Congress Should Listen to Voters and Reject Drug Price Controls | Citizens Against Government Waste

Congress Should Listen to Voters and Reject Drug Price Controls

The WasteWatcher

A clear message about what kind of government the American people want was sent last night by voters in Virginia, New Jersey, New York, and other states across the country.  They do not want the government to become larger and exert more power and control over their lives, along with threatening their freedom and liberty.  Proposals to increase government giveaways, raise taxes, and spending fell flat due to growing inflation concerns, supply shortages, high gas prices, and too much government involvement already in everyone’s life.  Smaller government won, and big government lost.

That message has clearly not made its way to Capitol Hill, as today the Senate appears to have reached an agreement on drug price controls as one of the pay-fors in the budget reconciliation, or the “human infrastructure” bill, which is still being written and modified on a minute-by-minute basis.

Citizens Against Government Waste (CAGW) has long been concerned about the persistent attempts to use the “savings” from implementing more price controls on a variety of pharmacy benefit programs, like Medicare Parts D and B, and in commercial employer plans, to pay for bigger and more intrusive government proposals like the reconciliation bill.  The most stringent price controls are contained in H.R. 3, the “Elijah E. Cummings Lower Drug Costs Now Act.”  The supporters of this legislation and variations thereof are so focused on how they will use the “savings” that they are blinded to the enormously destructive consequences the price controls will have on America’s robust and world-leading pharmaceutical research and development sector.

CAGW has written about the harmful provisions in H.R. 3, starting with a September 19, 2019 blog, "Lenin, Stalin, and Capone Would be Proud of Pelosi's Drug Pricing Plan.”  The Biden administration needed to cut back on the initial $3.5 trillion plan because of objections from Sen. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.) on the prolific spending.  The price controls were removed from the legislation’s framework at the end of October because several senators objected, including Sen. Sinema, and disapproved of allowing the government to “negotiate” drugs in Medicare, which were really price controls, and who understood that price negotiations already occur in Medicare Part D in the private sector among manufacturers, insurers, pharmacy benefit managers, and pharmacies, which has led to low prices and high satisfaction for seniors.

Removing this provision caused socialist defender and government-run healthcare promoter Sen. Bernie Sanders (I-Vt.) and his followers to yell foul, leading to discussions and negotiations during the Halloween weekend in a back room somewhere on Capitol Hill.  On November 2, Senate Majority Leader Chuck Schumer (D-N.Y.) came out with yet another “compromise.”  Apparently, he thinks Halloween is a week long holiday because the compromise contains many of the hideous provisions in H.R. 3 dressed in a new costume.  Like other proposals supposedly left for dead on Capitol Hill, drug price controls have arisen from what was a very shallow grave.

The compromise allows the Department of Health and Human Services (HHS) secretary to select up to 10 single source drugs, both small chemical drugs and biologics, with the highest gross spending that are used in Medicare Part D and B to “negotiate” the first year until 20 drugs are reached in 2025 and beyond.  The compromise also includes a limit on the cost of insulin products.  

While manufacturers would submit information on research and development costs for the drugs to help the secretary negotiate a “fair” price, this is a ruse because the legislation would require that the negotiated price cannot exceed 75 percent of its 2021 non-federal average manufacturer (non-FAMP) price for a small molecule (chemical) after nine years of its market exclusivity.  Once the drug and biologic are in between 12 – 16 years of exclusivity, the discount would be 65 percent of its 2021 non-FAMP, and then the mandatory discount would drop to 40 percent after 16 years.

According to a November 3, 2021 Inside Health Policy article, the threat of an excise tax remains should the brand name pharmaceutical companies refuse to go along with the mandated negotiated price but the Congressional Budget Office assumes the tax will not be levied.  As The Godfather said, “make them an offer they can’t refuse.”

The compromise also institutes inflation rebates for drugs if their price should increase more than inflation and would be based on the price of the drug in 2021.  This is flawed legislation because it looks at the list price, not the negotiated prices, and does not consider other issues that manufacturers have no control over, like supply problems for ingredients.

The HHS “negotiated” pricing and rebate provisions would destroy the generic drug industry that has been an important private sector player in lowering drug costs for all Americans by turning the decisions over to government bureaucrats.  A November 2 press release by the generic drug trade group, the Association for Accessible Medicines (AAM), stated, “Patient access to more affordable generic and biosimilar medicines would be threatened under the policies currently under consideration in Congress.  Competition from lower-cost generics and biosimilars has successfully led to decades of savings for patients.  Continued access and savings to more affordable medicines would be jeopardized should these policies advance.”  The AAM opposes government negotiations in Medicare because it “would undermine biosimilar and generic development.  Combined with inflation-based rebates on generics and biosimilars, the reforms being considered would upend the competitive framework envisioned with Hatch-Waxman and BPCIA [Biologics Price Competition and Innovation Act] and threaten sustainable patient access to more affordable medicine.”

The legislation also has transparency requirements.  In other words, pharmacy benefit managers would be required to report the privately and proprietary negotiated rebates among pharmaceutical manufacturers and pharmacies.  This is another provision CAGW has long opposed.  This is akin to revealing the private negotiated pricing between a big box store, say Best Buy for televisions, and a supplier, say Samsung.  This will drive pricing up, not down, as explained in a July 2, 2015 Federal Trade Commission article, “Price transparency or TMI?”

While the proposal adopts a Part D redesign and lowers out-of-pocket costs for Medicare beneficiaries, something CAGW supports, the design is faulty.  It continues to keep drug manufacturer rebates in the initial coverage phase and the catastrophic phase.  These are price controls that will distort the list price of the drug and the private negotiations that occur in Part D.  CAGW continues to support the 2018 Part D redesign plan issued by the American Action Forum, albeit with one change, removing the 9 percent drug rebate in the catastrophic phase because it is a price control.  CAGW believes PBMs and insurers should be more at risk in the catastrophic phase as this will encourage more robust negotiation and generic and biosimilar use.

While the Schumer plan does not include all the legislative language from H.R. 3, any price controls, limited or otherwise, on pharmaceuticals, is the wrong prescription for healthcare and the economy.

If the Democrats agree to include the Schumer plan in the reconciliation bill, they will have learned nothing from the elections that should have sent shock waves to Capitol Hill.  Instead, they continue to throw ideas and variations of ideas against the big government wall to see what can get 50 votes in the Senate.  At least one Democratic senator should say no to the Schumer pharmaceutical plan, which like other ideas in Washington, will start with “10 single source drugs” and rapidly spread across the entire biopharmaceutical industry.  The lesson they should have learned from yesterday’s elections is that instead of looking for ways to pay for their massive trillion-dollar spending bills like drug price controls, they should cut spending to bring down inflation, reduce the size of government, and focus on lowering the debt.  That will do more to bring America’s economy back in better shape than anything that has been proposed to date, and it will also prevent serious damage to the world’s most important biopharmaceutical industry.