Speaker Nancy Pelosi releases plan to give Medicare drug negotiating power

Nancy Pelosi
House Speaker Nancy Pelosi released an ambitious plan to give Medicare the power to negotiate for lower drug prices and included several Part D reforms. (Gage Skidmore-CC BY-SA 2.0)

House Speaker Nancy Pelosi released a plan to give Medicare the power to negotiate drugs but isn’t as ambitious as an earlier draft.

The proposal released Thursday would call on Health and Human Services to identify 250 brand-name drugs that lack price competition and are expensive for Medicare and the U.S. health system. The secretary would then negotiate the price for as many of the 250 drugs as possible, with the bare minimum of 25 a year, according to a summary posted by Politico.

It would also require insurers to pay more in the catastrophic coverage phase in Medicare Part D. A draft of the proposal leaked earlier this month also called on HHS to identify 250 drugs but did not contain the 25-drug minimum.

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Under the final proposal, if a manufacturer refuses to enter into negotiations or leaves talks before reaching a final agreement then the manufacturer will be assessed an excise tax of 65% of their annual gross sales. The tax increases by 10% every quarter the manufacturer is out of compliance and could reach 95%, the summary said.

“The steep, escalating penalty creates a powerful financial incentive for drug manufacturers to negotiate and abide by the final price,” the summary added.

RELATED: Prices for top-selling drugs appear immune to common market forces: study

The manufacturer and HHS would reach an agreement on a fair price that must not be more than 120% of the average price paid by six countries that include Australia, Canada and Germany. The negotiated price would apply to Medicare, but Part D and Medicare Advantage plans could negotiate for a lower price if they wanted. The manufacturer is also required to offer the same negotiated price to the commercial market.

“It is at the discretion of these payers whether to accept the negotiated price,” the summary said.

Pelosi’s legislation also proposes capping out-of-pocket spending for seniors by setting an annual limit of $2,000.

“This means that beneficiaries who have more than $2,000 in prescription drug spending will face no additional cost-sharing over that amount,” the summary said.

Insurers would also have to pay more for the catastrophic coverage phase for Part D plans.

RELATED: Drug prices as much as 4 times higher in U.S. than in other countries, study finds

Currently under reinsurance, the government subsidizes 80% of the total drug spending by beneficiaries in the catastrophic coverage phase in Part D. But Pelosi’s plan would decrease reinsurance from 80% to 20% and plan responsibility would increase from 20% to 50%.

This would “increase incentives for plans to better manage drug spending,” according to the plan summary. The consulting firm Avalere projects that 3.7 million Part D beneficiaries are going to reach the catastrophic coverage phase in 2020.

But the plan would also require drug manufacturers to pay the full coverage of the drug in both the initial and catastrophic coverage phase. Currently, manufacturers pay 70% of the costs for beneficiaries in this phase.

So far Pelosi’s plan has gotten good marks from some in the healthcare industry. The pharmacy benefit manager advocacy group Pharmaceutical Care Management Association said that the plan could go further by getting rid of tools that drug companies use to game the patent system, including “pay for delay” deals that stymie generic entrants into the market.

It remains unclear how likely Pelosi’s plan would make it through Congress. Republicans on the House Energy & Commerce Committee blasted the plan as a “socialist proposal to appease her most extreme members.”

Pelosi doesn’t need Republicans to get the plan through the House, but the Senate would be a tougher sell.

Already Republicans are rebelling against a bipartisan bill led by Sen. Chuck Grassley, R-Iowa, that creates a mandatory rebate drug companies must pay if a Part D drug increases beyond the price of inflation.

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