Biden directs Congress to give Medicare broad authority to negotiate for lower drug prices

President Joe Biden called for Medicare to get broad power to negotiate with drugmakers for lower prices as Congress mulls adopting a narrower option.

The president’s address Thursday called for Medicare to negotiate with drugmakers for prices across the board while noting Congress is debating a more limited option where negotiations would only apply to the most expensive drugs and products with limited competition.

“What we will propose is negotiate with the company based on a fair price, one that reflects the cost of the research and development and the need to provide a significant profit that is still affordable for consumers,” Biden said in his address, setting his own wishes for where Congress should go.

He added that if a drugmaker has invested a significant amount into developing a drug—and the fair price is an expensive one—the federal government “will have to figure out how society can provide that drug to save lives.”

He went further, saying the negotiated price should be available to employer-sponsored plans.

“Medicare prices are available to private insurance companies,” he said. “Once Medicare negotiates a lower drug price for beneficiaries, an employer-based plan should not have to keep paying what the drug company demands."

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He added that drug companies would have to sell to all distributors or face a 95% excise tax.

“The savings for employers and employees would be billions of dollars a year,” Biden said.

The president also called for reforms to lower Medicare beneficiaries’ cost burdens.

“Drug companies that raise their prices faster than inflation should have to pay a penalty,” according to a fact sheet on the plan. It does not detail the extent of the penalty.

There should also be a “firm cap” on Medicare beneficiaries’ out-of-pocket amounts each year.

Biden’s remarks come as Congress is poised to take major action on drug prices, but it remains unclear how far lawmakers will go.

Senate Democrats are crafting a $3.5 trillion infrastructure package with several major health priorities such as adding dental, vision and hearing benefits to Medicare. Some Democrats want the package to also give Medicare the power to negotiate lower drug prices, which can help pay for the legislation’s high price tag.

Sen. Ron Wyden, D-Oregon, has been working to assuage concerns among moderate lawmakers about the impact of drug pricing authority on innovation.

Last Congress, the House passed H.R.3, which not only gave Medicare drug price negotiation powers but also demanded the Medicare prices extend to those paid by commercial plans. But the legislation went nowhere in the Senate, which was then controlled by Republicans.

The Senate’s budget resolution calls for giving Medicare drug price negotiation powers, but it remains unclear whether it will go as far as requiring drugmakers to offer the Medicare price to commercial health plans.

But other parts of the framework could be more palatable to moderate Democrats. Wyden has been a leading proponent of legislation filed in the last Congress to create a cap on Part D drug prices that go beyond the price of inflation.

Senate Democrats aim to pass the $3.5 trillion package via reconciliation, a procedural move that enables budget bills to pass the chamber via a simple majority and avoid a legislative filibuster. Senate committees are now drafting the legislative details for the package, which will be considered when the Senate returns from its recess after this month.

But any move to add negotiating powers to Medicare is likely to face stiff opposition from the pharmaceutical industry.

Shortly after Biden’s speech, top drug lobbying group Pharmaceutical Research and Manufacturers of America said the policies would “undermine access to life-saving medicines.”

“Many in Congress know that access to medicine is critical for millions of patients and Medicare is not a piggybank to be raided to fund other, unrelated government programs,” PhRMA President and CEO Steve Ubl said in a statement.

Drug reform advocates, on the other hand, applauded the speech and called for renewed momentum for swift action from Congress. 

"Big Pharma’s egregious pricing practices have created a crisis of affordability and policymakers must deliver on repeated promises to hold the industry accountable and lower drug prices," said Lauren Aronson, executive director of the Campaign for Sustainable Rx Pricing, a coalition of hospital, pharmacy, payer and patient advocacy groups.