Biden’s claim that drug pricing bill ‘will help fight inflation’

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“This will not only reduce the cost of prescription drugs and health care for families, but it will reduce the deficit and help fight inflation.”

— President Biden, in a report on health care provisions in pending Senate bill, July 15

After months of negotiations, the presidential broad “Building Back Better” plan has shrunk to a handful of elements, mostly in the area of ​​health care. In particular, the emerging bill would achieve a long-sought Democratic goal of allowing Medicare to begin negotiating the price of certain prescription drugs.

With headline inflation raging at 9%, the White House is eager to present any action as part of reducing price inflation. But how likely is the prescription drug provision of this bill to make a difference?

This is a surprisingly complicated question. We’ll take a look.

On the face of it, the latest US government report suggests that prescription drug costs aren’t a big part of the inflation problem.

The Bureau of Labor Statistics reported the consumer price index for all urban consumers (CPI-U) rose 1.3% in June – and over the past 12 months the all-items index rose 9.1%.

Buried in the report, it shows the prescription drug price index rose just 0.1% in June and 2.5% over the past 12 months. This is much less than the overall inflation rate.

These figures reflect the fact that generic drugs now represent 90% of prescriptions in the United States, according to the Congressional Budget Office. Brand name drugs – with no generic equivalent – ​​account for a significant portion of spending.

In Medicare Part D, which helps cover the cost of prescription drugs, the top 250 drugs sold with a single manufacturer and no generic competition represent just 7% of covered drugs but 60% of total net spending, according to analysis by the Kaiser Family Foundation. Meanwhile, in Medicare Part B, which provides medical insurance, the top 50 drugs covered by Medicare Part B account for 8.5% of covered drugs but 80% of Part B drug spending, according to the analysis.

A separate KFF study released in February found that a third of Medicare-covered drugs had price increases of 7.5% or more – which was the annual inflation rate at the time.

“Generic prices are low and falling, and brand prices are high and rising,” said Benjamin Roma, who teaches at Harvard Medical School and who recently co-authored a study in the Journal of the American Medical Association (JAMA) on prescription drug costs. “The combination of these two trends means that overall drug inflation is low.”

The JAMA study looked at 95% of drugs first marketed in the United States between 2008 and 2021 – a total of 548 – and found that average prices increased by 20% per year. “Prices have increased by 11% per year, even after adjusting for estimated manufacturer discounts and changes to certain drug characteristics, such as more oncology and specialty drugs (e.g., injectables, biologics) being introduced in recent years,” the study said.

There is often a big difference between the list (gross) price of a medicine and its net price. This is due to a variety of discounts to commercial payers, Medicare and Medicaid, discounts given to hospitals due to the 340B Drug Pricing Program and payments from manufacturers to pharmacy benefit managers, etc.

Brian Newell, spokesperson for Pharmaceutical Research and Manufacturers of America (PhRMA), pointed to net price data from various organizations to assert that “drug price trends are not skyrocketing.” For example, SSR Health, an independent organization that collects and reports pharmaceutical price data, found that net branded drug prices fell 0.7% between the first quarter of 2021 and the first quarter of 2022. And, he said, in 2020, CVS reported net drug prices rose only 1.2% in 2020 for their commercial customers.

Newell said there were “significant flaws” in the JAMA study, including an “apples to oranges” comparison of recently launched drugs versus those launched more than a decade ago. He said the study “completely ignores the savings generated within the system when a brand name drug becomes generic or biosimilar products over time which result in lower costs for patients and society.” (The full PhRMA review is available at this link.)

“The problem is that PhRMA is using generic/biosimilar savings to defend price increases on new branded products,” Rome replied in an email. “But savings on generics only happen after the drugs have a period of market exclusivity. The fact that we pay less for statins and blood pressure drugs today than in the 1990s and 2000s really has nothing to do with brand price trends.

The Biden-backed Senate version of the bill contains two elements intended to stem inflation in brand-name drug prices. One empowers the Secretary of Health and Human Services to negotiate prices for certain drugs – 10 at first, increasing to 20 over time – which have little competition and represent substantial expense. So it probably wouldn’t have much of an impact on prices now, especially since government negotiations could take two years with manufacturers and negotiated prices wouldn’t start until 2026.

Separately, the bill would require drugmakers to pay Medicare a rebate for a drug if the price increases faster than the rate of inflation (CPI-U). The measure would apply to drugs covered by Medicare Parts B and D and private insurance. This would take effect in 2023.

This “could potentially curb rising drug prices from next year,” he said. Tricia NeumannSenior Vice President of KFF and Executive Director of KFF’s Program on Health Insurance Policy.

A wrinkle is that inflation is already quite high. The KFF study of Medicare drug prices found that only 17% had price increases above 7.5%. So if inflation stays as high as 9%, few discounts can be offered.

“Reducing drug costs contribute to inflation in two ways,” said Marc Goldwein, first vice-chair of the Committee for a Responsible Federal Budget. “At the microeconomic level, this directly reduces prices in the economy. And at the macro level, it reduces total spending in the economy. Both effects should be disinflationary.

He acknowledged that “little effect of this particular bill is felt in the short term. So, over the next couple of years, it’s likely to do more to help keep inflation from trickling down to drug prices (and then feeding back into inflation) than it is to reducing inflation outright. Over time, he added, the bill will “modestly reduce the risk of persistent inflation.”

The Senate bill would also eliminate the 5% coinsurance for people on Medicare with very high drug costs after reaching a certain threshold in 2024. It would provide a $2,000 cap on out-of-pocket expenses for Medicare enrollees. Part D from 2025. The OBC projects the package would modestly reduce the federal budget deficit, which could also dampen inflation.

“President Biden supports empowering Medicare to negotiate lower drug costs with big pharma,” said White House Deputy Press Secretary Andrew Bates. “His biggest priority is to reduce costs for families, and Americans often pay 2-3 times as much as their peers in other countries for drugs. Canceling this special protection for Pharma would not only save money to consumers, but also to taxpayers – by reducing the deficit, which helps to counter inflationary pressures.

Inflation is a major concern for Americans these days and the Biden administration is eager to show it is tackling the problem. At least one provision of this bill could start reducing the cost of some expensive drugs next year, but a plan for the government to directly negotiate the prices of some drugs won’t begin until the middle of the next presidential term. Given the complex debate over whether drug costs are rising as much as many believe, we’ll leave that unassessed. But readers should be aware that any impact on inflation from this bill would not be instantaneous.

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