Drug pricing compromise will protect seniors

November 18, 2021
Arielle Kane

While the overarching Build Back Better package remains in limbo until Congress receives a score from the Congressional Budget Office (CBO), it appears that the Democrats have reached a deal on drug pricing. The compromise abandons H.R. 3’s more aggressive components and instead pulls from Senators Ron Wyden and Chuck Grassley’s drug pricing framework.

Democrats worked to thread the needle between progressives’ ambitions to protect seniors from high drug prices and moderates’ desires to protect the incentives to innovate new life savings therapies. They have moved away from initial plans to export drug pricing decisions to other countries — setting a formula based on what other countries had decided drugs are worth. This could have been easily gamed by drug makers but also would have left price decisions up to foreign policymakers instead of making the hard decisions at home.

Instead, the new drug pricing deal would:

- - Cap seniors’ out-of-pocket costs at $2,000 per year, spread across the year.
  - Cap insulin costs at $35 per month.
  - Allow Medicare to negotiate the cost for 10 of the most expensive drugs starting in 2025 increasing to 20 drugs per year by 2028.
  - Only allow Medicare to negotiate on drugs that have passed an initial market exclusivity period — 9 years for small molecule drugs and 12 years for biologics — addressing market failures when generics don’t create competition and drive down prices.
  - Use inflation caps in Medicare and the commercial market to limit drug price increases.
  - Subject insurance middlemen called, pharmacy benefit managers, to additional transparency requirements.
  - Change incentives for Part D insurers to negotiate drug prices more aggressively.

Because these policies will be phased in and are not as draconian as earlier proposals, they may not make a measurable difference to every consumer. But they will undoubtedly help the most vulnerable: seniors with exceptionally high-cost drugs. As PPI has explained in the past, capping out-of-pocket costs and spreading the costs across the year rather forcing seniors to pay huge deductibles up front will make it easier for vulnerable seniors to access lifesaving therapies. PPI has also pushed for reforming incentives for insurance middle-men but those provisions were watered down in the final agreement — instead policymakers settled for increased transparency requirements for pharmacy benefit managers.

This year, the whole world was reminded of the promise of pharmaceutical innovation. Because of the incentives in the U.S. market, Americans had widespread access to COVID-19 vaccines before much of the world. The United States rewards innovation and though the U.S. health care system is worse off on many health are metrics, it out performs other high-income counties on cancer care because of widespread access to new therapies.

Democrats worked together to form a package that preserves incentives to innovate while protecting seniors. We are hopeful that the CBO will provide realistic estimates of the impact the compromise deal that Democrats have coalesced around.