicans.

Sad to say, they are all likely to be disappointed with the results.

The provision for Medicare to directly negotiate drug prices seems powerful at first glance.

Medicare is the largest purchaser of prescription drugs in the nation, and prescriptions are the fastest growing expense.

Medicare accounts for about 20% of all medical spending in the United States and about one-third of all prescription spending. So if the program could force pharmaceutical companies to negotiate prices, it could generate huge savings…theoretically.

But the negotiation clause as adopted will not have this effect, at least in the short term. It is riddled with loopholes that save the pharmaceutical industry from its most serious potential effects.

Among other flaws, which we’ll get to in a moment, negotiated price changes won’t begin to take effect until 2026, and only for 10 drugs, selected from Medicare’s 100 highest spenders, and only after that. have been on the market for many years.

(The number of drugs subject to negotiation increases to 15 in 2027, 30 in 2028 and 40 in 2029 and later.)

Taken as a whole, the drug pricing provisions in the law are “a very big issue and a generational and critically important victory”, says Peter Maybarduk, director of access to medicines at the advocacy organization Public Citizen. “This is a big setback for Pharma.”

Still, “that doesn’t get us as far as fair or effective drug pricing,” Maybarduk told me. “It still allows monopolists to sell at whatever price they prefer for a certain number of years in the life of a drug.”

The Congressional Budget Office estimates the negotiation provision will save Medicare about $102 billion over 10 years, focused on the post-2025 period. Spread over the decade, this amount is equivalent to about 1.3% of annual Medicare spending.

drug prices

Why hasn’t Congress acted to rein in drug prices? The pharmaceutical industry spends an average of about $160 million a year lobbying lawmakers.

(Open Secrets)

Others point out that the pharmaceutical industry is remarkably adept at exploiting regulatory loopholes.

“We already know that pharmaceutical companies game the system to maximize their profits in many ways,” says Simon F. Haeder, health care expert at Texas A&M School of Public Health. “It’s hard to believe they won’t creatively find a way around this provision to make it less effective.”

It is true that in its broadest sense, the Inflation Reduction Act is the first measure in decades to impose meaningful limits on the pharmaceutical industry’s ability to charge Americans the highest prices of developed world.

Despite ongoing public outrage, the industry has shown no inclination to be more circumspect in its pricing in the United States.

A recent study by Benjamin Rome of Brigham & Women’s Hospital in Boston and colleagues found that the average introductory prices of new drugs increased by more than 20% per year from 2008 to 2021. About 9% of drugs reached the market with prices introductory price of $150,000 or more from 2008 through 2013, but 47% in 2020 and 2021.

Just this week, biotech company Bluebird Bio won Food and Drug Administration approval for a drug to treat a rare blood disease requiring frequent lifelong transfusions, at a record price of $2.8 millionwholesale.

Let’s take a look at how the negotiation clause is designed to work.

Although the 10 drugs that will initially be selected by the Secretary of Health and Human Services for negotiation are to be drawn from the 50 drugs with the highest expenditures in the Part D prescription benefit and the 50 most expensive drugs for Part B (mainly medical services and outpatient care). care), the choices of the secretary are limited.

Excluded are drugs for which there are generic or biosimilar alternatives, those whose marketing has only been approved for nine years (for conventional drugs) or 13 years (for biotechnology products) and “orphan” drugs – those which are the only drugs approved by the FDA to treat certain rare diseases.

The delay before negotiations can take place will bring most drugs to the end of their patent-protected life, after which generic manufacturers can market the same formulations.

Patents have a term of 20 years from the date of application, not the date of FDA approval. The FDA may extend the manufacturers’ exclusivity period by months or years for drugs in certain categories. This means that a drug can be protected from competition for as little as two to three years, depending on how long it takes to get FDA approval.

Little about the negotiation provision actually gives Medicare all the leverage the program would need to engage in very tough negotiations.

Negotiators are “supposed to negotiate them based on the benefits of the drug [and] the likelihood that the drug has already provided a return on investment to the manufacturer,” said Aaron Kesselheim, a drug policy expert at Harvard Medical School. a recent podcast.

Yet, as negotiators from all walks of life know, the best leverage one can have is the ability to walk away from the table.

This is what allows the Department of Veterans Affairs, the best negotiator of drug prices among federal agencies, to do as well as it does: it is authorized to remove drugs from its national formulary if it deems them too expensive or not efficient enough.

Medicare does not have this latitude. By law, it is necessary to cover any drug approved by the FDA.

It is not widely understood that Medicare already has the right to negotiate drug prices, but only indirectly. Part D rules give individual health plans that provide Medicare prescription coverage the ability to negotiate prices with drug manufacturers. Medicare as a program is prohibited from “interfering” with plan negotiations — that’s what kept the program from standing at the table.

Health plans have the ability to stray, but only within certain limits. They are required to provide at least two drugs in each of several drug classes, and “all or nearly all” drugs in six protected classes: immunosuppressants, cancer drugs, antiretrovirals, antidepressants, antipsychotics, and anticonvulsants. In any case, as relatively small individual traders, they have only limited power to extract good deals from drug manufacturers.

The newly enacted law contains a few provisions that give Medicare some leverage in price negotiations: a steep excise tax of up to 95% of annual sales of a given drug imposed on drugmakers who refuse to negotiate. This will keep them around the table, but won’t necessarily force them to get along.

The law also sets an upper limit on the negotiated price, based on a percentage of the average selling price in various markets, but it is unclear whether this would necessarily be lower than what a drugmaker would be inclined to charge in all cases.

The measure also requires drugmakers to rebate Medicare for price increases of many drugs that exceed inflation.

Haeder observes that several provisions of the Inflation Reduction Act can produce more immediate and noticeable savings for seniors receiving Medicare as the bargaining provision. The law limits annual out-of-pocket expenses for Part D pharmaceuticals to $2,000 a year, a separate gain for the estimated 1.4 million enrollees who spent more than that.

It also limits annual premium increases for Part D to 6% per year from 2023 to 2030, eliminates co-payments for adult vaccines, and caps insulin expenses for Medicare enrollees at $35 per month.

The insulin provision outlines the pros and cons of the health care law provisions. The high price of insulin demanded by its manufacturers has been an ongoing scandal for years, leading patients to ration their own supplies, risking their health, to make ends meet.

Medicare’s cap will help about 3.3 million enrollees, but provisions to extend the cap to private insurance plan customers and the uninsured were removed from the bill for procedural reasons.

“No drug characterizes the crisis of treatment rationing and exorbitant prices facing the United States more than insulin,” Maybarduk told me.

What is most heartening about the provisions of the Health Care Inflation Reduction Act is that as a political victory, it lays a foundation for further progress in the fight against pharmaceutical industry profiteers.

Legislation is not necessary; the White House could lower prices or slow the pace of increases through executive action, allowing generic manufacturing to compete with some high-priced brand name drugs, using the so-called government walking rights on drugs that were developed with federal funding – which is most of them.

“Over time, the bill can be increased,” says Maybarduk. “He can be tight against games. You can expand the list of [negotiated] drugs. It is a framework that we can continue to improve. Because it breaks the impasse and allows the government to get in on the game of negotiating prices for the world’s largest buyer of drugs, it’s a very important victory.

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