Pharma giants slam Medicare drug price negotiation

The Inflation Reduction Act of 2022 opens the door for Medicare to negotiate prices for certain drugs — a change that drug manufacturers strongly oppose. 

President Joe Biden signed the Inflation Reduction Act into law Aug. 16. The sweeping $739 billion reconciliation package contains some of the most significant changes to Medicare in years, particularly the dynamic between the federal health insurance program and drugmakers. 

Under the IRA, Medicare Parts B and D gain negotiation powers that will apply to the price of a limited number of drugs with no generic or biosimilar competition. Starting in 2026, 10 drugs will be eligible for negotiations. Eligibility expands to 20 drugs by 2029.

The Pharmaceutical Research and Manufacturers of America, which represents the world's largest pharmaceutical companies, came down hard on the new law.

"The president signed into law a partisan set of policies that will lead to fewer new treatments and doesn't do nearly enough to address the real affordability problems facing patients at the pharmacy," PhRMA President and CEO Stephen J. Ubl said in an Aug. 16 statement. "We will explore every opportunity to mitigate the harmful impacts from the unprecedented government price setting system being put in place by this law. We will continue to advocate for policies that give patients better and more affordable access to lifesaving treatments and for a system that supports innovation."

In some written communication, the PhRMA puts the word negotiation in quotation marks, which itself reveals a lot about how the lobbying group sees the likelihood of achieving an outcome both parties find acceptable. On a July 29 earnings call, AbbVie CEO Richard Gonzalez said the legislation contained far more negatives than positives, with the central problem being that HHS can "basically decide whatever price they want the drug to be." 

"And I wouldn't necessarily call it a negotiation because the only alternative that the manufacturer has is to accept a 95 percent penalty on their revenues or, in essence, take a 95 percent discount," said Mr. Gonzalez. "So, it's not a negotiation. We should just call it what it is. It's price controls — what they're basically putting in place — if the language stays the same."

As it stands in the bill, negotiation powers will apply to the price of a limited number of drugs that incrementally increases over the next seven years. Ten drugs will be eligible for negotiations beginning in 2026. The HHS secretary will provide manufacturers of selected drugs with a written initial offer that contains HHS' proposal for the maximum fair price of the drug and reasoning used to calculate that offer. Manufacturers will have 30 days to either accept HHS' offer or propose a counteroffer.

If drugmakers do not comply with the price proposed by HHS, they face a tax on sales of the drug ranging from 65 percent to 95 percent. The drug’s sales revenues will be taxed 65 percent during the first 90 days of noncompliance, 75 percent for sales in the 91st to 180th days of noncompliance, 85 percent for sales in the 181st to 270th days of noncompliance, and 95 percent for sales after the 270th day of noncompliance.

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