President Joe Biden embraced congressional Democrats' broad drug pricing agenda, announcing Thursday his support for legislation that would allow Medicare to negotiate directly with pharmaceutical manufacturers and penalizing companies that raise prices faster than inflation.
The White House's backing comes as congressional Democrats attempt to advance an ambitious healthcare agenda that includes expansions in Medicare coverage and Medicaid eligibility, along with greater support for long-term care for older and disabled people. Squeezing hundreds of billions of dollars in savings out of federal drug spending will likely be necessary in order to pay for that agenda.
The proposal is certain to spur resistance from big pharma companies, which have described similar past proposals as having the potential to cause "nuclear winter" for biotech innovation. In Congress, Biden's proposal will have a difficult path, as broad drug price negotiation may be unable to gain sufficient support to pass the Senate. But a smaller proposal, such as the one being negotiated by Finance Committee Chairman Ron Wyden that tackles the prices of older drugs like insulin, might.
"If it strays into innovator drugs or drugs that still have [patent] protection, we doubt it will find the 50 votes needed in the Senate," Rick Weissenstein, an analyst at Cowen, wrote of the Wyden strategy in an Aug. 11 note to clients.
In a speech outlining his plan, Biden emphasized his aim to achieve broad price negotiation. "Congress is currently debating a more narrow vision," he said. "What we're proposing is to negotiate with a company based on a fair price— one that reflects the cost of research and development, providing for a significant profit, [but] that's still affordable for consumers."
The pharmaceutical industry's lead lobbying group criticized the proposal. "The policies the president outlined today would undermine access to life-saving medicines and fail to address an insurance system that shifts the cost of treatments onto vulnerable patients," Steve Ubl, CEO of the Pharmaceutical Research and Manufacturers of America, said in a written statement.
In 2019, the House passed legislation that includes these White House proposals, and the same legislation has been introduced again. At the time, the Congressional Budget Office estimated Medicare drug price negotiation would save more than $400 billion over a 10-year period, and limiting drug price increases would save another $37 billion.
Direct negotiation between Medicare and drugmakers has been on Democrats' agenda since creation of the outpatient prescription drug benefit in 2003. The law forbid negotiation — a tool other countries use to keep prices down — although private plans that administer the drug benefit for many beneficiaries can do so.
But that tool is limited in effectiveness for many high-priced drugs because they are in protected classes that treat mental health conditions, cancer and HIV.
The savings from price negotiation and inflation caps could be used to pay for the third component of Biden's proposal: limiting Medicare beneficiaries' out-of-pocket spending on drugs. Assessing the House bill passed in 2019, the CBO estimated that provision would cost more than $9 billion over 10 years.
The Democrats' current agenda includes some even more costly line items that will need to be offset, too. Their plans propose an expansion of Medicare to include dental and vision benefits as well as lowering the eligibility age, which CBO forecast to cost more than $350 billion over a 10-year period.
The congressional Democrats' plan also calls on undefined expansions of long-term care for senior citizens and people with disabilities. Medicare offers only limited nursing home coverage, and Medicaid payment reimbursement kicks in only after people have exhausted many of their financial resources to pay for care.