By Donna Hasley
August 2, 2021
Now that the drug pay-fors for the Senate’s bipartisan infrastructure bill are set, lobbyists have turned their eyes back to Senate Finance Chair Ron Wyden’s (D-OR) effort to craft a drug price negotiation compromise to pay for health reforms in the upcoming budget reconciliation package. Senate Majority Leader Chuck Schumer (D-NY) hopes the Senate will pass this week the infrastructure deal he unveiled Sunday (Aug. 1) and then vote on a budget resolution with instructions for the partisan $3.5 trillion reconciliation measure.
Democrats plan to expand Medicare benefits, close the Medicaid coverage gap and extend Affordable Care Act tax credit increases as part of the reconciliation plan, but those policies hinge on the amount of savings they can muster from drug-pricing reforms. This has put Wyden in the hot seat to craft a compromise that adds some form of drug negotiation to the bipartisan reforms he pushed with Sen. Chuck Grassley (R-IA), while still achieving substantial savings. He needs to appease both progressives who favor an aggressive negotiation plan and moderates who are skeptical of government pricing mandates. Lobbyists say Wyden is considering replacing the international reference pricing scheme in Democrats’ H.R. 3 with a domestic reference pricing approach and ratcheting back how many drugs are subject to negotiation. However, no details have emerged.
Underscoring the political dynamics, last week House Ways & Means health subcommittee Chair Lloyd Doggett (D-TX), along with more than 55 House lawmakers, signaled they don’t want the number of drugs subject to negotiation scaled back and suggested even H.R. 3 doesn’t go far enough. They introduced a bill that would subject every drug to government negotiation and extend the prices to the private sector. The bill quickly gained the backing of Public Citizen, Center for Medicare Advocacy and a handful of other groups.
“Instead of yielding to Big Pharma by greatly weakening the already modest H.R. 3, now is the time to strengthen it,” Doggett said when he unveiled the bill, the Medicare Negotiation and Competitive Licensing Act. “Unlike H.R. 3, this bill unequivocally repeals the Republican-imposed prohibition on government price negotiation. It ensures every drug is eligible for negotiation, including generics, newly launched drugs, and taxpayer-funded drugs, and that every American, regardless of whether they have insurance, receives the benefit.”
Doggett said his bill “addresses the deficiencies of H.R. 3, the Lower Drug Costs Now Act, and offers a genuine path forward to deliver meaningful price reductions while protecting and encouraging the development of more innovative cures.”
The Congressional Budget Office has said H.R. 3’s price negotiation provisions would lower government spending by about $456 billion, which would be more than enough to pay for adding dental, vision, and hearing coverage to Medicare. CBO has said that adding those benefits in the way put forward by H.R. 3 would raise spending by approximately $358 billion. But Democrats also hope to close the Medicaid coverage gap and make permanent the ACA tax credit hikes that have been temporarily increased by the American Rescue Plan. The expected pay-for for the ACA tax credits — scrapping the Trump-era Part D rebate rule — is now smaller because lawmakers are delaying the rebate rule by three years to help pay for the bipartisan infrastructure bill.
The bipartisan drug-pricing bill Wyden crafted last Congress with Grassley would only save around $95 billion, so Wyden needs to come up with a domestic reference pricing plan that would add significant savings, even if not on par with the savings from H.R. 3.
New polling could bolster Wyden’s efforts. Last week West Health Policy Center and the National Coalition on Health Care released a poll showing 81% of U.S. adults support letting Medicare negotiate drug prices. The poll also found most Americans believe drug price negotiations should be made possible for all Americans regardless of insurance status.
A June 2020 Health Affairs blog from West Health Policy officials laid out how lawmakers could craft a negotiation approach based on domestic reference pricing.
The blog, by Sean Dickson, director of health policy at the West Health Policy Center, and Timothy Lash, chief strategy officer and executive vice president of West Health and the president of the West Health Policy Center, proposes a domestic reference price with two components: a historical comparator price and a presumed innovation premium.
The first component would be based solely on historical market conditions, while the latter would consider policy judgments on the expected magnitude of drug improvements over time.
“To calculate the historical comparator price, we would first identify the top three existing drug treatments within the therapeutic class for a drug,” the authors say. “For drugs without comparators in their therapeutic class, the top three therapies for the condition treated by the drug, or three drugs with similar mechanisms of action, could be used.”
They propose that the selection of comparators be part of a negotiation process between the manufacturer and a federally created entity, similar to the negotiator envisioned by H.R. 3. “Once the comparator drugs are identified, the launch date and price of the brand version of each could be established, and each launch price would be inflated to current (2020) dollars using the Consumer Price Index-Urban,” they wrote.
Under their plan, the historical comparator price would be the utilization-weighted average of the inflation-adjusted launch prices for the selected drugs, based on the number of Medicare beneficiaries using the comparator therapies in the year prior to the new therapy entering the market.
The presumed innovation premium could be a multiplier for the historical comparator price based on the average age of the comparator therapies, they wrote.
Dickson and Lash propose three “presumed innovation premiums” based on the average comparator age, but they say policy makers could adjust these premiums and thresholds.
“For drugs with an average comparator age greater than 10 years, the presumed innovation premium would be 200 percent; 5–10 years, 150 percent; and 0–5 years, 125 percent,” they wrote. “These proposed innovation premiums reflect a presumption that new drugs will offer a greater increase in clinical value for classes where the predominant therapies are older, while ‘me-too’ products in a class dominated by newer therapies may not offer significant clinical improvements.”