Biden Administration Backs Medicare Negotiations in Plan to Lower Drug Prices

4 min
September 09, 2021

By Yuval Rosenberg

September 9, 2021

The Biden administration on Thursday called for allowing Medicare to negotiate prices directly with drug makers as part of a new plan to lower prescription drug prices.

The 29-page plan, issued by the Department of Health and Human Services in response to an executive order signed by President Biden in July, details both legislative options and administrative tools that it says will promote competition, encourage innovation and make prices “more affordable and equitable” for patients.

The legislative proposals largely echo ideas offered up in previous Democratic plans. In addition to negotiating prices, they include capping out-of-pocket costs in Medicare’s Part D drug plan, restricting price hikes on existing drugs, speeding the availability of generic and biosimilar drugs and prohibiting “pay-for-delay” agreements by which pharmaceutical companies block generic competitors from coming to market.

The administrative actions in the plan include testing different payment models, including value-based payments in Medicare Part B, which would directly link reimbursement for drugs administered in doctors’ offices to the clinical value provided to patients. They also include testing the effect of increased cost-sharing for low-income beneficiaries in Medicare Part D who use generics and biosimilars.

The plan also calls for the federal government to work with states looking to import cheaper drugs and for greater data collection from insurers and pharmacy benefit managers “to improve transparency about prices, rebates, and out-of-pocket spending on prescription medications.” And it repeats Biden’s call for the creation of a new agency at the National Institutes of Health, the Advanced Research Projects Agency for Health (ARPA-H), aimed at driving biomedical innovation.

“The Biden administration is trying to thread a political needle here by going aggressively after high drug prices while promoting research to blunt the pharmaceutical industry’s argument that innovation will be harmed,” Larry Levitt, executive vice president for health policy at the Kaiser Family Foundation, told The Wall Street Journal.

Why it matters: Biden had called for allowing Medicare to negotiate drug prices as part of his campaign platform and said last month he would eliminate the legal prohibition against such negotiation. “But the HHS report’s embrace of broad price negotiation is the administration’s latest signal that it’s siding with progressives who have pushed for a far more aggressive approach to slashing pharmaceutical costs,” Politico’s Adam Cancryn writes. House Democrats included a provision allowing drug-price negotiations as part of a healthcare reform bill they passed in 2019, but that legislation went nowhere in the Senate. Republicans have rejected the idea, as have some centrist Democrats.

Cancryn adds that the Biden plan only goes so far in supporting progressive proposals on drug pricing, noting that it does not support the use of “march-in rights” that would allow the government to license patent rights to another manufacturer for a drug that is deemed too expensive.

The Biden plan comes as Democrats are debating the scope and details of healthcare reforms to be included in their budget reconciliation bill. STAT News reports, for example, that Senate Finance Committee lawmakers working on drug-pricing legislation are focusing on the idea of pegging Medicare drug prices to the discounted prices paid by military health programs including the Department of Veterans Affairs.

‘Potentially significant savings’: “The plan doesn’t say whether there would be any projected costs to taxpayers, or savings,” The Journal’s Stephanie Armour notes. “Some options, such as creating a new agency within the National Institutes of Health to foster medical innovation, would require billions of dollars in funding. But most of the other measures, such as new models in Medicare that test paying for drugs based on their efficacy, could result in potentially significant savings, analysts said.”

The American public overwhelmingly supports having the federal government do more to lower healthcare costs and prescription drug prices, and it’s obvious why: A new study from West Health and Gallup finds that about 15.5 million adults under 65 and 2.3 million seniors were unable to pay for at least one prescription.

“Regardless of age or insurance type, Americans need help at the pharmacy counter and enabling Medicare to negotiate drug prices is just what the doctor ordered,” said Tim Lash, chief strategy officer for West Health, a family of nonprofits focused on lowering healthcare costs. “It is an essential and long overdue policy change that would level the playing field between giant pharmaceutical companies and everyday Americans.”

Stiff industry opposition: As always, any such changes — especially ones as momentous as allowing drug-price negotiations — will face pushback.

“What was released today is a laundry list of old partisan ideas and not a serious plan to address what patients pay out of pocket for prescription drugs,” Stephen J. Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America, an industry trade group, said in a statement. “What it leaves out is any attempt to fix a broken insurance system that discriminates against sick patients and does nothing to hold insurers and middlemen accountable for pocketing savings from our companies that should go to patients to lower their costs.”