Democrats’ Flawed Drug Pricing Plan Has Limited But Real Benefits to Consumers

The Medicare prescription drug pricing proposal Democrats unveiled this week may not be as ambitious than many lawmakers hoped, but experts in drug policy and law say it opens up the possibility of reforms that could have huge effects.

Consumers are being hounded by rising prices and the need to reduce drug expenses for a long time. While Medicare recipients often had more protections than those in private plans, they were often less protected than those in Medicare. They were not subject to out-of-pocket limits and complained that federal law prevented them from using them drugmakers’ couponsOther cost-cutting strategies.

A plan offered earlier this year by House Democrats — which included robust negotiation over drug prices in Medicare — was blocked by a handful of moderates who argued that the price curbs would stifle innovation. Senators were also expected to block the legislation.

The moderates favored more limited negotiation over drugs only in Medicare Part B — those administered in doctors’ offices and hospitals. Medicare Part D covers most people’s prescriptions.

When it appeared that the bill to fund President Joe Biden’s social agenda would move forward without a drug pricing proposal, the pressure built, intense negotiations were held, and a hybrid proposal was unveiled. It includes identifying 100 expensive drugs and targeting 10 of those for negotiations to bring down their prices starting in 2025. It will also place inflation caps on prescription drug prices for all insurance plans, restrict copays for insulin to no more than $35, and limit Medicare beneficiaries’ annual out-of-pocket drug costs to $2,000.

“There was a sense that the government had its hands tied behind its back. Now a precedent is being set,” said Senate Finance Committee Chairman Ron Wyden (D-Ore.), who led the talks for the senators. “There’s going to be negotiation on the most expensive drugs: cancer drugs, arthritis drugs or the anticoagulants. And that’s a precedent, and once you set a precedent that you can actually negotiate, you are really turning an important corner.”

Drugmakers say the changes could stymie consumers’ options. “Under the guise of ‘negotiation,’ it gives the government the power to dictate how much a medicine is worth,” Stephen Ubl, CEO of the trade group PhRMA, said in a statement, “and leaves many patients facing a future with less access to medicines and fewer new treatments.”

How will Americans feel the changes? Who will help?

The answers are varied and many details will still need to be worked out in detail by government agencies if legislation passes. House members cautioned that minor changes were being made on Thursday night. It all needs to pass both chambers.

Insulin costs can be controlled

The most obvious benefit will be for those who require insulin, the lifesaving drug that is available to people with Type 1 and Type 2 diabetes. Although insulin has been around for decades, its prices have risen rapidly over the past few years. Lawmakers have been galvanized by nightmarish accounts of people dying because they couldn’t afford insulin or driving to Canada or Mexico to get it cheaper.

Below the bill35 dollars would be the maximum out-of pocket cost for a 30-day supply. This is effective from 2023. Medicare beneficiaries would not be entitled to this benefit.

The cap is the exact same as the one set in a five-year model program in Medicare. In it, the Centers for Medicare & Medicaid Services estimated that the average patient would save about $466 a year.

Unfortunately, no detailed analyses of the proposals are available. It is therefore unclear what the fiscal implications or savings would have for patients not covered by Medicare.

Limiting Out-of Pocket Spending

Medicare beneficiaries also enjoy a $2,000 limit on out-of pocket prescription drug costs. Currently, drug costs for people in the Part D prescription drug plans are calculated with a complicated formula that features the infamous “doughnut hole,” but there is no limit to how much they might spend.

Consumers with serious illnesses like multiple sclerosis or cancer have had to pay thousands of dollars to cover their medication. KFF analysis found. The law currently states that if an individual beneficiary or her plan spends $4,130 on drugs in a year, the beneficiary will be covered under the doughnut hole coverage gap. This means that the beneficiary can pay up 25% of the drug’s price. After she has spent $6,000.50 on drugs, she is responsible to pay 5% of the remaining cost for the year.

Limiting that expense is an especially big deal for people who get little low-income assistance and have expensive illnesses, said Dr. Jing Luo, an assistant professor of medicine at the University of Pittsburgh’s Center for Research on Health Care. “The patient pays 5% of all drug costs, and 5% of $160,000 is still a lot of money,” he said.

Consumers would be relieved by the legislation. “Rather than having a bill at the end of the year, like over $10,000, maybe their bill at the end of that year for that very expensive multiple myeloma treatment is $2,000,” he said.

Negotiating Drug Prices

Medicare price negotiation is probably the highest-profile provision in the legislation — and the most controversial. The bill would require the Department of Health and Human Services to identify the 100 most expensive drugs and select 10 for price negotiations. That effort wouldn’t start until 2023, but the new prices would go into effect in 2025. Up to 10 additional drugs could be added by 2028. No drugs have been discovered yet.

To address concerns expressed by some lawmakers, the legislation contains specific provisions for HHS’s selection of drugs to be included. Only drugs that are one-of-a kind or the only treatment for a specific problem would be included.

The list would also include drugs that have been on market for longer than the government grants. This is to ensure that they are not subject to competition or recoup their costs. The exclusivity period for most regular drugs can last up to nine years. The exclusivity period for more complex biologic drugs would be 13 years. The exclusivity timing allowed lawmakers not to worry about whether the drugs were still protected by patents.

The program allows prices to be negotiated lower for older drugs. The negotiated price for non-biologic drugs that have been available for less 12 years would be 75% off the average manufacturer price. This would be 65% for drugs 12-16 years after their initial exclusivity and 40% for drugs older than 16 years.

Because lawmakers were concerned about innovation, they have excluded drugs from smaller companies that have sales below $200 million.

Experts were unsure if consumers would actually feel the negotiated price.

“It helps Medicare, without question, to reduce their expenditures,” said William Comanor, a professor of health policy and management at the UCLA Fielding School of Public Health. “But how does that affect consumers? I bet Medicare doesn’t change the copay.”

Yet, he added, the copayment is less of an issue if a consumer’s prescription expenses are capped at $2,000.

Inflation and Prices: A Link

The bill would require manufacturers to report their prices to HHS secretary. If prices rise faster than inflation, drugmakers would be required to pay a rebate. Manufacturers that don’t pay the rebate would face a civil penalty of 125% of the value of the rebate.

These provisions would apply to drugs bought through Medicare or non-Medicare plans.

Long-term, the goal is to slow down overall inflation of drug prices, which has surpassed general inflation for decades.

The drug prices would be fixed at the March level and the system would take effect in 2023. There would be no immediate impact. (Some lawmakers had hoped to peg the program to prices from several years ago — which might produce a bigger effect — but that was changed in the negotiations over the weekend.) Comanor stated that the long-term effects of the current system are difficult to assess because many people who pay for drugs receive assistance from drug companies. Generics in the U.S. tend to be relatively cheap.

Over the long haul, though, savings are expected to be substantial for the government, as well as for consumers who don’t qualify for other programs to help pay drug expenses and need high-end medication.

The legislation would at the very minimum move the U.S. towards the rest of the globe.

“The longer the drug is on the market, the lower the price,” said Gerard Anderson, a professor of health policy at Johns Hopkins’ medical school. “In every other country, the price goes down over time, while in the United States, it is common for pricesTo increase.”

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