Congressional Democrats are targeting Medicare drug spending to finance the extension of expiring pandemic subsidies for Obamacare.
The drug price provisions are included in a version of the proposed Build Back Better legislation agreed to by Sen. Joe Manchin (D-WV) and Senate Majority Leader Chuck Schumer (D-NY).
The drug price plan would allow the Centers for Medicare and Medicaid Services (CMS) to dictate to pharmaceutical manufacturers the prices they charge for drugs paid for by Medicare. Drug manufacturers would be hit with a 95 percent excise tax on their total sales if they fail to lower drug prices to the satisfaction of federal regulators.
The plan could cut Medicare prescription drug spending by $288 billion over the next 10 years, according to the Congressional Budget Office (CBO). The projected savings would be used to pay for a three-year extension of Obamacare subsidies.
Threatens Patient Access
Drug price negotiation is a euphemism for drug price controls, said Phil Kerpen, president of American Commitment, an activist group, on the Heartland Daily Podcast on July 28.
“A classic mob-style ‘offer you can’t refuse,’” said Kerpen.
The plan could backfire politically because it will be viewed as taking from Medicare to finance Obamacare, wrote Kerpen in a blog post.
“There were a lot of ingredients in the 2010 Republican electoral landslide, but perhaps the most significant was that by raiding hundreds of billions of dollars from Medicare to pay for Obamacare, Democrats gave the ‘Medicare cuts’ club they had used to beat Republicans over the head for decades to their opponents, who then hammered away at them,” wrote Kerpen. “Remarkably, 12 years later they may—in a last-ditch attempt to salvage something from the wreckage of Build Back Better—repeat the exact same mistake again.”
The proposal is not drug pricing reform, wrote Kerpen.
“Proponents pretend this is a free lunch, that seniors will have access to the same drugs at steeply lower prices,” wrote Kerpen. “Reality doesn’t work that way. Imposing price controls to siphon hundreds of billions of dollars out of Medicare prescription drug spending will clearly result in few new cures and treatments available to seniors.”
Imperils Drug Innovation
The proposed legislation would stifle the development of new drugs, says the Pharmaceutical Research and Manufacturers of America (PhRMA), the trade group representing drug makers, in a statement on the version of the drug price plan released on July 6.
“The prescription drug bill released today went from bad to worse for patients,” states PhRMA. “Democrats weakened protections for patient costs included in previous versions, while doubling down on sweeping government price-setting policies that will threaten patient access and future innovations.”
University of Chicago researchers Toman J. Philipson and Troy Durie estimated the impact of a previous version of the drug price plan, in an issue brief published in November 2021.
Pharmaceutical companies would lose an average of 12 percent of their revenue through 2039, according to Philipson and Durie. This would lead to reduced research and development spending of about 18.5 percent, or $663 billion, resulting in the development of 135 fewer new drugs and the potential loss of 331.5 million life years.
Prescription drug prices rose an average of 2.5 percent in the past year, far below the 9.1 percent annual inflation rate for the United States, and fell between 2009 and 2018, according to the CBO.
Potential Drug Shortages
This plan could lead to drug shortages, Ryan Ellis, the president of the Center for a Free Economy, told Health Care News.
“The drug manufacturer may choose to avoid the 95 percent tax and live under the government-dictated price control,” said Ellis. “In that scenario, the manufacturer will sell only as much as they absolutely have to, since they will be forced to sell at a loss. That easily can turn into a scarcity situation, much as we have seen with baby formula this year.”
Consumers will lose in other ways, says Ellis.
“Studies show that government price-fixing of prescription drugs—in the manner contemplated in Congress right now—will discourage the production of new drugs,” said Ellis. “That means fewer cures for life-threatening diseases and shorter life expectancy for the population as a whole.”
Kevin Stone (kevin.s.stone@gmail.com) writes from Arlington, Texas.
