Opinion

The Good, the Bad and the Ugly of Pending Prescription Drug Legislation

With impeachment sucking all the oxygen from the halls of Congress, it’s easy to overlook the current legislative efforts to overhaul prescription drug pricing. 

The House is scheduled to vote next month on Speaker Nancy Pelosi’s (D-Calif.) comprehensive drug pricing legislation. And the Senate Finance Committee recently released the text of its much-anticipated drug pricing bill. 

Both bills would help seniors who are struggling with high out-of-pocket costs. But they don’t do enough to directly reduce prescription costs for ordinary patients. 

Most worryingly, the House bill opens the door for an unaccountable third party to come in and set prices. And neither bill addresses the biggest prescription drug cost driver.

Both bills would help seniors who are struggling with high out of pocket costs. But they don’t do enough to directly reduce prescription costs for ordinary patients. Most worryingly, the House bill opens the door for an unaccountable third-party to come in and set prices. And neither bill addresses the biggest prescription drug cost driver.

For those who haven’t been following along at home, here’s the good, the bad, and the ugly of this legislation.

The Good: Both the House and the Senate bills cap the out of pocket maximum payments for seniors on Medicare. Currently, once seniors reach the catastrophic coverage threshold of $5,100 under Medicare Part D, they still pay 5 percent of all subsequent prescription drug costs.

While a 5 percent coinsurance cost may not seem like much, it often represents a large dollar figure for some medicines. Especially given that the cost never disappears. Annual out-of-pocket costs in 2019 for Part D beneficiaries average more than $8,000 across 28 specialty tier drugs, according to Kaiser Health.

The Senate bill caps the maximum annual payment at $3,100, and the House caps it at $2,000. These caps would give seniors the peace of mind that there’s a maximum amount they’ll have to spend on prescription drugs each year. This reform is long overdue.

The Bad: Both the House and Senate bills don’t directly reduce prescription drug costs for ordinary patients at the pharmacy counter. Rather, they try to reduce the costs for Medicare by implementing direct or indirect price controls on manufacturers. 

The House bill would tie Medicare drug costs to those charged in other countries. And the Senate bill would limit Medicare drug price increases to inflation.

Besides threatening the drug development pipeline, these price controls would do nothing to address the biggest cost driver for most patients: rising co-insurance demands from insurers. Over the last several years, insurance premiums and deductibles have roughly doubled. And twice as many Americans are now on high-deductible plans. Legislators should focus on this tangible out-of-pocket cost before implementing price controls on list prices that have little-to-no impact on the pocketbooks of ordinary patients.

The Ugly: The House bill allows the government to draw on outside value assessments to set prices. This paves the way for the price control goliath known as the Institute for Clinical and Economic Review to use its biased and flawed methodology to determine drug prices.

ICER’s pricing framework relies on a controversial measure known as quality-adjusted life years, which considers treatments’ impacts on improving and extending lifespans. The QALY model puts an arbitrary value on an extra year of life. It inherently treats the lives of those living with chronic conditions as less valuable. Such analyses give insurers and governments a veneer of scientific credibility to deny drug coverage.

Perhaps the biggest problem with these bills is what’s not in them. Neither address the biggest prescription drug cost driver: the rebate system. Pharmacy benefit managers, which are mostly owned by the major insurance companies, wield monopsony control over the prescription drug supply chain. They demand hundreds of billions of dollars in rebates from manufacturers in return for access to insurers’ formularies.

These funds, which make up nearly one-third of total prescription drug spending, drive up drug prices without any benefit to patients at the pharmacy counter. Net drug prices (list prices minus rebates) have actually fallen in recent years.

Health and Human Services proposed a new rule earlier this year to eliminate these rebates, which would have directly reduced drug costs by about one-third and indirectly reduced them even more. But it was withdrawn this summer after fierce lobbying from insurers whose enormous profits would have been impacted by the elimination of these kickbacks.

Legislators are currently facing a demand to “do something” in response to rising out-of-pocket prescription drug costs. But the current House and Senate bills would do more harm than good. Patients should hope that the impeachment talks sideline this legislative effort.

 

Terry Wilcox is the executive director of Patients Rising.

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