Some Worry Reduction in Pharmaceutical Revenues May Impact New Drug R&D and Innovation
Lowering prescription drug pricing has been a hotly debated issue well before 2022 and is expected to continue in 2022. In November 2021, as part of the Build Back Better Act, President Biden announced the Prescription Drug Pricing Plan aimed at lowering prescription drug pricing.1 In particular, as of December 2021, the proposals include allowing the federal government to negotiate prices for certain high-cost prescription drugs covered under Medicare Part D and Part B after the drugs have been on the market for a fixed number of years—that is, nine years for small molecule drugs and 13 years for biologics from their U.S. Food and Drug Administration (FDA) approval or licensure date, unless exempt; impose an excise tax on drug manufacturers that refuse to negotiate pricing with Medicare; require inflation rebates to limit annual drug price increases in Medicare and private insurance; and limiting cost-sharing for insulin products, among other provisions.2 The House of Representatives passed H.R. 5376 in November 2021, and it remains to be seen what the Senate will do with this bill.3 If signed into law, the negotiated prices for the first set of selected Part D and Part B drugs would take effect in 2025 and 2027, respectively. Since this bill, if passed, is expected to have substantial impact on the pharmaceutical industry, manufacturers should continue to track this bill closely and monitor potential impact on their business and operations.
As Congress continues to debate different approaches to lowering prescription drug and healthcare costs, this legislation continues to attract criticism from various stakeholders on both sides of the aisle. For example, Pharmaceutical Research and Manufacturers of America (PhRMA), a leading trade group, has argued that the bill, if passed, could substantially reduce the revenue of the pharmaceutical industry, which would stymie innovation and research and development of new drugs.4 Citing a poll conducted by the Kaiser Family Fund, PhRMA argued that 65 percent of those polled opposed government negotiation if it meant less research and development of new treatment options or if it limited people's access to drugs once they come to market.5 PhRMA spokeswoman Sarah Sutton stated that "Medicare 'negotiation' would ultimately allow the government to interfere in decisions that should be left to patients and their doctors, and as Congress's own nonpartisan experts have warned, similar proposals will lead to fewer new cures and treatments from reaching patients."6
No Patient Left Behind (NPLB), a non-profit organization, has prepared a letter addressed to President Biden, Secretary of Health and Human Services and Congressional leadership that argues that the current proposal is the wrong policy and has the potential to create "unintended consequences by skewing R&D incentives towards injected/infused Part B covered biologics instead of small molecules that tend to make for more convenient and less expensive medicines (e.g., pills)."7 NPLB further criticizes that the legislation will only help a small percentage of seniors and analogized the proposal to truncate the time period before which drug manufacturers need to negotiate pricing with Medicare to home mortgages—that is, the shorter the mortgage period, the higher the payment, and that the higher drug prices will ultimately cause employers and health plans to impose more barriers to patient access. NPLB urges Congress, among other considerations, to increase the time period before government negotiation applies to 14 years for all drugs so that "small molecule R&D will not be discouraged relative to biologics R&D" and to "[keep] as closely as possible to what we know works", in line with the industry's and investors' general expectations for patent protection and time needed to recoup drug research and development costs, among other factors. This NPLB Letter has already garnered widespread support from biotechnology and pharmaceutical companies, investors, and researchers.
On the flip side, some have argued that the only way Medicare can generate significant savings is through price negotiations similar to what pharmacy benefit managers are already doing. According to the Congressional Budget Office (CBO), the drug pricing provisions in the Build Back Better Act "will have a very modest impact on the number of new drugs coming to market in the U.S. over the next 30 years: 10 fewer out of 1,300, or a reduction of 0.8% (about 1 over the 2022-2031 period, about 4 over the subsequent decade, and about 5 over the decade after that) … more limited than suggested by a prior estimate from CBO…."8
It is difficult to predict the full impact of this legislation on different stakeholders, if passed, including potential unintended consequences and unforeseen market pressures. In the meantime, we remind drug manufacturers to work closely with their regulatory and legal counsels to hedge against potential roadblocks and risks associated with prescription drug pricing legislation and any changes in FDA and healthcare regulation.
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[1] Briefing Room, The White House, President Biden Announces Prescription Drug Pricing Plan in Build Back Better Framework (November 2, 2021), available at https://www.whitehouse.gov/briefing-room/statements-releases/2021/11/02/president-biden-announces-prescription-drug-pricing-plan-in-build-back-better-framework/.
[2] Juliette Cubanski, Tricia Neuman and Meredith Freed, Explaining the Prescription Drug Provisions in the Build Back Better Act, Kaiser Family Foundation (November 23, 2021), available at https://www.kff.org/medicare/issue-brief/explaining-the-prescription-drug-provisions-in-the-build-back-better-act/; see also Build Back Better Act, H.R. 5376, 117th Congress (2021-2022), available at https://rules.house.gov/bill/117/hr-5376.
[4] Susan Morse, PhRMA battles Biden on proposal for Medicare to negotiate drug prices, Healthcare Finance (September 7, 2021), available at https://www.healthcarefinancenews.com/news/phrma-battles-biden-proposal-medicare-negotiate-drug-prices.
[5] Tom Wilbur, Myth vs. fact: Polling and Medicare “negotiation,” PhRMA (August 12, 2021), available at https://catalyst.phrma.org/myth-vs.-fact-polling-and-medicare-negotiation.
[6] Susan Morse, available at https://www.healthcarefinancenews.com/news/phrma-battles-biden-proposal-medicare-negotiate-drug-prices.
[7] No Patient Left Behind, Letter to President Biden, Secretary Becerra, Speaker Pelosi, Majority Leader Schumer, Leader McCarthy, Leader McConnell, America’s Lawmakers, Patient Advocates, and Fellow Americans (NPLB Letter), dated December 14, 2021, available at https://nopatientleftbehind.docsend.com/view/nr8td9fwmj9y8vvg.
[8] Juliette Cubanski et al., available at https://www.kff.org/medicare/issue-brief/explaining-the-prescription-drug-provisions-in-the-build-back-better-act/.
