Democrats' drug pricing deal is 'not a bad outcome' for pharma, analysts write

Drug prices
The drug pricing framework includes price hike caps starting in 2023 and also calls for a $2,000 out-of-pocket cap for Medicare patients and a $35-per-month price maximum for insulin. (Getty/Charles Wollertz)

​​​​​After intense debate over the last few weeks, Democratic leaders appear to have landed on a framework for a drug pricing deal. The pharmaceutical industry has strongly resisted some of the proposals presented in the years-long drug pricing brouhaha, and the final result is "not a bad outcome" for drugmakers, one team of analysts recently stated. 

The deal includes partial Medicare Part B and D negotiations, which Evercore ISI analysts called "negotiation in name only." The "practical way to think" about this component of the deal, the analysts wrote to clients Friday, is that drugs on the market for five to 12 years will get a 25% discount in Medicare. Medicines six to 12 years old will get a 35% discount, and a higher discount will apply to older drugs. There's a steep tax for dodging the negotiation process, the analysts wrote.

But not all drugs will be eligible for negotiations. The process starts with the "10 most costly Medicare drugs in 2025," then climbs to 15 medicines in 2026 and 2027 and to 20 medicines in 2028 and beyond. That means the majority of Medicare drugs won't be affected by the negotiation component, the team wrote.

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The deal also implements price hike caps starting in 2023, the analysts wrote. This key portion of the deal will cap price hikes at the rate of inflation, and the rule applies to commercial insurance coverage as well. Companies that hike prices beyond inflation rates "will owe the dollars back to the government."

"We think this could incentivize drugmakers to inflate launch price," the analysts wrote in a note.

The drug pricing deal also calls for a $2,000 out-of-pocket cap for Medicare patients and a $35-per-month price maximum for insulin, according to reports.

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In all, considering the drug pricing conversations started with universal Medicare negotiations and featured proposals such as international reference pricing, the deal is "not a bad outcome" for the industry, the Evercore ISI team wrote.

"It looks the deal is in good shape to be consummated before year-end with few changes expected," the team wrote. "It has broad support across legislators and industry. Our Washington team doesn’t anticipate much pushback on the drug pricing component of the larger bill."

If it makes its way into law, the bill would cap a years-long push to reign in drug prices by governments of both major political parties.