The Centers for Medicare and Medicaid Services (CMS) has proposed a rule that would rescind the Trump administration’s Most Favored Nation (MFN) drug pricing demonstration for Medicare Part B.  Citizens Against Government Waste (CAGW) expressed strong opposition to MFN, including a coalition letter to CMS, but is somewhat surprised this decision is being made by the Biden administration, since Democrats favor the kind of price controls that would have occurred under the MFN through its adoption of drug prices based their costs in countries that have socialized healthcare systems.

Several lawsuits and resulting court orders placed injunctions or restraining orders on the Department of Health and Human Services, preventing the implementation of the MFN policy.  Additional rulemaking was required, which may have been one reason for the reversal.  But the most likely reason why the Biden administration is rescinding MFN is that the Senate just released its $3.5 trillion Budget Resolution with reconciliation instructions.  Budget Chairman Bernie Sanders (I-Vt.), an avowed socialist, provided a short statement on the massive “human infrastructure” budget package with all the expensive promises like “free” Pre-Kindergarten for every 3 and 4 year old and “free” college.  The package will give CMS the authority to “negotiate prescription drug prices with the pharmaceutical industry.”

Budget reconciliation is a specialized and complicated process where existing spending, revenue, and debt limit laws are brought into compliance with current fiscal priorities and goals established in a budget resolution.  More importantly, it only requires a simple majority to pass the legislation, not 60 votes to break a filibuster.  Since it is unlikely any Republican will vote for this massive, big government bill, all 50 Senate Democrats must be on board with Vice President Kamala Harris breaking the tie

Reconciliation instructions pertaining to drug pricing have been directed to the Senate Finance Committee, where Sen. Ron Wyden (D-Ore.) serves as chairman.  Based on prior news reports, Sen. Wyden has stated that any government negotiation procedures would likely fall in between what is found in H.R. 3, the “Elijah E. Cummings Lower Drug Costs Now Act,” House Speaker Nancy Pelosi’s (D-Calif.) drug pricing bill or legislation he wrote with Sen. Chuck Grassley (R-Iowa) that would put inflationary rebates on drug manufacturers.  Both bills utilize price controls.  The amount taken out of the pharmaceutical research sector could be substantial, leaving much less for research and development of new drugs.  According to Inside Drug Pricing, the Budget Resolution directs the Finance Committee to pay for all the new healthcare initiatives, like health equity; addressing healthcare provider shortages; expanding dental, hearing, and vision coverage to regular Medicare; and lowering Medicare’s eligibility age, with only $1 billion to be used for deficit reduction.

CAGW has stated many times the government does not “negotiate” prices.  It institutes price controls, as it has in Medicaid, the Department of Veterans Affairs, the 340B safety-net program, and Medicare Part B.  Medicare Part D, which has proven to be less expensive than anticipated and is enormously popular with seniors, uses private negotiations that are protected under the “non-interference” clause found in Medicare law.  However, Congress has already interfered with the program by placing in Medicare Part D coverage gap a 70 percent rebate on the price of brand name drugs.  This price control has altered the benefit, and misaligned incentives among stakeholders.  But government interference in all government-run drug benefit plans have distorted the entire pharmaceutical marketplace and caused list prices to rise in the private sector.

The Trump administration’s MFN model only covered Medicare Part B, which pays for outpatient drugs usually received in a doctor’s office or clinic, like those that are injected or infused.  Currently physicians are paid for these drugs by at the average sales price (ASP) plus six percent.  The MFN policy changed the pricing structure to Medicare Part B by adopting a blended formula that includes the lowest GDP adjusted price paid by an Organisation for Economic Co-operation and Development member with at least 60 percent of U.S. GDP per capita.

H.R. 3 adopted features of the MFN policy in that it would utilize an “average international market” (AIM) price found in six countries:  Australia, Canada, France, Germany, Japan, and the United Kingdom.  These countries use price controls and collectively spend less than the U.S. for pharmaceutical research and development.  In 2017, $95.7 billion was invested in pharmaceutical research and development, with the U.S. contributing 58.3 percent and all of Europe contributing 41.7 percent.  Not only would the price controls be used in Part D, but H.R. 3 would also extend this pricing scheme to the private sector.

The Democrats’ massive $3.5 trillion budget will be disastrous for many reasons.  The price controls on pharmaceuticals are among the worst provisions because they will devastate the advanced biopharmaceutical innovation that led to the approval of safe and effective COVID-19 drugs.  The legislation also spends too much, adopts more big government policies that will raise inflation, increase the deficit and debt, and make millions of Americans more reliant on government handouts.

How much is a trillion dollars?    If you had a stack of $1,000 bills, a million dollars would be 4 inches high. If you had a stack of $1,000 bills, a trillion dollars would be 68 miles high.