Biden's Medicare drug price negotiations will leave pharma mostly unscathed: CBO

Joe Biden
The provisions would likely result in one fewer drug coming to market in the next ten years, the Congressional Budget Office predicts. (Photo credit: Gage Skidmore, CC BY-SA 2.0)

The pharma industry should emerge mostly unscathed if President Joseph Biden's Build Back Better bill makes its way into law. While the legislation would open the door to limited Medicare negotiations and cap price hikes at the rate of inflation, the cost to the industry and its pace of innovation would be minimal, a government analysis found.

The provisions in the bill aimed at lowering prescription drug costs would save the U.S. government—and cost the pharmaceutical industry—about $160 billion over 10 years, The Hill reported Friday, citing a Congressional Budget Office (CBO) cost estimate published Thursday. 

Letting Medicare negotiate certain drug prices would bring about $80 billion in savings, the analysis found. Meanwhile, capping price hikes at the rate of inflation would yield about $80 billion in additional savings, CBO predicts.

The $160 billion in estimated savings from Build Back Better pales in comparison to the $450 billion projected savings from Speaker Nancy Pelosi's 2019 drug pricing bill. That bill proposed universal Medicare negotiations and sought to apply those negotiated prices across the U.S. insurance landscape.

After the CBO published its Build Back Better assessment on Thursday, the House passed the bill on Friday.

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In all, the Build Back Better drug pricing framework is "not a bad outcome" for the industry, Evercore ISI analysts wrote in a note to clients earlier this month. Not all drugs would be subject to negotiation, for one. Instead, the plan would kick off in 2025 with a focus on the 10 costliest Medicare medicines, followed by 15 medicines in 2026 and 2027 and 20 medicines in 2028 and beyond. 

Most drugs wouldn't be affected by negotiations, the analysts said. 

Meanwhile, price hike caps under the framework would roll out in 2023. The caps would be tied to the rate of inflation, and the rule would apply to commercial insurance coverage, too. That could ultimately entice drugmakers to boost their products' launch prices, the Evercore team said. 

Some lawmakers and members of the industry have warned that the measures could stifle innovation. Still, the provisions would take a minimal toll on new drugs coming to market, the CBO said. 

If the provisions become law, the pharma industry will bring just one fewer medicine to market over the next decade, The Hill reports.

The plan would only have a "modest" impact on new drug launches over the next 30 years, Juliette Cubanski, deputy director of the program on Medicare policy at KFF, tweeted on Thursday. Just ten fewer drugs would be developed over the next 30 years, versus an estimated 1,300 approvals over that time, Cubanksi said. 

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Top lobbying group PhRMA sees things differently. The group's CEO said the "consequences of this heavy-handed drug pricing plan will make a broken insurance system worse and throw sand in the gears of medical progress" In addition, the legislation "doesn’t address perverse incentives in the system that are leading to higher costs for patients," Ubl said.

Pharma has turned on its lobbying engine in response to the drug pricing talks, spending a whopping $263 million on lobbying in 2021 as of early November, CBS News reported.