These 10 Medications Targeted For Lower Costs By White House

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02

Medicare Drug Price Negotiations Begin With These 10 Medications

The cost of prescription drugs in the U.S. is notoriously, stubbornly high. In fact, a 2021 research report compiled by the RAND Corporation notes that drug costs in the U.S. are 256% higher than in 32 comparison countries combined.

Fortunately, as a result of the Inflation Reduction Act of 2022, Medicare beneficiaries may soon gain more affordable access to popular-yet-expensive medications. On Aug. 29, 2023, the U.S. Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) announced that, for the first time ever, Medicare can begin negotiating prices for certain medications directly with participating drug companies. These dealings, set to occur in 2023 and 2024, are expected to result in lower prices for an array of lifesaving drugs for Medicare beneficiaries. The new drug prices are ultimately slated to take effect in 2026.

The first 10 drugs up for price negotiations, according to the HHS and CMS, include:Eliquis (for blood clot treatment and prevention)Jardiance (for diabetes and heart failure)Xarelto (for blood clot treatment and prevention)Januvia (for diabetes)Farxiga (for diabetes, heart failure and kidney disease)Entresto (for heart failure)Enbrel (for rheumatoid arthritis, psoriasis and psoriatic arthritis)Imbruvica (for blood cancers)Stelara (for psoriasis, Crohn’s disease and ulcerative colitis)Fiasp, Fiasp FlexTouch, Fiasp PenFill, NovoLog, NovoLog FlexPen and NovoLog PenFill (for diabetes)

From June 2022 to May 2023, Medicare beneficiaries paid $3.4 billion out of pocket for these 10 drugs now subject to price negotiation, according to HHS. During that same timeframe, the over 8.2 million people enrolled in Medicare Part D coverage counted on these medications to treat a range of conditions, many of which are life-threatening.

Meetings with drug companies to establish a “maximum fair price” for each medication will begin in the fall of 2023, notes CMS. Each company will receive no more than three meetings before negotiations end on Aug. 1, 2024. Newly established prices will then be published no later than Sept. 1, 2024 and take effect Jan. 1, 2026, according to HHS.

In the meantime, CMS is hosting a series of virtual “patient-focused listening sessions” with participating drug companies that are open to the general public and scheduled to occur between October 30 and November 15. CMS notes that these sessions are intended to seek input from caregivers, Medicare beneficiaries and others who may be able to offer relevant insight pertaining to the drugs in question. The schedule of these sessions is subject to change.

Price negotiations for these 10 drugs are just the beginning, per HHS. CMS plans to select an additional 15 high-cost drugs covered by Medicare Part D for price negotiations for 2027 and another 15 drugs for price negotiations for 2028. Beyond these three rounds, CMS pledges to negotiate better prices on up to 20 additional drugs for each subsequent year.

While there are no quick and easy fixes for the high costs of health care in the U.S., the Medicare Drug Price Negotiation Program promises a bit of relief for older adults struggling to afford the medications upon which they depend.

03

The Promise and Risk of Biden’s War on Drug Prices

It’s pretty funny that the Biden administration persists in describing its program to lower what Medicare pays for 10 widely used prescription drugs as a “negotiation” with the manufacturers. If the companies refuse the government’s offer, they face excise taxes on the drugs’ prices that “range from 185.71 percent to 1,900 percent of the selected drug’s price depending on the duration of noncompliance,” according to the Congressional Research Service.

“This is not a negotiation in any sense of the word,” Jim Stansel, the general counsel of the Pharmaceutical Research and Manufacturers of America (known as PhRMA), told me this week. I see his point.

When I ran the pharma lawyer’s complaint by Dr. Meena Seshamani, director of the Center for Medicare at the Centers for Medicare and Medicaid Services, she said, “This is a voluntary negotiation process.” If companies don’t want to negotiate, she told me, they can avoid the taxes by terminating sales of all of their drugs to Medicare and Medicaid.

But that’s a Hobson’s choice — an apparently free choice in which all the options are bad. Adding to the sense that the government has the upper hand, whatever it decides is “the maximum fair price” is the final word. The law contains no provision for appeal.

This is not to say that the drugmakers are purely victims. They really are earning huge profits from the drugs that the Biden administration has singled out. Lowering the prices wouldn’t kill them.

Also, I don’t predict that the price-setting system will be as skewed against Big Pharma as these provisions have the potential to make it. I trust Seshamani — who is a medical doctor and has a doctorate in economics — when she says that the government will take into account the value that the drugs provide in arriving at a price.

The real issue here is not that pharma is good and government is bad or the other way around but that there is no clear standard for what a fair price should be for a drug that is available from only one source, that costs a lot to research and develop but very little to manufacture and that provides important health benefits.

The 10 drugs — whose names you will probably know, even if you don’t have a prescription for them, from the warm-glow TV ads of patients canoeing, barbecuing, dancing the cha-cha and hugging their adorable grandchildren — are Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Imbruvica, Stelara and Fiasp and its related medicines. They are among the drugs that Medicare Part D spends the most on, and they treat life-threatening diseases such as diabetes, heart failure and cancer.

In a textbook free market, “fair” is whatever the market will bear. Competition drives the price down to the marginal cost. Producers earn enough money to make staying in business worth their while but no more. But these drugs don’t fit that model. Patents protect them from competition, allowing their producers to price them high. On the other hand, because of their high upfront development costs, pricing the drugs very low, at marginal cost, would be unrealistic. If that’s all the manufacturers earned from them, they would have no incentive to stay in business and develop new drugs.

“There is no ‘anchor’ on what price might be considered fair or unfair given the measured benefits of a drug,” Andrew Mulcahy, a senior policy researcher at the RAND Corporation, the nonprofit research organization, wrote in a RAND blog post last year.

One way to measure a drug’s value is how many life-years it saves: For example, 20 life-years is 20 years of extra life for one person or one year of life each for 20 people. Someone could argue that a drug is fairly priced at $200,000 per life-year saved but overpriced at $2 million per life-year saved, Mulcahy wrote. But the provision in the Inflation Reduction Act that created this program was silent on that question. “In effect, Congress punted the decision” to the Department of Health and Human Services, which runs Medicare, Mulcahy wrote.

An alternative or perhaps complementary approach would be for the government to calculate the all-in costs of the drugs and then base the price on that plus a reasonable profit markup. That would resemble how states regulate electrical utilities, which tend to be staid. That would be disastrous, Stansel, the pharma lawyer, told me. “I don’t think we want the pharmaceutical industry to look like the electrical industry,” he said.

A reader of this newsletter who is a doctor and works for one of the pharma giants emailed me that he likes the Biden plan. (He didn’t want me to use his name.) He wrote that it is starting out small so the kinks can be worked out but still covers a wide range of ailments so that it “benefits more people than the recent focus on insulin-dependent diabetics.” The Inflation Reduction Act capped insulin for Medicare recipients at $35 a month. Eli Lilly has extended that price to all its customers.

The pharma trade group’s strongest argument is that reducing its members’ profitability will harm the public in the long run. “The cancer moonshot will not succeed if this administration continues to dismantle the innovation rocket we need to get there,” PhRMA stated Tuesday.

That’s debatable. Most of the basic research on curing cancer and other diseases is funded by the government and philanthropy. Big Pharma is mainly involved in clinical trials and marketing. Also, the negotiations apply only to drugs that are nearing their patents’ expiration. What’s more, even if price caps do reduce Big Pharma’s profitability, business logic says that they should still have a strong incentive to bring innovative drugs to market — even if they need to fund the effort by selling more shares or issuing bonds.

Still, I understand the Big Pharma argument that the Biden price caps could take away some of the incentive to bring new drugs to market. In a recent survey of PhRMA member companies, more than 80 percent said they expected “substantial” effects from the law on pipeline projects for diseases, including cancer.

Reining in the high prices of prescription medicines is a worthy goal. But the fact that the law gives the government significant power over price setting is precisely why it needs to tread carefully.The Readers Write

China’s difficulties, which you wrote about, have deeper roots than are usually recognized. In the mid-2000s, one began to see the more top-down, interventionist, self-sufficiency-oriented policy that underlies the sharp reduction of productivity growth. The government has looked to infrastructure investment and real estate development, two sectors rife with inefficiencies and sharply diminishing returns, to help maintain growth. Compared with other Asian success stories, this falloff in productivity growth has occurred at a much earlier level of economic development.

Loren BrandtTorontoThe writer is an economics professor at the University of Toronto

Your discussion of China assumes that the one-child policy and declining population are an unqualifiedly bad thing for the country. But doesn’t climate change indicate that having too high a population places tremendous pressure on the earth’s resources? China in particular is notorious for pollution of many sorts, a consequence of economic expansion.

Karla JohnsenHigh Falls, N.Y.

One of the forces that drive agglomeration is often overlooked: the historical trend toward monopoly power. St. Louis ad agencies got swallowed up after World War II and their staff was moved to New York or Chicago. Local banks were bought up. Steel companies in Buffalo were bought out and shut down by competitors. Taking a few billion dollars and spreading them around here and there will have little effect unless we re-examine our principles of antitrust law and enforcement.

Michael CurtinNorthampton, Mass.

Regarding your recent newsletter on mortgages, three points: 1. Adjusting the real economy and product offerings to make monetary policy more effective is letting the tail wag the dog. 2. Given the tremendous uncertainty about the magnitude and timing of the effects of monetary policy and hence the great possibility of error, making the economy more sensitive to policy changes carries significant danger. 3. Making the case that it is welfare enhancing to artificially remove a basic product (30-year mortgages) from consumers’ choice sets when there are no clear externalities is hard to do.

Robert DeFinaBala Cynwyd, Pa.Quote of the Day

“Left to themselves people are noble, generous, uncorrupted, they’d create a completely new kind of society if only people weren’t so blind, stupid and selfish.”

— Tom Stoppard, “The Coast of Utopia: Salvage” (2002)