Democrats Make Another Attempt at Prescription Drug Pricing Reform

Democrats are once again seeking to pass drug pricing reform with a new proposal published earlier this month. While the bill is similar to previous ones, most notably with having Medicare conduct drug price negotiations, it also offers some changes from past efforts, including not basing those drug prices on an international reference model. Still, many pharma stakeholders expressed disappointment over aspects of the bill, and while its odds of passing have slightly improved more recently, industry experts are somewhat divided on the bill’s chance of approval.

The newest proposal was released on July 6 after negotiations with Sen. Joe Manchin (D-W.Va.), who squelched earlier administration attempts at drug pricing reform.

The legislation would require the HHS secretary to negotiate prices for certain prescription drugs. In September 2023, Medicare would publish a list of negotiation-eligible drugs, and the HHS secretary would pick a smaller number on which to negotiate “maximum fair prices” by October, with those prices taking effect in 2026. The secretary must negotiate on 10 drugs at first, with the amount rising to 15 in the next two years and then to 20 drugs in subsequent years. The qualifying single-source drugs would come from either Medicare Part B or Part D.

Medications that are equal to or less than 1% of total Part D or Part B expenditures would be excluded, as would those that are equal to at least 80% of the total expenditures in either benefit. Other excluded agents include certain orphan drugs, plasma-derived products, vaccines and new formulations of qualifying single-source drugs.

One of the new provisions concerns biosimilars. The HHS secretary may delay negotiating on a biologic for up to two years when it’s likely that a biosimilar to it will launch during that time. But the reference drug manufacturer would have to pay retroactive rebates if a biosimilar did not actually launch in that time frame.

The new legislation would also limit out-of-pocket expenses for Medicare beneficiaries to $2,000 per year. However, a provision in earlier legislation to cap the out-of-pocket cost of insulin is no longer in the bill and was taken up in a separate bill from Sens. Susan Collins (R-Maine) and Jeanne Shaheen (D-N.H.). In addition, a section requiring more transparency from PBMs is not in the newest bill either.

Larry Kocot, principal and national leader for the Center for Healthcare Regulatory Insight at KPMG, observes that the new bill contains a variety of changes from older efforts. “For example, government would negotiate a specific number of drugs each year, rather than ‘up to’ to reduce discretion and ensure budgetary targets; the first year of negotiation has been moved forward to 2023 from 2024; and, negotiated prices will take effect in 2026 rather than 2025,” he tells AIS Health, a division of MMIT. “There is also a provision to promote more biosimilar competition by delaying the effect of any negotiation on certain biologic drugs for an additional two years. Additionally, starting in 2024, Part D beneficiaries will owe $0 in out-of-pocket costs in the catastrophic phase, and total out-of-pocket costs will be capped at $2,000 by 2025. The bill also expands access to low-income subsidy eligibility by changing the threshold from 135% to 150% of the federal poverty level. It also reduces Medicare Part D vaccine cost sharing to $0 effective in January 2023, rather than in January 2024.”

The Congressional Budget Office (CBO) said on July 8 that the drug legislation would save $287.6 billion over the 2022-2031 period.

Pharma industry stakeholders swiftly spoke out against the legislation.

According to Ted Okon, executive director of the Community Oncology Alliance (COA), “The proposed Prescription Drug Pricing Reform provisions in the reconciliation bill that Senate Democrats are crafting implements the negotiation of drug prices in such a way that community oncology practices, as well as other specialty medical practices treating serious diseases, will face unbearable financial risk,” he said in a statement. “This is because, as currently drafted, practices will be reimbursed at much lower negotiated rates relative to the underlying costs of drugs. This comes at a time when practices are still dealing with the increased costs of COVID, severe inflation, and sequestration.”

Okon maintained that Congress can make “a relatively simple fix…that will take providers out of the middle of negotiations between the government and drug manufacturers. COA has developed language such that drug manufacturers directly refund the government excess costs above negotiated prices. This creates a direct transaction between the government and drug manufacturers and does not put physicians in the middle, exposed to untenable financial cuts and risk. There is already a precedent for manufacturers to rebate the government in the way COA proposes.”

And Michelle McMurry-Heath, M.D., Ph.D., president and CEO of the Biotechnology Innovation Organization (BIO), said in a statement that “instead of building and strengthening America’s biotechnology ecosystem, which has proven critical over the last two years in slowing the Covid-19 pandemic and, in doing so, saved American taxpayers roughly one trillion dollars in healthcare costs and tens of millions of lives globally, the legislation released today would dismantle our innovation engine and our global competitiveness, leaving Americans dependent on overseas innovators to address our domestic healthcare needs.”

“The prescription drug bill released today went from bad to worse for patients,” declared Debra DeShong, executive vice president of public affairs for the Pharmaceutical Research and Manufacturers of America (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. In fact, they are proposing to repeal a policy that would have directly lowered costs at the pharmacy for millions of seniors in favor of a new price-setting scheme. The bill also ignores the role of middlemen and insurers in determining patient out-of-pocket costs. Unfortunately, PBMs and insurers will continue to benefit by shifting more of the cost burden to patients when it comes to coinsurance and premium increases.”

The CBO estimates that if the bill becomes law, the number of drugs coming onto the U.S. market would decline by about two from 2023 to 2032, then approximately five over the following decade and then about eight in the decade after that.

When asked if there was anything particularly surprising or interesting about the new proposal, Lisa Kennedy, Ph.D., chief economist at Innopiphany, LLC, replies that while the $2,000 out-of-pocket cap for seniors may not be surprising, it is a “great part of this legislation, as currently those in traditional Medicare are at significant financial risk without protections on OOP.”

Elan Rubinstein, Pharm.D., M.P.H., principal at EB Rubinstein Associates, observes that the maximum fair price to be negotiated “is not based on an International Reference Price benchmark, as prior proposals had been, but rather on a ceiling price, defined on a ‘lower of’ basis, the lowest cost which appears to be a percentage between 40% and 75% of the non-Federal average manufacturer price.” The CBO defines “non-FAMP” as “the average price wholesalers pay manufacturers for drugs distributed to nonfederal purchasers, reflecting discounts but excluding any prices found by the Secretary of the VA [i.e., Department of Veterans Affairs] to be merely nominal.”

“This approach to controlling net drug cost is flawed because it is based on a benchmark that is within the power of manufacturers to manipulate through their market pricing power,” he tells AIS Health. “That is, if manufacturers are dissatisfied that the maximum fair price based on a percentage of non-FAMP will too greatly [impact] net price, they may reduce discounts and rebates from list price to lessen the ‘bite.’”

Rubinstein maintains that a value-based pricing approach, as argued in a book published last year by professors at the Center for the Evaluation of Value and Risk in Health at Tufts Medical Center, is “a far more logical, defensible way to determine a fair drug price, one that is not susceptible to manufacturer discounting and rebating decisions. The value-based approach is admittedly imprecise, but it is way better than using a gameable sledgehammer to address the pricing problem, as is proposed in the bill. This approach is based on the relative therapeutic value that a drug brings.”

The Medicare price negotiation is the “pivotal part” of the proposal, says Kennedy. But “there is a distinct lack of clarity on what the price discount could ultimately be (this is the negotiation part). This looks to be based on discount off WAC [i.e., wholesale acquisition cost], which would be similar to what private payers do: Essentially the government is signaling that they want for Medicare patients what commercial insurers already negotiate.”

Eliminating the reference-based pricing approach is “good news,” she asserts, “but while the limit to 20 drugs looks innocuous, this could provide a foot in the door for greater numbers of drugs to be negotiated on. The problem is that the negotiation wouldn’t be on value but on price, which is problematic. Even value methodologies are problematic with the inability to accurately capture what society values with further wide variations in value dependent on who conducts the work.”

In addition, Kennedy tells AIS Health, “this could have knock-on effects in the level of innovation in disease areas that are disproportionately exposed to this legislation — i.e., highly effective, innovative drugs that are either ultra-rare drugs or used in significant volume. This includes oncology and some key areas of neurodegeneration. You could see whole portfolios of drug development pivot away from these areas if the relative prices fall too low.”

On the provision on delaying negotiations for biologics with expected biosimilars, “my sense on this is that negotiation leading to price reduction prior to market entry would reduce the number of biosimilar manufacturers from entering the market,” states Kennedy. “This is already a problem now: The market for biosimilars typically increases because more patients receive them due to lower prices, but each entrant receives less share according to the order of entry. If the prices are too low (and bearing in mind that the cost of manufacturing of biosimilars is much higher than generics), then you get a market failure and lack of competition. Put simply — delaying negotiation will allow greater competition and biosimilar market stabilization.”

Both Rubinstein and Kennedy tell AIS Health that the bill’s chances of passing are low.

“There isn’t much time to pass this, and it will require significant revisions to get all senators onboard, which will likely be impossible,” observes Kennedy. Echoes Rubinstein, “there isn’t much time left before the midterms to push through legislation. There is a poor track record of cooperation between Democrats and Republicans in an evenly split Senate. This bill looks iffy to me.”

Democrats were hoping to pass the drug pricing legislation in conjunction with proposals on energy investments and tax increases, but Manchin said on July 14 that he doesn’t want to take any action on those issues in July or August. In the latter month, the Senate is in session only the first week, and the House isn’t in session at all. So Democrats are left with the choice of negotiating a larger bill in September or focusing now on a narrower bill that addresses prescription drug costs.

“Since January, budget reconciliation has been the top priority for the White House Democrats in Congress,” says Andrew Coats, a senior policy advisor at the law firm Hall, Render, Killian, Heath & Lyman, P.C. “And drug pricing has been considered the low hanging fruit for the reconciliation package; it has and still is popular on both sides of the aisle, which is rare for health care legislation. It probably could have passed on its own five to six months ago, but it’s hard to pass health care legislation. And when you add non-health care pieces like climate change, along with a steady drip of poor economic news, you can see why the bigger package has been derailed, again.

“We’re now down to eight voting days before the August recess, and 100-some days until the November midterms,” he continues. “Mid-July is very late in the game to pass health care legislation in an election year — with every day that passes, a vote on even a slim health care package takes on larger political implications.” He observes that Sen. Richard Burr’s (R.-N.C.) “introduction of a pared-down FDA user fee bill adds a potential negotiation point to drug pricing for Republicans, creating another obstacle for drug pricing.”

After Manchin’s declaration, “I think what’s left is prescription drug pricing and possibly Affordable Care Act subsidies,” observed Evercore ISI analyst Tobin Marcus during a July 15 webinar. “And I think perversely the fact that Manchin shut down the broader talks that did not look destined for success increases the odds the Democrats ultimately do enact prescription drug reform pricing by letting them just kind of clear the decks and move onto that faster rather than waste July trying and failing to get this bigger thing done. So I think that’s a quite real risk for the pharmaceutical industry; the odds on that are probably getting close to the 50% range. I think that if Manchin’s willing to do it, then that’s the last train leaving town. And I think as a lowest common denominator final fallback bill, there’s a pretty good chance that that gets done.”

However, he cautioned, there are “certainly ways that could go off the rails. The kind-of pharma-friendly Democrats have been pretty quiet, so it’s possible that they pop up and are not enthusiastic about doing this, [now that] they don’t have it attached to all the other Democratic goodies in the bigger bill.”

“Democrat leadership now has to make the calculation of whether they want to notch a W on drug pricing, but in doing so, punting on the rest of their policy agenda,” Coats tells AIS Health. “But time is basically up.”

Contact Coats at, Kennedy at, Kocot via Creighton Abrams at and Rubinstein at

© 2024 MMIT
Angela Maas

Angela Maas

Angela has an extensive background of editing, reporting and writing for trade and consumer publications. She has written Radar on Specialty Pharmacy since she joined AIS Health in 2005 and has broad knowledge of the various issues at play within the space. She also has written for Spotlight on Market Access since its 2017 launch. Before joining AIS Health, she was managing editor at Employee Benefit News and Employee Benefit News Canada and managing editor at Hem Aware (a hemophilia publication), Lupus Living and Momentum (a multiple sclerosis publication). She has a B.A. in English and an M.A. in British literature from Arizona State University.

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