A proposed version of drug pricing legislation circulating among Capitol Hill aides and lobbyists includes an expansive carveout for small biotechnology companies and significantly waters down a provision to let Medicare negotiate drug prices, according to a draft obtained by STAT.
The new compromise would only allow the health secretary to negotiate the price of drugs that are manufactured by a single company that have outlasted their initial exclusivity periods granted by the Food and Drug Administration. The number of negotiation-eligible drugs would be small, too: 10 medicines beginning in 2025, with a gradual increase to 30 by 2028. Insulin products would also be eligible.
The draft also includes a number of generous protections for small biotechnology companies, a $2,000 cap on out-of-pocket costs for seniors, and a system of mandatory discounts on drugs whose prices rise faster than the rate of inflation.
Though the document provides new details about lawmakers’ deliberations, a Democratic leadership aide warned that a final drug pricing deal might include changes to the policies included in the document. Separately, two Democratic congressional staffers and multiple lobbyists cautioned that it may be outdated.
It’s not clear whether the compromise has full buy-in from enough Democrats in the House or Senate. Democrats cannot afford to lose a single vote in the Senate, where they hold just 50 seats. In the House, Democrats hold just an eight-seat majority, meaning they can lose up to three votes among their 220 members.
Democratic leaders including House Speaker Nancy Pelosi, Senate Majority Leader Chuck Schumer, and Congressional Progressive Caucus Chair Pramila Jayapal (D-Wash.) said Tuesday that talks on prescription drug pricing are ongoing.
On Medicare negotiation, lawmakers appear to be taking a different approach than tying negotiated prices to international prices or other domestic metrics, as they had previously discussed. Instead, the negotiated price would be subject to strict ceilings, depending on the expiration date of the drug’s initial exclusivity period — five years for small-molecule drugs and 12 for biologics.
The negotiated price ceilings are proposed in tiers. Under the proposal, Medicare would pay no more than 76% of the price that non-federal insurers pay for small-molecule drugs that have been on the market for between five and 12 years. For a drug on the market between 12 and 16 years, the cap would be 55% of the non-federal price, and after 16 years, the cap would be 30%.
The framework also preserves an excise tax on drug makers’ revenue if they fail to participate in the negotiation process, though the outline doesn’t give a specific level for the tax. Earlier versions had put that tax as high as 95%.
The scaled-back policy is sure to disappoint many progressive lawmakers, who have long advocated a far stronger form of Medicare negotiation, aimed in particular at expensive new drugs that account for the lion’s share of the program’s spending on medicines.
The proposal includes three other major elements: Namely, a restructure of Part D, Medicare’s prescription drug benefit; a number of “special rules” that exempt biotechnology companies from negotiation requirements; and a provision forcing rebates for drugs whose prices rise faster than the rate of inflation.
The document provides little insight into the cap on price hikes, besides clarifying that the formula to determine penalties for drug makers would be based on 2021 prices, not retroactively based on 2016 prices, as Democratic leadership had hoped.
The biotech carveout is far more detailed. No drug that accounts for less than $200 million in Medicare spending would be eligible for negotiation, according to the draft. Companies “meeting the definition of small biotech” would be excluded from negotiations for three years after the program takes effect, meaning they wouldn’t be subjected to the process until 2028 at the earliest.
Small biotechs would also get negotiated prices phased in over two years if their drugs are chosen for negotiation, as STAT first reported was under consideration.
The document defined “small biotech” as companies where a single drug accounts for 80% or more of revenue, but constitutes less than 1% of the overall Medicare expenditure on prescription medicines.
The Part D restructure would cap out-of-pocket costs for seniors at $2,000, and cap co-pays for insulin products at $35 each month. Drug makers would also take on 20% of the payment liability when seniors’ costs exceed the cap, compared with the zero liability they currently have. But small biotech companies would have their liability phased in over six years to lessen the blow.
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