Medicare Part D, a prescription drug benefit plan for Medicare beneficiaries, became law on 1 January 2006 under the George W. Bush administration and a Republican controlled Congress. The legislation was enacted with no funding provisions whatsoever. Since then, Washington politicians have been arguing over whether this government program should be allowed to negotiate with pharmaceutical companies the prices it pays for drugs its members need. Medicare beneficiaries, all 64 million of them, and the public at large, have overwhelmingly supported such a move. Over the years, pharmaceutical companies have spent a king’s ransom donating to politicians to secure―should we say “buy?”―their votes in opposition.
What’s been the result?
- A study published recently in the Journal of the American Medical Association concluded more than a quarter (27.2%) of Medicare spending is now for prescription drugs;
- That would be $180 billion, as reported by the Medicare Payment Advisory Commission for 2020;
- According to the Kaiser Family Foundation, the total we in the US spent on prescription drugs in 2017 was $333 billion; and,
- The Rand Corporation studied and compared US prices to 32 other OECD countries (The Organization for Economic Cooperation and Development – the most developed nations) and reported our prices are “nearly twice those of other countries after adjusting U.S. prices downward to account for rebates and other discounts paid by drug companies.”
And now, perhaps the gravy train may be slowing.
In August 2022, Congress finally passed―without a single Republican vote―and President Biden signed, the Inflation Reduction Act, which, among other things, allows Medicare to move forward with drug price negotiations―sort of. Right about now, you may be asking what prevented Medicare from doing that all along since 2006 as a normal part of its drug-purchasing process?
As the Kaiser Family Foundation explains:
Under the Medicare Part D program, which covers retail prescription drugs, Medicare contracts with private plan sponsors to provide a prescription drug benefit. The law that established the Part D benefit included a provision known as the “noninterference” clause, which stipulates that the HHS Secretary “may not interfere with the negotiations between drug manufacturers and pharmacies and PDP [prescription drug plan] sponsors, and may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.”
In other words, although Medicare is buying drugs for its members, all 64 million of them, it has not been allowed to even hint that a lower price might be more fair and appropriate for the government to pay. That is the very definition of a “sweet deal” for drug manufacturers.
Giving the negotiation contrarians the benefit of a doubt they more than likely don’t deserve, their argument in opposition hangs on the slim thread that negotiations will lower the income of drug manufacturers, and that will, in turn, reduce the amount of money the companies invest in research and development to discover new life-saving drugs. My own opinion is that this argument is chock full of what makes the grass grow green and tall. And, by the way, the Congressional Budget Office agrees with me, although their analysists said it with a bit more eloquence.
And what does the aforementioned Inflation Reduction Act do, anyway?
It does a number of things, one of which is to lay down new rules for price negotiations. These are its major health care provisions, leaving out, for the moment, the negotiation issue. It will:
- Require drug companies to pay rebates to Medicare if prices rise faster than inflation for drugs used by Medicare beneficiaries, beginning in 2023;
- Cap out-of-pocket spending for Medicare Part D enrollees and make other Part D benefit design changes, beginning in 2024;
- Limit monthly cost sharing for insulin to $35 for people with Medicare, beginning in 2023. This might be the most far reaching and important item in the entire legislation.
- Eliminate cost sharing for adult vaccines covered under Medicare Part D and improve access to adult vaccines in Medicaid and CHIP, beginning in 2023;
- Expand eligibility for full benefits under the Medicare Part D Low-Income Subsidy Program, beginning in 2024; and,
- Further delay implementation of the Trump Administration’s drug rebate rule, beginning in 2027.
Notice the years in which these provisions take effect. In most cases, it’s 2023. Which is now.
The negotiation provision of the Inflation Reduction Act:
- Requires the federal government to negotiate prices for some drugs (emphasis added) covered under Medicare Part D and Part B* with the highest total spending, beginning in 2026. Note the year.
This provision targets the most expensive drugs. Here’s how.
Under the new Drug Price Negotiation Program, Medicare will negotiate the price of 10 Part D drugs for 2026, another 15 for 2027, another 15 for 2028, and another 20 for 2029 and later years. The drugs to be chosen for negotiation will be selected from among the 50 drugs with the highest total Medicare spending. The number of drugs with negotiable prices will accumulate over time.
So, beginning three years from now, the law goes after the most expensive Medicare drugs — ever so slowly.
There are debatable reasons for delaying implementation until 2026, all dealing with operational processes. The period of negotiation between the Secretary of Health and Human Services and manufacturers of the selected drugs will occur between 1 October 2023 and 1 August 2024, and the negotiated “maximum fair prices” will be published no later than 1 September 2024 and will go into effect 1 January 2026.
This has always seemed to me a rather long and drawn out negotiation process, but it is, after all, a political compromise, and a rather elegant one, at that.
But now, into that elegant compromise has stepped the pharmaceutical industry and a bunch of high-powered allies. They lost in the fight that brought the compromise within the Inflation Reduction Act, but they’re now back with lawsuits to derail the process before it gets going this year.
Just this month, four lawsuits have been filed in four different court venues, amounting to a legal blitz in the span of just over two weeks. The complaints include a range of legal arguments, some of which overlap.
“If you find one judge or one panel, that’s all it takes. When you’re thinking of savvy and sophisticated litigants, that is the way that they try and challenge major policies at this stage,” said Zachary Baron, an associate director of the Health Policy and the Law Initiative at Georgetown’s O’Neill Institute.
The lawsuit filed by PhRMA (Pharmaceutical Research and Manufacturers of America) and two other plaintiffs alleges the drug negotiation program is unconstitutional for three main reasons. First, the groups contend Congress shouldn’t have delegated such broad authority to the federal health department; second, the program denies manufacturers their due process rights: and third, it imposes a “staggering” tax for noncompliance.
Another lawsuit from the U.S. Chamber of Commerce and local business groups made similar arguments, though they also included other claims in their quest to bring down the program.
Finally, the Jones Day law firm has brought suit on behalf of drug manufacturers Bristol Myers Squibb and Merck. Their arguments assert that the rules force the drugmakers to agree to the price HHS sets and thus violate their free speech rights.
“Force the drugmakers to agree to the price HHS sets…” Except — What the Inflation Reduction Act imposed on drugmakers was a negotiation, not a drug price mandate.
One person who spoke with a Washington Post reporter suggested the lawsuits were just the first move in a complicated chess match the drugmakers were hoping would wind up in a sympathetically conservative Supreme Court.
No one ever said this was going to be easy.
Tomorrow — A better way to lower prescription drug costs for Americans.
