Will Biden Build Back Better With or Without Drug Measures?

President Biden and Congressional Democrats have been grappling over the $3.5 trillion Build Back Better Act and as of October, the initiative was not yet passed. It is anyone’s guess when it will be and what provisions will survive after negotiating a pared back bill. Trimming is necessary because centrist Democrats are balking at the price tag. Sen Joe Manchin (D-WV) said that he thinks the bill should not include more than $1.5 trillion in spending, and House leaders have signaled a willingness to cut $1 trillion. Lawmakers have not been clear about whether they will make smaller cuts across the entire swath of the bill (in which case some health-related measures will survive whereas others will not) or whether to make deeper vertical cuts (in which case most of the health measures could be completely eliminated).

The major health piece in the law would give Medicare the ability to negotiate drug prices directly with pharmaceutical companies. More broadly, the president’s agenda calls for legislation that facilitates generic drug approvals and use of biosimilars. He is also suggesting executive action and rules changes to foster drug development that improves clinical outcomes.

We asked a panel of experts to assess these measures and their potential impact. Spoiler alert: No one thinks there will be a law allowing Medicare to negotiate. Reports suggest our panelists are correct. Does anything else stand a chance legislatively, perhaps through the use of so-called funding cliffs? If not, will the Biden administration be forced to do what his predecessor did—push health initiatives though mostly executive action? And is there a single thing Washington can do to stimulate more innovation? According to one expert, there is. Our panelists include:

• Larry Hsu, MD, medical director, Hawaii Medical Service Association, Honolulu.
• Gary Owens, MD, president of Gary Owens Associates, Ocean View, DE
• David Marcus, director of employee benefits, National Railway Labor Conference, Washington, DC
• Arthur Shinn, PharmD, president, Managed Pharmacy Consultants, Lake Worth, FL
• Norm Smith, principal payer market research consultant, Philadelphia, PA
• William Rogers, MD, chief medical officer, Applied Policy, Washington, DC
• F Randy Vogenberg, PhD, RPh, principal, Institute for Integrated Healthcare, Greenville, SC

We have asked before about Congress passing legislation giving the Centers for Medicare & Medicaid Services (CMS) the ability to negotiate drug prices. Each time the consensus has been that there is little chance of that happening. Has anything changed this time?

Dr Rogers: I don't think so. It is remarkable how disparate Congress' plans are from what the public wants and how they get away with it over and over again. 

Dr Owens: I agree. We have such a deeply divided Congress that legislation brought up by either side has little chance of bipartisan support. Because neither party enjoys a super majority, most things just get stalled. Neither party is willing to simply look at the issue at hand and negotiate a solution that seems best for the public at large.

Dr Hsu: Any major change in the laws to negotiate for pricing has to have a solid majority in the Senate. Democrats hold such a narrow margin there, so there is no chance of passing this.

Mr Smith: That’s right. Even if it is passed in the House as a part of HR 3 [the Build Back Better Act], it’s

highly unlikely to pass the Senate. If nothing else, the timing is terrible, given that the industry’s vaccine makers just saved the world!

Mr Marcus: There are simply too many parties that benefit from high drug prices. Pharma clearly is motivated to have prices as high as possible, and administrators of drug—including hospitals, free standing entities, and physicians -- are incented to provide higher priced medications through ASP [average sales price] reimbursements.   

Dr Vogenberg: Manufacturers, hospitals, patient advocacy groups, employer and union plans, and state employee plans—to name a few—have issues with such a shift affecting pricing schema in the United States.

Critics argue that the president’s plan to impose a 95% excise tax if a drug’s price goes above a certain threshold is less about facilitating negotiation and more about controlling prices. How do you see the issue?

Mr Marcus: An excise tax may be too blunt an instrument. A system that sets prices based upon clinical efficacy would allow for a nuanced approach that reflects drug effectiveness—from both novel developments and improvements in therapy.

Mr Smith: One could argue that there’s a link between the federal 340B program [which requires pharmaceutical companies to provide outpatient drugs to certain facilities and covered entities at reduced prices] and HR 3. Both programs take away money from the drug industry.

Besides, I think forced negotiations between CMS and the drug industry will result in higher gross launch prices.

Dr Rogers: The difference between negotiating prices and price control is a fine point. You either agree to negotiate your prices or accept the excise tax. The more complicated issue is that Medicare is almost a monopoly buyer of some drugs. They have what most economists would say is an outsized position to negotiate from. That is problematic and a legitimate concern. 

Why don’t you hear the pharmaceutical industry making that argument more often?

Dr Rogers: They think this is too complicated an argument to make to the average voter. It’s easier to say that you are going to destroy jobs, American industry, and American innovation by allowing Medicare to negotiate than to make the argument about the unfair balance of power between the two parties involved in negotiations. 

Critics also maintain that innovation would be stifled. Would it?

Dr Vogenberg: The impact depends on the condition category and manufacturer portfolio. It could stifle innovation selectively and hurt rare and orphan drug categories in particular.

Mr Marcus: Innovation might be somewhat stifled. While there are many instances of drugs that came to market because of public investment, pharma would probably be less likely to take risks on development knowing that it would no longer be able to subsidize such efforts based on high prices of drugs it has in the market.

Dr Hsu: I don’t think the impact will be as detrimental as the pharma companies maintain. It’s true that non-innovative companies would be stifled and their drugs would have a more difficult time getting into the pipeline. However, more innovative companies who see the challenge of price control as an opportunity and not just a crisis might use it be innovative and competitive. Hopefully this would lead to more transformative medications.

Dr Owens: Whenever any attempt to control US drug prices is made, critics say that innovation will be stifled. That’s an easy and obstructionist argument to use and is often made without analyzing whether or not that will be the case. Much of the initial basic scientific innovation comes from academia and public grant funding.  Private funding then follows for drug development. There needs to be a balance that allows for reasonable profits on new drug innovation yet does not permit companies to charge what the market will bear. 

But why not allow pharmaceutical companies to charge what the market will bear?

Dr Owens: It is difficult to justify $30,000 per month cancer treatments, $1 million gene therapies, and even $80,000 per year drugs to treat side effects of other medications. Because the United States has a fragmented system with no governmental controls, there is no private payer with enough leverage to rein in drug prices. The goal needs to be pricing that allows reasonable profit, but maintain affordability for individuals and the system at large. I see no reason why this can’t be achieved and still maintain innovation.

Dr Rogers: I agree. Look at the wonderful innovations that have come out of Europe where prices are negotiated. Pharma companies approach the European markets enthusiastically, and they seem to thrive perfectly well in countries where a free for all doesn’t occur. In the US, drug companies spend much more on marketing and executive salaries than they do on research.

Is CMS well-positioned to negotiate with pharmaceutical companies?

Dr Shinn: I am not sure why we think that allowing CMS to contract directly with pharma is going to be more cost effective than the system we now have in place.  The PBMs [pharmacy benefits managers] that contract with pharma have more lives than CMS has because they have the Medicare lives plus the other private lives. I used to negotiate with pharma when I had my PBM, and what really moved the needle to get better pricing was if I: 1) could show them where there could be advantages for them on my formularies; or 2) had more covered lives. 

Mr Smith: CMS would need to create their own bureaucracy, which will take time and money. I’m not sure I know anyone who would take that job.

The VA already negotiates directly with drug manufacturers. Could CMS use that as a model?

Dr Rogers: The VA is doing this imperfectly, and I don’t think CMS has to look there anyway. I was at CMS when the prescription drug plan was rolled out. We had to deal with some fairly complex issues to fulfill the statutory requirement. It was up to us to figure it out—and we did. CMS has the ability to figure out how to implement law. But it’s a moot point, since Congress is not going to pass this into law.

Understood. So, are there more moderate initiatives that can get all Democrats on board? The president has called for legislation that speeds generic drug approval and offers federal support to nonprofit generic manufacturers. He is also asking to change the period of exclusivity for biologicals and to increase utilization of biosimilars and generics among Medicare beneficiaries.

Dr Owens: All of these are reasonable approaches to bend the curve on escalating drug costs.   If anything stands a chance, it may be increasing use of biosimilars, eliminating pay-for delay and possibly putting price caps on reformulations of old drugs. But I believe the odds are long even for these proposals.

Mr Marcus: Initiatives that reform the biosimilar and generic markets are promising. They promote competition through the market—something both sides like to talk about—while creating downward pressure on price.

Dr Shinn: Speeding up approval of generics will save money. There are a number of medications waiting for approval and generic manufacturers waiting to become certified. 

Dr Rogers: There is some nibbling around the corners. Some of what’s happening is so obviously wrong—such as pay for delay—that we might see Congressional relief. But drug companies and lobbyists are sophisticated. They know which compromises they can afford to make which ones they can’t. And when they see a compromise they can’t afford to make, they have the horsepower to keep it from happening.

Dr Vogenberg: With Congress, anything can happen, but the clock is running. If nothing gets done this year, the wait will be long because nothing substantive will happen in 2022 as the midterm election approaches. 

Which bring us to executive action. When President Trump could not get Congress to act on his primary health care campaign promise—repealing the Affordable Care Act—his administration used executive action to advance his health-related initiatives. Will President Biden have to take a similar path? Is governing via executive action/rules changes the new normal for advancing health measures?

Dr Vogenberg: The dual levers of legislation and executive action facilitate change. But politization of health policy has made it so executive action is the path of least resistance.

Mr Marcus: Rule making has long been the method used to manage CMS programs and was the intention of the ACA. I suspect that given the current climate in Washington, this approach will expand into other facets of health policy.

Dr Owens: This is most likely to be the case, as I don’t see Congress getting together to support logical drug price reform.

President Biden is calling for executive actions and rules changes that stimulate competition and offer what he calls “real innovation” that will benefit patients and improve outcomes. Which non-legislative measures gets to the heart of that goal?

Mr Marcus: Biden would do well to focus on biosimilar and generic initiatives as well as development of nuanced evaluation of drugs based on clinical efficacy. Methods such as those used by the ICER [Institute for Clinical and Economic Review] and NICE [National Institute for Health and Care Excellence] are welcome additions to the landscape.

Dr Owens: I think it’s too soon to know if any of the Biden administrative proposals can have a substantive impact.

Dr Vogenberg: Most likely there are none on the table right now that would lead to meaningful change.

Then what is the best way to reward drug development that results in improved outcomes?

Dr Rogers: I think the easiest thing in the world would be a measure that requires a new drug to be safe and more effective than existing medications.

What would that look like?

Dr Rogers: The FDA has a basic requirement that a drug needs to be safe and effective. If Congress simply inserted the word “more” in front of effective as a criterion for approval as a new drug, I think you would see pharma’s focus shift. Take the anti-asthma medication albuterol, for example. Before its patent expired, the company synthesized levalbuterol, one of albuterol’s isomers, and received a new patent. But albuterol and the new formulation do exactly the same thing. There is nothing in levalbuterol that leads to outcomes that are any better than albuterol. Yet with a new patent and no generic competition, the company was able to charge much higher price for levalbuterol.

And that, you say, is due to the “safe and effective” standard being the baseline?

Dr Rogers: Exactly. If the standard was “safe and more effective,” the maker of albuterol would not have invested time and money researching the L isomer of albuterol because they would know that was not going to meet the “more effective” standard. They would instead have investigated bronchodilators that had the potential to be more effective than albuterol. And if they were successful, they would be rewarded for that innovation, and patients would benefit.

But the current system does not reward innovation except to the extent that the innovation is designed to prolong patents.