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Senate Bill Aims to Tame Drug Costs With Inflation Link

Senators Reveal $100 Billion Drug-Savings Plan for U.S. Programs

(Bloomberg) -- A bipartisan Senate bill would yield $100 billion in savings on prescription-drug spending over a decade, two of its sponsors said, in part by penalizing pharmaceutical companies for raising prices faster than the rate of inflation.

The legislation, which has the backing of the White House, contains several proposals designed to reduce government outlays in Medicare and Medicaid. It also seeks to limit what patients who have Medicare drug plans would have to spend out of their own pockets on prescriptions.

The measure, released by the Republican and Democratic leaders of the Senate Finance Committee, Chuck Grassley of Iowa and Ron Wyden of Oregon, is expected to be taken up by that panel later this week.

“We are engaging with coalitions to help build support,” White House spokesman Judd Deere said in a statement. “We will work with Senators to ensure this proposal moves forward and advances the president’s priority of lowering drug prices even further and increasing transparency in health care for the benefit of all Americans.”

Still, some lawmakers and business groups are already lining up on the other side, saying the legislation goes too far in limiting drugmakers’ discretion to set prices and doesn’t do enough to help consumers.

Getting drug prices under control has been a top priority of the Trump administration and lawmakers of both parties, but action so far has been limited. Last week, the White House pulled back a proposal that would have curbed rebates paid to drug-plan middlemen, and earlier this week Democrats in the House said they would put off debate on a drug-price bill until September.

The Senate bill would force drugmakers to give rebates to the federal government if they raised the list prices of drugs at a faster rate than other prices in the economy. To keep drugmakers from jacking up prices ahead of the bill’s passage, the inflation cap would be anchored to a medicine’s price on July 1 of this year.

Nothing in the measure curbs the price pharmaceutical companies set for new drugs, as lawmakers seek to protect innovation and preserve patient access to new therapies. Drugmakers would still have the ability to set high nominal list prices in order to offset any concerns that a low inflation rate would erode profits.

Breakthrough medicines are coming with increasingly higher starting prices. Zolgensma, a recently approved Novartis AG treatment for a condition called spinal muscular atrophy, will cost as much as $2 million. The coming years are expected to see more expensive therapies based on genetic science and other new technology reach the marketplace.

Trump Push

Top Trump administration officials, including Health and Human Services Secretary Alex Azar and Joe Grogan, director of the White House Domestic Policy Council, met recently with Senate Republicans to push them to embrace some ideas from Democrats, such as the inflation rebate developed by Wyden, that often are counter to GOP orthodoxy.

However, some Senate Republicans balked at the new bill on Tuesday.

“Basically we’re talking about price controls and once you open that door, other things will happen,” said Pat Roberts of Kansas.

What this comes down to is “will Republican Senators take on pharma,” Wyden said.

Other parts of the bill would make changes to how Medicaid, the federal-state program for low-income people, pays for medications. The bill’s backers said it would increase transparency in the pharmaceutical supply chain, which depends on a complex web of middlemen and distributors.

The Department of Health and Human Services would be required to make public data it receives annually from middlemen, known as pharmacy-benefit managers, including the aggregate amount of rebates they negotiate from drugmakers on the list price of a therapy in exchange for better access to patients. The rebates have been criticized for leaving those with high-deductible coverage with large out-of-pocket costs.

Shares of drugmakers and pharmacy-benefit managers showed little reaction to the measure. The Nasdaq Biotechnology Index was up 0.2% at 3:46 p.m. in New York.

The Campaign for Sustainable Rx Pricing, an advocacy group that supports market-based solutions to drug-pricing issues, said the Senate proposal is a “good first step.” The organization represents a coalition of health-care providers, hospitals, pharmacy-benefit managers and insurers.

Aggressive Lobbying

Lawmakers have worked for months to come up with a viable plan that can appease Republicans, Democrats and the Trump White House. All the same, the measure is likely to face many obstacles, including aggressive lobbying by a pharmaceutical industry that has so far fended off many recent efforts to change its business practices.

The lobbying group Pharmaceutical Research and Manufacturers of America, which represents some of the largest drugmakers, said it opposed the bill. The group’s chief executive, Stephen Ubl, said it “would siphon more than $150 billion from researching and developing new medicines.”

The industry has long claimed any attempt to curb prices would hurt its ability to fund research and stymie U.S. patients’ access to new treatments.

The U.S. Chamber of Commerce also opposed what it said would amount to using “the power of the government to impose price controls.”

The committee will consider amendments to the legislation Thursday and potentially pass it on to the entire Senate for a vote if enough panel members are on board. The Senate is expected to break for August recess at the end of next week.

The House is expected to weigh in on drug prices when lawmakers return from recess in September. Democrats who are in control there will unveil their own legislation then, the chief health-care adviser to House Speaker Nancy Pelosi said on Monday. That proposal is likely to address drugs that don’t face much competition, the Pelosi aide, Wendell Primus, said at an event at the Brookings Institution.

--With assistance from Alexander Ruoff, Riley Griffin and Josh Wingrove.

To contact the reporter on this story: Anna Edney in Washington at aedney@bloomberg.net

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Timothy Annett, Mark Schoifet

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