A key Senate committee advanced a major legislative package to tackle high drug prices by revamping Medicare’s drug benefit amid other policies, but serious obstacles to full passage remain.
The 19-9 vote of the Senate Finance Committee Thursday means that the legislation called the Prescription Drug Pricing Reduction Act now moves to the full Senate. However, the GOP opposition highlighted throughout the bill markup could create obstacles for getting enough Republican support for a vote on the Senate floor.
A major point of contention during the markup was a provision that creates a mandatory rebate a drugmaker must pay to Medicare Part D if they increase the price of a drug beyond inflation.
Starting in 2022, manufacturers must provide the rebates to Medicare for each six-month period where the list price rises above inflation, according to the bill. The penalty is only limited to brand-name and biologic drugs, not generics or biosimilars, but the provision has garnered major resistance from the pharmaceutical industry.
“It replaces the successful, market-based structure of Medicare Part D with Medicaid-style price controls that result in money going to the federal treasury instead of seniors,” said Steve Ubl, president of the pharma trade group Pharmaceutical Research and Manufacturers of America, in a statement when the bill was introduced earlier this week.
Medicaid uses a similar approach by charging rebates for drugs that go up too high, but Republicans opposing the bill's provision charge that Medicare Part D is different than Medicaid.
“There is no ability for plans to pit against each other as Medicare Part D does and uses,” said Sen. Pat Toomey, R-Pennsylvania, who proposed an amendment to strike the inflation penalty provision.
Toomey said the inflation penalty would only cause drug companies to increase launch prices and lower rebates as a way to get around the inflation penalty. But Finance Committee Chairman Chuck Grassley, R-Iowa, said that the provision was not a price control and cited a recent article from conservative economist Avik Roy.
Roy argued in a recent article in Forbes that the penalty isn’t a price control but is instead limiting a government subsidy to inflation.
“Subsidies are not prices,” he said. "Under the Senate Finance proposal, drug companies would continue to be able to set whatever prices they wish for their products. But growth in subsidies to drug companies would be limited to consumer inflation.”
The committee voted 14-14 on Toomey's amendment to get rid of the provision, and a tie vote means the measure is defeated. Grassley and Sen. Bill Cassidy, R-Louisiana, joined most of the panel’s Democrats in voting against the amendment. Sen. Bob Menendez, D-New Jersey, voted with the rest of the panel’s Republicans to nix the cap, though he later voted for the full bill.
The bill now heads to the Senate floor, but it remains unclear whether the Senate will consider the legislation before the monthlong August recess set to start next week. The nonpartisan Congressional Budget Office said the inflation rebate policy along with other changes to Part D will save the federal government around $85 billion over the next decade.
Other provisions in the bill include eliminating the “donut hole” coverage gap in Part D. The bill also requires pharmacy benefit managers (PBMs) to disclose the difference between what the insurer pays them and what the PBM pays the pharmacy.