June 17, 2024

Drug Leaders Use ‘Kitchen Sink’ to Stop Medicare Price Negotiations

The pharmaceutical industry, which suffered a major victory last year when President Biden signed a law authorizing Medicare to negotiate the price of some prescription drugs, is now launching a broad-based attack on the measure – just as negotiations are about to begin.

The law, the Inflation Reduction Act, is a signature legislative achievement for Mr. Biden, who boasts that he took on the drug industry and won. Medicare is the federal health insurance program for the elderly and disabled; the government is expected to save the provisions allowing it to negotiate prices estimated $98.5 billion over the past decade while lowering insurance premiums and out-of-pocket costs for many older Americans.

On Tuesday, Johnson & Johnson is the latest drug maker to take the Biden administration to federal court in an attempt to stop the drug pricing program. Three other drug companies – Merck, Bristol Myers Squibb and Astellas Pharma — filed their own laws, as is the the industry’s leading trade group and the US Chamber of Commerce.

The suits are making similar and overlapping claims that the drug pricing provisions are unconstitutional. They’re scattered in federal courts across the country — a tactic experts say gives the industry a better chance of winning contrary rulings that will quickly send legal challenges to the business-friendly Supreme Court.

The legal push comes just weeks before the Centers for Medicare & Medicaid Services is scheduled to publish a long-awaited list of the first 10 drugs subject to negotiations. The list is to be announced by September 1; the makers of the selected drugs have until October 1 to declare whether they will participate in negotiations — or face severe financial penalties if they do not. The lower prices will not take effect until 2026.

Earlier this month, the chamber asked a federal judge in Ohio to issue an injunction that would block any negotiations while its case is being heard.

Lawrence O. Gostin, an expert in public health law at Georgetown University, said the Supreme Court may be sympathetic to some of the industry’s arguments. He pointed in particular to a claim by drug makers that the law violates the Fifth Amendment’s prohibition on taking private property for public use without compensation by requiring them to negotiate or pay a fine.

“The Supreme Court is openly hostile to any perceived violation of the Fifth Amendment,” Mr. Gostin said, adding, “It wouldn’t surprise me at all to see these cases go up to the Supreme Court and strike them down.”

That was a painful blow to Mr. Biden and his fellow Democrats. The President and Democrats have long campaigned to reduce drug prices and plan to make it a central theme of their 2024 campaigns. White House press secretary Karine Jean-Pierre said in a statement that Mr. Biden was confident the administration would win in court.

“For years, the pharmaceutical lobby has blocked efforts to allow Medicare to lower drug costs,” she said. “President Biden is proud to be the first president to win them.”

Republicans have opposed the drug pricing provisions, which they see as a form of government price control. But the politics of the issue is treacherous to them. Because so many Americans worry about high drug prices, it’s hard for Republicans to come up with protections for the industry, said Joel White, a Republican strategist who specializes in health policy.

Instead, Republicans are focused on another drug industry priority: scrutinizing the practices of pharmaceutical benefit managers, who negotiate prices with drug companies on behalf of health plans. The drug companies say the pharmacy benefit managers are contributing to the high cost of prescription drugs by taking a cut.

For drugmakers, the legal challenges matter more than their business with Medicare, their biggest customer. The industry fears that Medicare will, in effect, set the bar for all payers, and that once the government’s lower prices are made public, pharmaceutical benefit managers who negotiate on behalf of the privately insured will have more leverage to demand deeper discounts.

In conjunction with its legal campaign, the pharmaceutical industry is facing a public relations offense. One of the lawsuits was filed by the industry trade group, the Pharmaceutical Research and Manufacturers of America, known as PhRMA. running ads targeting pharmaceutical benefit managers, and industry executives are publicly arguing that drug pricing provisions will result in fewer medicines. The implication is clear: Lower prices will mean a dent in revenue, which will discourage companies from developing certain drugs.

“You can’t take hundreds of billions of dollars out of the pharmaceutical industry and not expect it to have a real impact on the industry’s ability to develop new treatments and cures for patients,” said Robert Zirkelbach, PhRMA’s executive vice president. He mentioned analysis funded by drug maker Gilead Sciences which declared that the industry would lose $455 billion over seven years if companies negotiated with Medicare.

Study released last month which was funded by the Organization for Biotechnology Innovation, another trade group, warned that the pricing provisions would discourage innovation, and lead to up to 139 fewer drug approvals over the next 10 years.

But that assessment is at odds with an analysis by the Congressional Budget Office, which estimated the law would result in only one fewer drug being approved over a decade and about 13 fewer drugs over the next 30 years.

In addition, many new drugs “are not offering clinical benefit over existing drugs,” said Ameet Sarpatwari, a pharmaceutical policy expert at Harvard Medical School. The Inflation Reduction Act, he said, could incentivize companies to focus more on breakthrough therapies, instead of so-called drugs, because the law requires the government to consider the clinical benefit of the drugs when determining the price Medicare will pay.

Until now, Medicare has been expressly prohibited from negotiating prices directly with drugmakers — a condition the industry demanded in exchange for supporting the creation of Part D, Medicare’s prescription drug program, which President George W. Bush signed into law 20 years ago.

Under the Inflation Reduction Act, the government will select an initial set of 10 drugs for price negotiations based on how much the Part D program spends on them. More drugs will be added in the coming years.

Experts expect the initial list of drugs including commonly prescribed medications such as the blood thinners Eliquis and Xarelto; cancer drugs such as Ibruvica and Xtandi; Symbicort, which treats asthma and chronic obstructive disorder; and Enbrel, for rheumatoid arthritis and other autoimmune disorders.

Medicare already pays discounted prices for those drugs. In 2021, the most recent year for which data is available, Medicare spent about $4,000 per patient on Eliquis and Xarelto, which at the time had sticker prices of $6,000 per year. The lower price reflects discounts extracted from drug makers by pharmacy benefit managers who negotiate on behalf of the private companies that contract with the government to manage Part D plans.

But those negotiations are opaque and only modestly reduce Medicare spending. The reasoning behind the drug pricing provisions of the Inflation Reduction Act is that because Medicare covers so many people, it can use its leverage to extract deeper discounts.

The United States spends more per capita on drugs than comparable nations, in part because other countries proactively control drug pricing. Surveys show that many Americans stop taking their medications because they cannot afford them.

Experts say a negotiated Medicare program is likely to bring direct savings to seniors, initially in the form of reduced premiums that could result in reduced drug spending. And when lower prices go into effect in 2028 for drugs administered in clinics and hospitals under another Medicare program, called Part B, that could mean lower out-of-pocket costs for seniors covered by traditional Medicare who don’t have supplemental insurance.

Supporters of the Inflation Reduction Act say that in addition to saving money for the government and patients, the negotiations will add much-needed transparency to the complex process of determining drug prices. If a company refuses to negotiate, it must pay a hefty excise tax or withdraw all of its drugs from both Medicare and Medicaid.

“This is not a ‘negotiation,'” Merck said in its complaint. “It amounts to extortion.”

Taken together, the lawsuits make a variety of constitutional arguments. In addition to the assertion that the Government is violating the Fifth Amendment by wrongfully taking property, they include claims that the law violates the First Amendment by forcing drug companies to agree in writing that they are negotiating a “fair price.” Another argument is that the excise tax is an excessive fine prohibited by the Eighth Amendment.

“If the government can impose price controls like this on drug companies,” said Jennifer Dickey, deputy chief counsel at the chamber’s legal arm, “it could do the same to any sector of our economy.”

Biden administration officials say nothing is mandatory under the law. They argue that the companies are free not to negotiate and can issue news releases or make other public statements that disagree with the negotiated price. And they note that the government regularly negotiates to buy other products and that the Department of Veterans Affairs already negotiates drug prices with pharmaceutical companies.

“To me, Medicare is doing what it should be doing,” said Mr. Gostin, the Georgetown professor. “He’s a big buyer of product, and he’s basically using that influence, that bargaining power, to get the best price.”

The drug industry is “throwing the kitchen sink at the government,” he said. “They’re looking for what’s hit, and their arguments are aimed squarely at the Supreme Court.”

Leave a Reply

Your email address will not be published. Required fields are marked *