Democrats have revealed that the next major legislative package—colloquially known as the infrastructure package—will likely include provisions to lower prescription drug prices. It will be used in part to pay for the infrastructure bill. Once again, the Democrats are poised to use the reconciliation process to bypass the Senate filibuster rules. In a sign of momentum, key moderate Sen. Joe Manchin (D-WA) has thrown full support behind passing a massive infrastructure package.
The devil will be in the details, but some possible drug-pricing actions include:
- Allowing Medicare to directly negotiate with manufacturers, something the industry has strongly opposed
- Setting price caps to an internationally indexed price
- Fining manufacturers that charge more than the cap or raise prices faster than inflation
- Limiting drug launch prices
Why this matters
- The unprecedented goodwill enjoyed by the industry over the last year is softening. The pharmaceutical industry has seen stunning improvement in favorability over the last year. The successful development of COVID-19 vaccines and the industry response to the pandemic has won bipartisan praise. However, with a post-pandemic world on the horizon, this renewed discussion in Congress is a signal that issues of access and affordability are resurfacing.
- Chances of direct Medicare negotiation have exponentially shot up. This is not a new topic. Democrats in the House have previously passed several bills that address this. But there are two main differences this time:
- The Democrats enjoy full control of Washington. There is talk of allowing insurers (not just Medicare) to access the negotiated prices – meaning that more of the public could feel the benefit of lower prices.
- The proposal will generate up to $500 billion in savings over 10 years, something that would be helpful to pay for the projected $3 trillion infrastructure package.
- Employer groups are willing to play ball. Democrats are finding unlikely allies. Employer groups such as the Purchaser Business Group on Health, which represents large companies like Boeing and Walmart, are involved in the negotiations and are willing to support limits on drug prices. They argue that the current price trends are unsustainable and will make their private health plans unaffordable.
- Tougher regulation is coming. With support from Congress, the Biden administration is expected to implement more robust regulations on the pharmaceutical industry, including potentially setting up independent pricing review boards. Analysts have already downgraded the outlook for several manufacturers in light of this stricter environment.
What can life science companies do
After months of positive coverage and reputational boosts, the conversation over this bill and coming regulatory actions will return us to the pre-pandemic status quo focus on price and access. To prepare, biopharma companies should:
- Prepare for upcoming value assessments and proactively define what they should encompass
- Highlight efforts to lower out-of-pocket costs
- Link innovation to the ability to respond to crises such as COVID-19; steps that curtail innovation will undoubtedly hamper anyone’s ability to respond to future pandemics and epidemics