Drug Price Negotiation Doesn’t Mean the Government Will Restrict Access to Medicines
Juliette Cubanski Follow @jcubanski on Twitter and Larry Levitt Follow @larry_levitt on Twitter Oct 07, 2021
As the Congressional debate over budget reconciliation legislation intensifies, stakeholders are keeping a close eye on a proposal to allow the federal government to negotiate drug prices in Medicare, which is currently prohibited under federal law. The so-called “non-interference clause” prohibits the federal government from “interfering” in negotiations between drug companies and the private plans that deliver Part D coverage, and also prohibits the government from requiring a particular formulary or price structure for drugs. The proposal under consideration amends the non-interference clause by adding an exception that would allow the government to negotiate prices with drug companies for a relatively small number of high-cost drugs, with an excise tax levied on drug companies that do not agree to participate in the negotiation process or comply with the negotiated price. This proposal would yield savings upwards of $450 billion, based on an earlier estimate from the Congressional Budget Office.
The pharmaceutical industry’s latest ad campaign claims that drug price negotiation would “restrict access to medicines in Medicare” by removing “a provision that protects access to medicines” and that patients “would be stuck with whatever medicines the government says you can have.” Another drug industry ad says that allowing the government to negotiate drug prices means “politicians…[will] decide which medicines you can and can’t get.”
This is not accurate. In fact, the proposed drug price negotiation program does not authorize the federal government to decide which medications people on Medicare can and cannot get and does not establish or require a particular prescription drug formulary. Insurers that offer Medicare prescription drug plans would continue to make decisions about which drugs to cover, or not, subject to protections provided under current law and regulations. The legislation under consideration leaves in place the non-interference clause and its specific restrictions with the exception of the proposed drug price negotiation program. Under this program, the negotiation process would not apply to most prescription drugs, instead focusing on a relatively small number with the highest spending and lacking generic or biosimilar competitors.
While there is nothing in the proposed legislation that would allow the federal government to dictate which drugs Medicare beneficiaries can access, it is possible that downward pressure on prices from negotiation could lead drug companies to bring fewer drugs to market. The Congressional Budget Office has estimated that reductions in future profits of 15% to 25% for high revenue drugs, which CBO expects would be similar to the effect of the current drug price negotiation proposal, would lead to 2 fewer drugs in the first decade (a reduction of 0.5%), 23 fewer drugs over the next decade (a reduction of 5%), and 34 fewer drugs in the third decade (a reduction of 8%). But the effect of lower prices on the number and type of new drugs that do and don’t come to market in the future is impossible to know with certainty. CBO does not forecast whether the drugs that don’t come to market would be innovative lifesaving treatments or “me too” drugs that offer little value in terms of improved health. CBO also notes that lower prices could potentially improve affordability and access to drugs for patients, leading to improved health.
Allowing the federal government to negotiate drug prices, which is supported by a large majority of the public, would lower cost sharing and premiums for Medicare beneficiaries and produce significant savings for the federal government that could be used to cover the costs of other spending priorities, such as adding new Medicare dental, hearing, and vison benefits, filling the Medicaid “coverage gap”, and making permanent subsidy enhancements for people in Marketplace plans. With much at stake in the outcome of the debate over this proposal, it’s no surprise that the rhetoric is getting heated. But while the pharmaceutical industry may want to frame the debate over drug price negotiation by focusing on the federal government limiting access to medications, this framing doesn’t accurately reflect what’s in the current legislative proposal. There are trade-offs involved in the proposal to negotiate drug prices, but that is not one of them.