UPDATE: Obama budget proposes historic, direct Medicare drug price negotiations
- President Barack Obama on Monday unveiled a $4 trillion budget proposal which includes a provision seeking to grant the Secretary of Health and Human Services (HHS) the authority to negotiate high-cost drug prices covered under Medicare Part D insurance plans "to ensure access to and affordability of these treatments." This would, simply put, turn the status quo on its head. But while it would likely save the federal government billions, it could become a major thorn in the industry's side, and PhRMA is already hitting back hard against the proposed reforms.
- The Medicare Part D prescription drug program is a voluntary component of Medicare that allows the elderly and qualifying disabled Americans to purchase private insurance in order to supplement their drug coverage. It was created under President George W. Bush in 2003 and currently has about 37 million beneficiaries (about 74% of the total Medicare enrollee population).
- The original Part D program launched under Bush and passed with the help of GOP lawmakers explicitly prohibits direct drug price negotiations between the federal government and drug companies, making it highly unlikely that Obama's proposal can pass a Congress now fully controlled by Republicans.
Some lawmakers and the biopharma industry are already balking at portions of the plan. Companies that make the sort of high-cost biologics that such negotiating power is intended to discount (including Gilead and its hep C meds, novel personalized therapies like Vertex's Kalydeco, and imminent monoclobal antibodies for cholesterol and cancer) are likely to argue that their products provide immense value, and that having to negotiate with a payer the size of the federal government (rather than private plan sponsors) would de-leverage the industry's bargaining power to an unacceptable degree.
Those arguments could also hold sway in a Congress that's received plenty of pharmaceutical industry money (for top Democrats and Republicans alike). In a statement, trade giant PhRMA said that Obama's budget contains "harmful proposals" that could "undermine seniors’ access to care in the successful Medicare Parts D and B programs." The group goes on to say that "the President’s proposals could jeopardize... access by driving up [Part D] premiums, reducing choice and restricting coverage."
But if direct Part D negotiations were somehow able to survive Congress and opposition from industry stakeholders, it could mean big savings in government health expenditures. One analysis by the Congressional Budget Office finds that extending Medicaid price rebates to just a fraction of Medicare Part D beneficiaries (those with low income subsidies) could save the program $116 billion over a decade.