Medicare Drug Pricing Deal is Both Modest and Momentous

Viewed through the Democrats’ political lens, the tentative Medicare drug pricing deal announced yesterday was a pale shadow of the tough price-cutting measure staked out by the progressive wing of the party. Viewed in terms of the changes its passage would trigger, it is a big deal.

A review of major news stories, which are excerpted below, produces the solid sense that while the full changes will take several years to enact, some changes will take effect almost immediately. Equally important, the knowledge that pricing rules will be changing will trigger different pricing approaches by drug companies that could reduce some prices in advance of the law’s formal timetable.

The major take-aways:

  • Seniors’ out-of-pocket drug prices eventually would be capped at $2,000 a year.
  • Insulin prices would be capped at $35 a month.
  • A small number of expensive drugs initially would be affected by the measure.
  • Private employer insurance plans would also share in price reductions.

The Associated Press

Democrats reached agreement Tuesday on plan to lower prescription drug costs for older people, capping out-of-pocket Medicare costs at $2,000 and reducing the price of insulin, salvaging a campaign promise as part of President Joe Biden’s $1.75 trillion domestic policy proposal.

Democrats later said insulin prices would fall from as high as $600 a dose to $35. The penalties on drug manufacturers for raising prices beyond the inflation rate will be retroactive to Oct. 1.


The details matter. And the details as they stand suggest drug companies would still retain the power to set prices, and most drugs wouldn’t be subject to government price negotiations.

The $2,000 out-of-pocket cap for Medicare patients is exactly what drug companies wanted and likely would lead to more drug sales since patients wouldn’t face prohibitively high costs at the pharmacy counter.

For patients that reach Medicare’s catastrophic drug coverage phase, insurers would shoulder 60 percent of the tab, while drug companies would cover just 20 percent.

The first federal negotiated drug prices wouldn’t go into effect until 2025 — plenty of time for lobbyists to further delay or kill the policy, and plenty of time “to adjust business models to negate meaningful impacts on earnings,” pharma analysts at Raymond James wrote Tuesday.

The New York Times

The prescription drug deal is limited. Starting in 2023, negotiations could begin on what Senator Ron Wyden of Oregon called the most expensive drugs — treatments for cancer and rheumatoid arthritis, as well as anticoagulants. Most drugs would still be granted patent exclusivity for nine years before negotiations could start, and more complex drugs, called biologics, would be protected for 12 years.

Stephen J. Ubl, the president and chief executive of the Pharmaceutical Research and Manufacturers of America, the industry’s main trade group, criticized the deal.

“While we’re pleased to see changes to Medicare that cap what seniors pay out of pocket for prescription drugs, the proposal lets insurers and middlemen like pharmacy benefit managers off the hook when it comes to lowering costs for patients at the pharmacy counter,” Mr. Ubl said. “It threatens innovation and makes a broken health care system even worse.”

Because Republicans are unanimously opposed to the bill, Democrats are pushing it through Congress using a fast-track process known as budget reconciliation that shields fiscal measures from a filibuster and allows them to pass on a simple majority vote. But given their slim margins of control, to win even a bare majority they must secure the support of all 50 of their senators and all but a few of their members in the House.

The final deal includes a $2,000 annual cap on out-of-pocket expenditures by older Americans facing catastrophic health issues, a strict $35 monthly cap on insulin expenses and automatic rebates on drugs whose prices rise faster than inflation.

The legislation would require substantial price reductions in drugs subject to negotiations, starting in 2025. And, they said, the rules curtailing ever-extending patent protections will be key to lowering costs.

The changes to the Medicare prescription drug benefit are likely to have big consumer impacts even sooner. Currently, there is no limit on how much patients can be asked to spend on their drugs, and many Medicare beneficiaries face bills of $15,000 or more each year if they take expensive medicines. In addition to setting an annual limit on out-of-pocket spending, the plan would smooth spending across the year, eliminating the so-called doughnut hole when many beneficiaries are responsible for their entire drug bill.


An outline of the most recent policy shared by the White House Tuesday night would empower Medicare to negotiate the cost for 10 of the most expensive drugs by 2025, and 20 drugs per year by 2028, while carving out exceptions for small biotech companies. Only drugs that have passed their initial exclusivity periods — 9 years on the market for some drugs and 12 for others — would be eligible for negotiation, and the government can use an excise tax to force pharmaceutical companies to the bargaining table.

But to the dismay of progressive lawmakers and outside advocates, the deal is likely to limit drug companies’ price hikes to the 2021 inflation rate, not the far lower 2016 rate they had initially supported. But those inflation caps would apply to people on private insurance plans as well as Medicare, and kick off at the beginning of next year.


The package’s path forward is unclear, but its inclusion at all is a coup for Democrats facing stiff opposition from the pharmaceutical industry. Just last week, President Biden announced the White House was abandoning the entire effort to lower drug prices because progressives and liberals were too far apart to cut a deal.

Winner: House Speaker Nancy Pelosi

Pelosi’s team has fought for Medicare to negotiate drug prices for more than 15 years, and if it becomes law, the policy will provide an opportunity for Democratic members to tout a major win on the campaign trail ahead of the 2022 midterm elections.

Winner: Employers 

Though there was tussling toward the end of negotiations, employers successfully fought to ensure drug makers would be penalized if they hike prices in the commercial insurance market. . . . Employers had been concerned that if drug makers got less money from Medicare, they’d jack up their prices elsewhere.

Winner: Seniors with high drug costs

These policies may not make a measurable difference for every consumer who takes prescription drugs, but it seems that it would help seniors who have high bills at the pharmacy counter.

Consumer groups including AARP, Families USA, and Patients for Affordable Drugs applauded the high-level agreement, though they said they are awaiting full details.

Loser: Drug makers

The creation of an infrastructure for Medicare negotiation is a big loss here. Drug makers had the chance to accept more incremental, bipartisan reform last Congress, but they stonewalled it. If this new Democratic deal becomes law, that tactic may have cost them, in hindsight. They will no doubt put up a fight as the deal moves forward through the legislative process, and if the changes make it to the regulatory process.

Loser: Pharmacy benefit managers

After skating by scot-free as negotiations progressed, the middlemen between insurance companies and drug makers will face more transparency requirements, according to a summary of the deal circulated by Peters’ team [Reps. Scott Peters (D-Calif.)].

The Wall Street Journal

Sen. Ron Wyden (D., Ore.), chairman of the Senate Finance Committee, said government price negotiations would begin with 10 drugs in 2023. Negotiations would start with the most expensive drugs, including treatments for cancer and arthritis, as well as anticoagulants, Mr. Wyden said.

The Washington Post

Democrats also plan to impose special, new caps on how much seniors would have to pay for insulin, which would be set at $35, seeking to help diabetes patients beset by sky-high price increases in recent years. Additionally, seniors who participate in the Medicare drug benefits plan known as Part D would see their yearly, out-of-pocket drug spending capped at $2,000, according to Wyden and other Democrats.