Biden’s Pivot on Drug Price Controls

The president abandons the long-held view that innovation requires high prices.

As Senator Bernie Sanders told Stephen Colbert on “The Late Show” last night, assessing the prospects for much of President Joe Biden’s family agenda requires keeping your eye on the president’s surprisingly bold plan to lower prescription drug prices. “See whether or not Congress has the guts to take on a powerful industry like the drug companies,” he said.

The president, whose son Beau died of brain cancer, spent much of his career in the Senate and as vice president supporting the pharmaceutical industry’s position that any reduction in revenue sets back the search for new drugs. But last night, in what appeared to be a late shift in the details of his American Families Plan, Biden endorsed not only giving Medicare the right to negotiate lower drug prices – a position he endorsed during his campaign – but extending those lower prices to employer-based health plans, which would limit the industry’s ability to raise prices on working families to make up the difference.

The hundreds of billions of dollars saved will “go to strengthen the Affordable Care Act and expand Medicare coverage benefits without costing taxpayers an additional penny,” the president vowed.

Overcoming Big Pharma’s sway on Capitol Hill won’t be easy. Republican support is a null set. And key leaders in the president’s party—Congressman Richard Neal, a Democrat from Massachusetts and chairman of the House Ways and Means Committee, and Congresswoman Anna Eshoo, a Democrat from California who chairs the health subcommittee of the House Energy and Commerce Committee, in particular—are long-time supporters of the industry, partly due to its major presence in their districts.

Add to that the resuscitation of the drug industry’s reputation through rapid development of highly effective Covid-19 vaccines (based on government-funded technologies, it should be noted), and you wind up with a prescription for the same political paralysis that has prevented effective drug price controls for decades.

But advocates for reining in prices that are multiples of what other countries pay insist several wild cards are in play. The administration needs a ton of new revenue to meet its goal of paying for the expanded education, health care, family leave and other social programs outlined in his speech last night.

Making the new Affordable Care Act subsidies for moderate-income families permanent, for instance, will cost hundreds of billions of dollars over the next ten years. Dramatically lower prices for the costliest drugs covered by Medicare, most of which should have faced generic competition years ago, would provide sufficient revenue to accomplish that goal.

2022 Looms

There’s also public opinion to consider. Before the Covid-19 pandemic, high out-of-pocket expenses, especially for drugs, ranked as most Americans’ number one healthcare concern. Rising drug prices are also a major issue for employers since they are one of the biggest drivers of constantly rising premiums for company-sponsored insurance plans, which cover close to 160 million Americans.

And then there’s the politics of the 2022 election. Many of the programs in Biden’s family plan (and his infrastructure plan) are aimed at working families. Lower out-of-pocket spending for drugs is something Democrats can deliver for seniors, whose turnout drops considerably less than other groups in mid-term elections.

Biden’s frequently expressed hope that Democrats can reach across the aisle to come up with a bipartisan solution for controlling drug prices fails the revenue generation test. Legislation sponsored by Sens. Chuck Grassley (R-IA) and Ron Wyden (D-OR) that passed the Senate Finance Committee last year raised just $95 billion over ten years – less than half the cost of making the new Obamacare subsidies permanent and a tiny fraction of what Democrats need for other priorities.

That bill also did nothing for employers. It pegged Medicare drug price hikes to the inflation rate and capped beneficiary out-of-pocket costs at $3,100 a year. But it failed to address the high cost of specialty drugs – the new drugs for various cancers, auto-immune disorders and rare diseases that enter the market with six-figure pricing – that are the primary drivers of rising drug costs for both Medicare and employers.

Led by progressives, a significant fraction of the Democratic Party caucus in the House, including Speaker Nancy Pelosi, have coalesced behind a bill that touches all those political bases. Besides giving Medicare the power to negotiate prices with drug companies, H.R. 3 extends those prices to everyone with private health insurance. The bill caps Medicare beneficiaries’ out-of-pocket drug costs at $2,000 a year.

In a bid to counter the new-drugs-depend-on-high-prices argument, H.R. 3 also pegs the maximum price for any drug to the average price paid by other advanced industrial nations, a proposal endorsed by the Trump administration, and uses the savings to increase spending at the National Institutes of Health. NIH-funded research generated the new technologies behind the Pfizer and Moderna Covid-19 vaccines and many of the latest anti-cancer drugs. Biden made a prolonged pitch for beefing up government funding for research during his speech.

Some other proposals are waiting in the wings and could gain traction if Democrats collectively decide to deliver on drug price controls. For instance, the Drug Pricing Lab at Memorial Sloan Kettering Cancer Center has come up with a “production plus profit pricing” (P-quad) model for all biotechnology-derived drugs that have exhausted their 12-year market exclusivity guarantee, but still don’t face biosimilar competition. A Milliman actuarial analysis estimated it could raise $40 billion by 2025.

“If we can pull together the right policies that provide financial security of families, reduced overall cost of prescription drugs and can pull together a broad political base that includes large employers and not just people on Medicare, then we can get something done,” said Fred Isasi, executive director of Families U.S.A., which advocates for meeting the healthcare needs of low-and-moderate income families.

House Energy and Commerce Committee chair Frank Pallone, a Democrat from New Jersey, whose committee will be chiefly responsible for developing legislation in the House, echoed the president’s main talking point. “It is critical that we level the playing field by giving the federal government the ability to negotiate lower prescription drug costs,” he said in a prepared statement ahead of the speech. “This will be one of my top priorities as we work to pass the American Families Plan.”

Just Say No

But whether the president and the leadership can unite the Democratic Party behind a proposal that extends price limits to employer-based plans and sharply lowers industry revenue is still the big question. The drug industry remains one of the largest campaign contributors to both political parties. Its trade group, PhRMA, and individual drug companies employ a huge army of lobbyists on Capitol Hill, many of them former elected officials with deep ties to both political parties.

Their power to affect elections was reflected in a letter 94 centrists associated with the New Democrat Coalition, most from swing districts, sent to the president on April 21. It emphasized shoring up the Affordable Care Act but failed to make any mention of prescription drug prices.

Effective drug price controls cannot win without universal Democratic Party support in both houses of Congress. For the time being, advocates have hope because the president is on their side.

But, as Sanders noted, this is gut check time for rank-and-file legislators. Will they care enough about their constituents’ pocketbooks to just say no to Big Pharma’s big lie about innovation requiring no limits on what they can charge for drugs?

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Merrill Goozner

Merrill Goozner is a freelance journalist based in Chicago. He can be found at GoozNews.substack.com.