Democrats reach deal on drug prices in social spending bill

Two men in suit and tie talk in a brick-lined hallway

Nov. 2, 2021 Updated 4:48 PM PT

WASHINGTON — Democrats on Tuesday reached an agreement to allow Medicare to negotiate prices on some prescription drugs, one of their last remaining hurdles as they try to hold votes on a major social spending and climate plan by the end of this week.

The Medicare drug-price negotiation policy, left out of an earlier draft of the $1.85-trillion bill because of disagreements, marks the culmination of 15 years of Democratic campaign promises to allow the federal government to use its bargaining power to try to bring down the price of drugs.

“This deal will directly reduce out-of-pocket drug spending for millions of patients every time they visit the pharmacy or doctor,” said Senate Majority Leader Charles E. Schumer (D-N.Y.) while announcing the agreement.

Like the social spending bill on the whole, the revised Medicare negotiation plan is more limited in scope than what many progressive Democrats had hoped.

Democrats narrowed the set of circumstances under which Medicare could negotiate prices in order to win the support of centrists including Sen. Kyrsten Sinema (D-Ariz.) and Reps. Scott Peters (D-San Diego) and Kurt Schrader (D-Ore). Peters, who has received significant campaign donations from drugmakers, said expansive negotiation would stifle innovation and threaten pharmaceutical industry jobs, including about 27,000 of them in San Diego.

The finalized plan would allow Medicare to negotiate prescription drug prices in certain situations, including for drugs that are no longer under “exclusivity,” or protected from competition while they are still new to the market, according to lawmakers and aides who spoke before final legislative text was released.

Negotiation would begin with a group of 10 drugs in 2025. Most drugs would be exempted from negotiation for nine years. Biologics, or drugs cultivated from living cells, also the fastest growing part of the drug industry, would get 12 years. That period of exclusivity was a top priority of Peters and centrists, who said they wanted to protect drugmakers’ ability to create new drugs. And, “that’s something industry can deal with,” Peters said.

Seniors’ out-of-pocket prescription drug costs would be capped at $2,000 a year. Insulin will be subject to negotiation and out-of-pocket costs would be capped at $35 per month as well, a move that is likely to be politically popular because of recent and dramatic increases in the price of the widely used drug.

It will also establish a way for seniors to spread their prescription drug bill throughout the year instead of paying all at once.

The plan also imposes restrictions on how much drugmakers can increase their prices year over year. If a drug’s price rises faster than inflation, its manufacturer would have to pay a rebate, a tool that policymakers say will serve as an incentive for the pharmaceutical industry to keep prices low. The rebate requirement would apply in Medicare and in commercial insurance plans, meaning the policy will apply to millions of Americans.

Medicare drug price negotiation has proved to be one of the most politically complex issues in the social spending bill. Its exclusion from the framework President Biden released last week sparked “white hot anger” among rank-and-file members and provided new momentum in the talks, according to Rep. Peter Welch (D-Vt.), a longtime advocate of negotiation.

Other Democrats said it would be embarrassing if the party wasn’t able to make minimal progress on allowing the federal government to use the massive purchasing power of Medicare to negotiate prices with drugmakers.

Out of the gate, it became clear that the drug pricing bill Democrats had originally written, House Resolution 3 with full Medicare negotiation, would face trouble in both the Senate, where Sinema and others opposed it, and the House. In September, Peters, Schrader and Reps. Kathleen Rice (D-N.Y.) and Stephanie Murphy (D-Fla.) — who together represent enough votes to tank the entire bill — voted against the policy in their committees.

“We all took a lot of noise in our communities,” Peters said. “I think there was a lot of pressure, but [we reached] a result that is going get passed — that was always one of the problems with HR 3 — and will provide relief for seniors.”

Last week, Sinema and the White House agreed to a slimmed-down version that nearly made it into Biden’s framework, according to a person familiar with the negotiations. But Speaker Nancy Pelosi (D-San Francisco) told the White House that wasn’t good enough.

Negotiations intensified once the framework was released without prescription drug policy. Pelosi reached out to Sinema on Friday to speak directly about a path forward, according to Sinema’s spokesperson.

Several other lawmakers were trading phone calls in recent weeks as well, including Sen. Christopher S. Murphy (D-Conn.), Sinema, Peters and Schrader. Advocacy groups ratcheted up their calls for Congress to act as they viewed this as Democrats’ last, best shot at price negotiation for years.

The ban on negotiation has been in place since 2003, when President George W. Bush and congressional Republicans enacted the Medicare prescription drug program. They had to prohibit negotiation to win the votes of Republicans who were worried about the fate of drugmakers.

Reversing the ban quickly became a campaign promise for Democrats. It was the last unfinished piece of business from their “Six for ’06” promises in the 2006 election cycle, a point on which Pelosi has repeatedly reminded her members. Rising prescription drug costs and Democrats’ proposed solution of price negotiation proved to be particularly potent in the 2018 election, in which Democrats regained control of the House.

“We ran on upsetting the status quo and lowering out-of-pocket costs for healthcare and prescription drugs,” a group of those Democrats wrote in a letter over the weekend demanding that price negotiation get into the final bill. “If we fail, those on the other side of this issue will need to explain to Americans why they let Big Pharma win, why entrenched special interests take precedence over the American people.”

Murphy said Democrats’ goals were to get savings for consumers and taxpayers, and to “begin to test the theory of negotiation.”

“That’s the sweet spot I’m trying to find,” he said last week. “How do we do something substantial when it comes to negotiation that actually gets price reductions, while addressing some of the concerns that Sen. Sinema is bringing to the table.”

The policy also marks a significant win for Congress in its years-long battle with the powerful pharmaceutical industry.

“This deal starts to break the iron grip that Big Pharma has on lifesaving and life-extending drugs,” Welch said. “Medicare can finally negotiate for a better deal for consumers and taxpayers. We are finally putting a check on future price gouging by Big Pharma by limiting annual price increases beyond the rate of inflation.”

Still, Welch and many other Democrats said the plan did not do everything they had hoped. Limiting negotiation to drugs outside the exclusivity period is a significant setback from what the House originally had hoped to do because it would reduce the number of drugs that would be eligible.

“Am I OK with it? No,” Welch said. “I want to have negotiation in the exclusivity period, but we don’t have the votes for that.”

Negotiation would happen in Medicare Part B, which includes drugs administered at the doctor’s office, and Part D, which includes drugs provided at the pharmacy counter.

The inclusion of Part D was a point of compromise for moderates, who wanted to limit negotiation to Part B. But Part D negotiation will be politically important because that covers the vast majority of drugs, and more seniors are likely to see a price drop at the pharmacy.

“It’s not going to be possible to walk into a senior citizen center in America and say the only thing we’re going to negotiate over are drugs that are administered in the doctor’s office,” said Sen. Ron Wyden (D-Ore.), who chairs the Senate Finance Committee. Seniors have “seen all these reports about how much more expensive drugs are here than they are around the world, and they are expecting results because they’ve heard pledges.”

Drugmakers will be subject to an excise tax if they do not participate in negotiations.