House Speaker Nancy Pelosi rolled out her much anticipated drug pricing plan today, calling for Medicare to negotiate prices on at least 25 medicines, with an option for commercial insurers to take advantage of the deals.
The plan is less ambitious than an outline of the bill, H.R. 3, that was leaked last week. Earlier discussions envisioned mandating that 250 drugs be subject to negotiations each year. Instead, 250 would be the ceiling rather than the floor, likely disappointing progressives.
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The government would be directed to target drugs that account for the highest costs to Medicare and the entire U.S. health care system, taking into account both the price of medicines and the volume sold in the U.S. This means that negotiations would likely focus on drugs taken by large numbers of Americans, potentially excluding those for rare diseases that typically are very costly.
To be eligible for negotiation, the drugs must also lack generic or biosimilar competition. Insulin must be included as one of the negotiated drugs.
The maximum price negotiated for the drugs would be tied to the cost paid in other developed countries, where medicines often sell for less. Under the Pelosi plan, the upper limit must be no more than 1.2 times the average price in six countries: Australia, Canada, France, Germany, Japan and the United Kingdom. But the goal would be to get to a lower price, according to an outline of the plan, and Medicare Part D and Medicare Advantage plans could try and get the price even lower than the government rate.
In determining a proposed price, the HHS secretary would need to take into consideration a medicine’s research and development and production costs, alternative treatments, the value of the drug and domestic and international sales information.
Once the price is negotiated, a drug company cannot raise it above the rate of inflation until sufficient competition develops in the market.
Savings from the lower-priced drugs would be directed to NIH to develop new medicines and toward improvements in the Medicare program. “If the savings are great enough,” the outline says, Medicare improvements could include coverage for vision, hearing and dental.
Today’s proposal would lower earlier versions’ initial penalty on drug companies that refuse to participate in negotiations or don’t reach an agreement with the government. Companies would be subject to an excise tax of 65 percent of the manufacturer’s annual gross sales, increasing by 10 percentage points every quarter of noncompliance to a maximum 95 percent. Previous iterations had the tax starting at 75 percent.
“This steep, escalating penalty creates a powerful financial incentive for drug manufacturers to negotiate and abide by the final price, while ensuring that patients maintain uninterrupted access to the medicines they need,” the outline says.
There also would be penalties if the drug company fails to offer the negotiated price to other payers.
Manufacturers not subject to negotiations would face penalties if they have raised the price of a drug above the rate of inflation since 2016. They would either need to lower the cost of the drug in question or refund the amount above inflation back to the government.
The Democratic leadership’s plan would for the first time cap seniors’ annual out-of-pocket spending in the Medicare Part D prescription drug benefit at $2,000, an idea that has been widely supported by both parties in Congress.
It also would drastically reduce the percentage of a medication’s costs paid by the government when seniors enter the catastrophic phase of the Medicare drug program, shifting more to health insurance plans and the drug industry. This idea has also drawn bipartisan support, including from the Trump administration.