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Making Sense of Congressional Prescription Drug Pricing Proposals

A look at the policies on the table and what they will and won’t do to rein-in the cost of pharmaceuticals.
U.S. Capitol Building in Washington, D.C. | LOUIS VELAZQUEZ/UNSPLASH
October 21, 2021

Oregon U.S. Rep. Kurt Schrader’s opposition to a prescription drug-pricing provision became a speed bump for President Joe Biden’s multi-trillion dollar social spending package. Meanwhile, another member of Oregon’s delegation, U.S. Sen. Ron Wyden, has signaled that Schrader’s plan doesn’t go far enough.

Schrader, a Democrat who represents Salem and parts of Clackamas County, cast a key vote in the House Energy and Commerce Committee last month to strip the drug-pricing provision from the Build Back Better package being negotiated in Congress. 

The provision would allow Medicare to negotiate prices with drug manufacturers, bringing down soaring costs for consumers and fulfilling a campaign pledge made by Biden and congressional Democrats during last year’s elections. 

Allowing Medicare to negotiate drug prices has broad public support. Schrader has faced criticism for his vote, with protesters gathering outside his Oregon City office to call attention to the large donations he’s accepted from the pharmaceutical industry. 

Schrader has mostly shrugged off the criticisms. He’s pointed to an analysis showing that lower drug prices could stymie drug innovation. Schrader, along with other centrist Democrats, has sponsored a separate bill that he says will lower costs and is more politically viable.  

“We’ve come up with a bill that I think hits that mark pretty nicely and actually has a chance of passing and a limited impact on the innovation space,” Schrader said during an online town hall earlier this month. 

The drug-pricing provision remains in play after the House Ways and Means Committee added it back into the Build Back Better package. 

Congress could be poised to enact substantial reform for Medicare, a federal health insurance program for seniors, including 15% of Oregonians. The legislation could also lower prices for other consumers, depending on congressional negotiations. In the meantime, there are questions. 

How did we get here?

Much of the debate in Congress centers on a provision of a nearly two-decade-old law intended to help seniors afford prescriptions. 

In 2003, then-President George W. Bush signed the Medicare Prescription Drug, Improvement and Modernization Act. The landmark legislation passed by the Republican-controlled Congress created Medicare Part D, a subsidized program to cover out-patient prescription drugs for seniors. The bill prohibited the federal government from negotiating drug prices directly. 

Meanwhile, prescription drugs continued to become more expensive. 

The cost of prescription drugs since the late 1990s has risen at a higher rate in the U.S. compared to other advanced economies, according to research from the Commonwealth Fund. By 2015, the U.S. spent more than $1,000 per person on pharmaceuticals, 30% to 190% higher than nine other countries.

Some drugs saw sudden, astronomical price hikes. Daraprim, a drug used to treat parasitic infections, was raised from $13.50 to $750 a tablet after it was acquired by Turing Pharmaceuticals, then headed by now infamous “Pharma Bro” Martin Shkreli.

The number of Medicare Part D enrollees with out-of-pocket spending above the catastrophic threshold increased from 407,000 in 2007 to 1.5 million in 2019, according to the Kaiser Family Foundation. Enrollees who meet the threshold (which is currently at $6,550 in out-of-pocket costs) are required to pay 5% of their drug costs. Because there’s no cap, some enrollees can end up spending thousands on expensive drugs.  

What’s Congress doing about it?

In 2019, the U.S. House of Representatives passed H.R.3, the Elijah E. Cummings Lower Drug Costs Now Act.

The legislation seeks to bring the price of brand-name prescription drugs in the U.S. in line with those in other countries. The bill gives the secretary of Health and Human Services the authority to negotiate drug prices with manufacturers. It also caps Medicare beneficiaries’ out-of-pocket drug costs at $2,000 annually.

Prices for prescription drugs could be no higher than 120% of the average price in Australia, Canada, France, Germany and the U.K. These prices would also apply to the private sector and Medicaid. Manufacturers would pay a penalty starting at 65% of their total U.S. sales if they don’t reach a deal. 

If drug prices rise above the Consumer Price Index inflation rate, manufacturers would pay a rebate to the federal government. Drug manufacturers would also be required to provide information on profits and investments into research and development. 

The legislation would drive down drug costs, an actuarial analysis by the Centers for Medicare and Medicaid Services found. Overall federal spending would decrease by $341 billion between 2020 and 2029. Private insurance holders would save $54 billion in that period, the analysis found. 

Are there downsides?

During the town hall, Schrader pointed to an analysis of H.R. 3 by the nonpartisan Congressional Budget Office that found it would hamper innovation and keep life-saving drugs off the market. He didn’t mention that he’d voted in favor of the bill in 2019. 

In an article published today, The New York Times quoted Schrader justifying the about-face: “Why do the same thing again and again and expect to have a different result?” he said.

The analysis found that in “some cases the prospect of lower revenues would make investments in research and development less attractive to pharmaceutical companies.”

But the effects would be fairly modest. Eight fewer drugs would be introduced to the U.S. market between 2020 and 2029 and 30 fewer over the next decade, the analysis found. Currently, the FDA approves 30 new drugs annually, it said. 

By the 2030s, the effect would stabilize with an annual reduction of roughly 10%. The analysis also noted that its estimate is uncertain. 

“In CBO’s assessment, those estimates are in the middle of a wide distribution of potential effects,” reads the analysis. 

There is skepticism of H.R. 3, including from patient advocacy groups, many of which have been found to receive significant funding from the pharmaceutical industry. In April, dozens of the groups wrote to congressional leaders raising concerns that the price control would “decimate the clinical development of therapies” for Alzheimer’s disease and related dementias. They pointed to research showing that U.S. consumers have access to nearly 90% of novel medicines, while developed countries with price control mechanisms have access to only 47%.

A Kaiser Family Foundation poll showed that support for allowing Medicare to negotiate dropped to 65% if it meant less drug access. 

The U.S. pharmaceutical industry spends far more on research and development than Europe and Japan, according to the European Federation of Pharmaceutical Industries and Associations

In recent years, the pharmaceutical industry has been spending over a quarter of its net revenues on research and development, according to another CBO report. Other industries spend around 2% and 3%. 

“When the anticipation of future profits is higher, companies invest more in R&D and produce more new drugs, CBO estimates,” reads the analysis. “Similarly, if expectations about prices and profits were lower, companies would invest in less R&D, and fewer drugs would be developed.”

However, a 2016 paper found “there is no evidence of an association between research and development costs and prices; rather, prescription drugs are priced in the United States primarily on the basis of what the market will bear.”

What would Schrader’s bill do?

During the town hall, Schrader defended his vote and described an alternative he’s working on with U.S. Rep. Scott Peters, another centrist Democrat from California. Schrader said their bill would allow some drug-price negotiation while limiting cost increases on everyday drugs and capping out-of-pocket costs to low-income seniors.

The legislation, Reduced Costs and Continued Cures Act, would require price negotiations on Medicare Part B, which he said covers “very expensive drugs” that cost thousands of dollars.

Medicare Part B covers drugs administered in a doctor’s office, such as injectable osteoporosis medications or chemotherapy. Spending per enrollee on Medicare Part B drugs grew twice as fast as Medicare Part D between 2006 and 2017, according to a federal study. The CBO expects Medicare Part B to spend $445 billion in 2022 and $111 billion for Part D.  

Another provision is modeled after legislation introduced last Congress by Sens. Ron Wyden, D-Oregon., and Chuck Grassley, R-Iowa, that would limit price increases of other drugs to inflation, said Schrader. 

“So that’s a huge difference in a 20, 30 or 50% increase that you’re seeing now,” Schrader said.

The legislation also caps out-of-pocket expenses for Medicare beneficiaries between $1,200 and $3,100 depending on income.

“Moreover, we stick it a little bit to pharma and insurance companies to make them pay the difference so it’s not all on the taxpayers’ dime to make up that difference,” he said.

The pharmaceutical industry was the largest donor to Schrader’s last campaign at $144,252, according to OpenSecrets.

Schrader’s office did not respond to a request seeking comment.  

How do they compare?

Schrader’s bill has not been analyzed by the Congressional Budget Office, but it’s expected to have less impact than H.R. 3. 

“It does have some good elements, but it’s much more limited than the provisions of H.R. 3,” said Bill Kramer, executive director for Health Policy at the Purchaser Business Group on Health, a consortium representing private and public employers. 

The savings from the bill would be much less, he said. It also wouldn’t require negotiations for patent-protected drugs. 

Kramer pointed out that H.R. 3 would cover the private insurance market while Schrader’s bill only covers Medicare. He said he’s concerned that drug manufacturers may increase prices on people not covered by Medicare, particularly private insurance if the bill passes. 

Medicare Part B covers fewer than 600 drugs. That’s less than the 3,500 drugs covered by Medicare Part D. 

Maribeth Guarino, health care advocate with OSPIRG, said that as the largest purchaser of drugs, the government should use its leverage to bring down the price of medications covered by Part D for Medicare beneficiaries and others. 

While she said Schrader’s bill would help, it doesn’t go far enough. 

“He’s taking a baby step,” she said. “We need at least a normal step.”

What bill has a better shot?

H.R. 3 hasn’t moved in the Senate, where Democrats hold a slimmer majority than the House.

The pharmaceutical industry has also taken a keen interest. In the last election, the pharmaceutical and health products industry donated $44.3 million to Democrats, more than the $27.6 million it donated to Republicans, according to OpenSecrets

Schrader said during his recent town hall he’s negotiating with the White House and Senate to advance his bill, which he called “a great chance right now to actually reduce drug prices for pretty much everybody.”

But the prospects of Schrader’s bill are unclear.

In June, Wyden, who is chair of the powerful Senate Finance Committee, released a three-page paper outlining principles for drug reform. The paper called for a “consensus proposal that can pass both chambers of Congress.”

It also stated that “Medicare must have the authority to negotiate with pharmaceutical companies, especially when competition and market practices are not keeping prices in check.”

Wyden’s office responded to questions from The Lund Report with a statement:

“As the chair of the Senate Finance Committee, Senator Wyden is working on crafting his own legislation to meaningfully lower prescription drug costs for families and taxpayers that can pass both chambers of Congress. And as part of that work, he’s listening to input from all members.”

After this article was published, Schrader granted an interview to explain his pricing plan to The Lund Report

You can reach Jake Thomas at [email protected]