Magazine Article | October 10, 2019

Pelosi Bill's Head Shot To The Rx Industry

Source: Life Science Leader

By John McManus, president and founder, The McManus Group

In the same week that Speaker Nancy Pelosi (D-CA) announced an impeachment inquiry of President Trump, she unveiled her long-awaited, sweeping “Lower Drug Costs Now Act of 2019” (HR 3). That bill would establish price controls for up to 250 branded drugs, not just for government programs, but for all commercial contracts (for employer-sponsored or individually purchased plans) as well!

The bill tasks the Health and Human Services secretary to “negotiate” with branded companies selling the drugs that have the greatest cost to the healthcare system and lack generic or biosimilar competition. Before negotiations commence, it establishes a ceiling price of 120 percent of the weighted average of six countries (Australia, Canada, France, Germany, Japan, and U.K.). Negotiations would be for prices below
that index.

What if manufacturers don’t want to negotiate under such lopsided conditions? The bill establishes an excise tax of up to 95 percent of gross sales. Failure to provide the “negotiated” prices to Medicare or other private insurance company payers would result in civil monetary penalties equal to 10 times the difference of the “overcharge.”

Additionally, the bill limits price increases to the consumer price index, retroactive to 2016 in Medicare Part B (physician-administered drugs) and Medicare Part D and establishes a 30 percent price control in the catastrophic portion of the Part D benefit and 10 percent reduction in the initial coverage portion.
Sounds outlandish? Yes, but it will be rushed through the House this fall with a possible floor vote by the end of October.

House Democrats appear to have abandoned their more deliberate, measured approach of this spring, which produced bipartisan agreements on IP reform and price transparency. They seem more intent on vilifying drug companies than fashioning solutions that can get to the president’s desk.

Senate Majority Leader Mitch McConnell (R-KY) said, “Socialist price controls will do a lot of left-wing damage to the healthcare system. And of course, we’re not going to be calling up a bill like that.”

Moreover, McConnell has shown little interest in bringing to the floor the bipartisan bill reported out of the Finance Committee in July with mostly Democratic support because most Republicans oppose it, although it has earned President Trump’s endorsement.

Impeachment Could Derail Major Legislation

As the impeachment investigation has picked up steam, prospects for significant drug legislation this year appear to dim. On Oct. 2, Speaker Pelosi and President Trump held dueling press conferences in which the speaker pledged to continue work on drug pricing, the U.S.-Mexico-Canada Trade agreement, and other matters. But President Trump dismissed those efforts as unserious while the House simultaneously
pursues impeachment.

Speaker Pelosi may be more interested in giving her members votes on radical bills that cannot become law while denying President Trump a victory on prescription drugs, knowing such a bill cannot pass the Senate. Such a vote would enable her members to say they support cutting drug prices and put some Republicans in a tough spot for siding with drug companies over seniors.

Yet Pelosi has her own caucus problems. Ways and Means Health Subcommittee Chairman Lloyd Dogget (D-TX) sent a letter to his colleagues criticizing the Pelosi bill as not going far enough. He criticized the bill for not requiring government negotiation for more drugs, for not making the government-negotiated prices available to the uninsured, and for not adequately addressing launch prices.

And how will Democratic members representing districts with large concentrations of pharmaceutical employees vote? Will deep blue districts in Massachusetts, New Jersey, and California support legislation that could result in the decimation of the industry with layoffs estimated of up to one million high-wage, high-tech employees? Democrats representing the Detroit area certainly wouldn’t vote for the end of the car industry.

It is on the pharma industry to make sure their employees’ voices are heard by their representatives before that vote.

End-of-Year Package

Gridlock on major pieces of legislation does not mean that nothing gets done. The government must be funded. Popular, expiring programs must be extended, and offsets are needed to fund those programs. Indeed, Congress must find about $30 billion of offsets for various expiring health programs that have bipartisan support before it adjourns at the end of the year.

The pharmaceutical industry is the most obvious target to produce those offsets, and Congress can choose from the myriad of drug provisions in the Senate Finance bill reported in July.

For example, Section 102 of that bill would include the value of coupons — or cost-sharing assistance — provided to commercially insured patients by pharmaceutical manufacturers in the formula used to determine Medicare’s average sales price reimbursement to physicians for Part B drugs. This reform would have the effect of lowering ASP (average sales  price) reimbursement for physician-administered drugs and potentially putting some practices under water when they prescribe such medications.

Dr. Michael Weinstein, president of the Digestive Health Physicians Association, which represents freestanding GI practices, commented, “While the goal seems to be lowering Medicare expense through a change in ASP pricing, the bill could instead lead pharmaceutical companies to eliminate the coupons and patient-assistance programs because of the overall effect on their margins.

With no change in the ASP pricing, Medicare won’t save money, but the patients who need financial help the most will experience even higher costs. This could lead our patients to forsake needed treatments and experience more complications, which would thereby increase the cost of care in the long term.”  Notwithstanding, because the Congressional Budget Office (CBO) estimates the policy will save $1.5 billion over 10 years, this provision is under consideration.

Another provision would require manufacturers of certain products to pay Medicaid up to 25 percent of the value of the product for the privilege of poor Medicaid patients taking those drugs. You read that right: The manufacturer would pay a rebate of 125 percent in many cases. That is because the bill would raise the current 100 percent cap on the Medicaid rebate for drugs, under which drugs are free to the program, to 125 percent. That pernicious policy stems from the Medicaid rebate formula, which imposes a rebate equal to 23 percent plus any price increase that exceeds inflation from date of launch.

What rationally acting company can continue to provide a product when they have to pay the customer one-quarter of its value to use it? Nonetheless, this policy is being pushed by the Trump administration as a tool to combat price hikes, and the CBO projects it would raise $12.5 billion over 10 years.

Closing Thoughts

Congressional votes on legislation that override private contracts and would decimate one of the most productive U.S.-based industries and America’s best hope for improved patient lives should not be taken lightly, even if that legislation cannot advance at this time in this political environment. Those votes embolden similar future legislation that can become law under different circumstances. All efforts must be made to derail and defeat Speaker Pelosi’s bill.

John McManus is president and founder of The McManus Group, a consulting firm specializing in strategic policy and political counsel and advocacy for healthcare clients with issues before Congress and the administration. Prior to founding his firm, McManus served Chairman Bill Thomas as the staff director of the Ways and Means Health Subcommittee, where he led the policy development, negotiations, and drafting of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Before working for Chairman Thomas, McManus worked for Eli Lilly & Company as a senior associate and for the Maryland House of Delegates as a research analyst. He earned his Master of Public Policy from Duke University and Bachelor of Arts from Washington and Lee University.