Politics. Now that the battle has been waged and lost, the victors in the fight for Medicare’s authority to negotiate drug prices have declared the Inflation Reduction Act the most consequential legislation in 50 years.
It turns out Jon Meacham was right they say, President Joe Biden is, in fact, heir to the tradition of Lyndon B. Johnson and Franklin D. Roosevelt.
Perhaps that will turn out to be true, but history’s guide suggests otherwise. Forgotten by the historians that frequent the White House to do their best Arthur M. Schlesinger impersonation, is LBJ’s warning that monumental legislation passes overwhelmingly or not at all.
The IRA – an acronym matched only by the law’s title for silliness – passed on a party line vote via reconciliation.
Not that it isn’t important. The bill’s passage marks what is likely the beginning of the end of the pharmaceutical industry’s super-sized political influence.
Just don’t completely count them out just yet.
After all, it is easy to see how difficult it will be to determine a fair price for single source drugs that have no comparable reference price. It is also clear to anyone that pays attention to CMS, it is bereft of the talent and expertise necessary to assume such a difficult task.
The Institute for Clinical and Economic Review has developed an approach to pricing that considers effectiveness that may be influential. More likely, in the near term, however, is that large manufacturers, whose revolving door with regulators runs at warp speed, will use their influence to limit the outcome of negotiations to the acceptable.
In time, biopharma may use the negotiation process to punish competitors as they sometimes do with citizen petitions during FDA approvals. Two can play at that game and SecHHS may find it useful to be less than accommodating to drug companies without “the right politics.”
The set-up is ripe for scandal at some point, assuming the courts do not toss the whole scheme. In the meantime, expect a lot of capital to find orphan, low spend and plasma-based drugs – all excluded categories – as well as drugs developed by small biotech companies. No one serious about innovation and discovery is going to want to tangle with what is sure to be a mess.
Policy. The drug price negotiation provisions of the IRA have received a lot of media attention because it sounds so revolutionary even as we forget negotiating with something as powerful as government can really be no negotiation at all.
Presented as a “cap on out-of-pocket” costs for Medicare beneficiaries, the redesign of Medicare Part D, is pretty radical. The changes are:
- Caps cost sharing at $2,000 per year through elimination of the coverage gap and the 5% contribution in the catastrophic phase.
- Shifts responsibility for catastrophic phase from Medicare to health plans (15% v 60%)
In other words, the Medicare beneficiary is largely removed from the price-rebate-cost-sharing drama. Plans and manufacturers will have to duke it out. Plans now have fewer incentives to favor high-cost brand drugs that push patients more swiftly into the catastrophic phase. In turn, manufacturers have fewer incentives to grant ever growing rebates.
Knowing what comes next, the IRA is limiting YoY% growth in MA premiums to 6%. With many plans offered with no premium at all, underwritten by rebates that reduce benefit expense, even a small increase will be noticed and may limit enrollment growth.
Power. Until this point, buried in Medicare law is the closely held belief that when Congress speaks, all the lawyers at HHS listen. We are now so far gone from that premise that we are willing to acknowledge that the ministerial functions of government are steeped in the hot and transitory politics of the White House.
The IRA includes a provision to address what Majority Leader Chuck Schumer refers to as the “rogue secretary” loophole. Apparently, Sen. Schumer and others are concerned that, in the likely event of a power shift sometime in the future, SecHHS will refuse to negotiate the required number of drugs described by the IRA.
Forget that drug price negotiation, however fraught with legal and political problems, has some bipartisan support. Donald Trump dropped the price negotiation turd into the JP Morgan health care conference punchbowl in Jan 2017, after all.
Schumer’s rogue secretary concerns follow an endless stream of efforts to make sure only sincere and honest people work in government. Mostly, that is the case. Inspectors General and Congressional oversight have historically seen to it.
Unfortunately, routine oversight is no match for Congress’ misguided efforts to turn federal workers, especially at the scientific agencies, into entrepreneurs. Royalty payments for inventions that are developed in collaboration with the federal agencies – MRNA’s COVID vaccine being the most prominent example – are indeed capped at $150k. That amount is not insignificant when you consider the average CDC employee is paid $75k, however.
Ethics rules prohibit agency heads from owning stock in companies they regulate. Waivers of capital gains when the required sales take place is an attractive incentive for a short, but profitable tour at the FDA, to note one recent example.
The lesson in all of this is no law or regulation will ensure honest and ethical execution of the duties of government. That result will always depend on the internal compass’ of political and administrative leadership which for the time being seem unable to find magnetic north.
Have a great rest of the weekend.
Emily Evans
Managing Director – Health Policy
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