In recent years, drug prices have skyrocketed to the point that some Americans are forced to take measures like rationing their medicines against their doctor’s orders or to choose between filling critical prescriptions and paying the rent. Elected officials on both sides of the aisle routinely condemn Big Pharma’s price-hiking tactics but, while there is bipartisan agreement, that problem has only gotten worse, and precious little has been done to actually address the problem.
Just before Congress headed home for the August recess, however, glimmers of hope began to appear in the Senate. On a bipartisan basis, the Republican-controlled Senate Finance Committee passed legislation that represents the first real Congressional attempt to make a dent in drug prices.
Just one thing stands in the way: Big Pharma.
Historically, drug makers have raised the price of their drugs twice per year, often by double-digit rates that far exceed the general rate of inflation. Because Medicare covers all available drugs, drug makers have been able to raise their prices with few constraints. The result is sky-high drug prices that simply keep climbing, leaving taxpayers and patients with the tab.
Pharmaceutical manufacturers are up in arms about a provision in the legislation that would put an end to unlimited price hikes in Medicare. The provision would penalize drug manufacturers that raise the price of a drug by more than the Consumer Price Index (CPI) rate of inflation by forcing drug makers to pay a rebate equal to the amount by which the price hike exceeds CPI inflation.
This provision would save taxpayers upwards of $70 billion, according to the Congressional Budget Office (CBO). Importantly, the CBO also estimates that patients would save an additional $10 billion in out-of-pocket costs though lower cost-sharing (which is based on the list price of a drug) and lower insurance premiums (as insurance companies would pass on savings realized though slower drug price increases).
Patients would also see real out-of-pocket savings though a redesign of Medicare’s prescription drug benefit, known as “Part D.” Currently, in a basic Medicare Part D plan, patients pay 100% of their drug costs up to $415, then they are responsible for 25%-37% of their drug costs up to a “catastrophic cap” and then 5% of costs thereafter, without limit.
The Senate Finance bill would streamline this arrangement for patients and, importantly, impose a hard cap on out-of-pocket costs above $3,100. This provision would provide Medicare beneficiaries with peace of mind, knowing that they will not be exposed to potentially ruinous out-of-pocket costs for prescription drugs.
It will also incentivize insurance plans to negotiate harder with drug companies as insurance plans would be responsible for 60% of the cost for drugs above that $3,100 cap (drug manufacturers and Medicare will each pay 20%). In addition to the savings from the limits on price hikes, the CBO estimates that patients would save $20 billion in out-of-pocket costs.
The pharmaceutical industry is working hard to kill this bill. As one of the bill’s cosponsors recently said, “you’ve got the pharmaceutical lobby all over Capitol Hill buttonholing senators, telling them that if they do anything to hold down prices for consumers and taxpayers, that that’s going to be the end of Western civilization.”
The fact of the matter is that Big Pharma rakes in the highest profit margins in the health care sector, with 12 companies making $29 billion in profits in just the first quarter of 2019 alone. Neither the public outcry over drug pricing nor the outrage from elected officials has dampened drug makers’ enthusiasm for never-ending price hikes.
As Health and Human Services Secretary Alex Azar testified during a Congressional hearing, “I don’t know that there is any drug price of a branded product that has ever gone down from any company on any drug in the United States.” The debate over drug prices over the last three years has borne that out, and so it falls to Congress to change the laws that allow and incentivize drug companies to continue raising their prices.
There is no single policy change that will solve the drug pricing crisis in the United States. But the Senate Finance Committee’s legislation is one of the most significant efforts that lawmakers have made to provide relief to the millions of patients who cannot afford the prescription drugs they need.
But it’s not just good policy, it’s good politics. With Democratic enthusiasm though the roof, Republicans will face a tough test in the coming election cycle. Survey research shows that drug prices are consistently one of the very most important issues on voters’ minds, and delivering a win on that issue for endangered incumbents will go a long way towards securing a Republican majority in the Senate. Senator McConnell should resist the powerful drug lobby’s efforts to weaken or kill this bill and bring it to the floor for a vote when Congress returns in the fall.