Price rollbacks, Medicare negotiations, fines and more: Pharma's likely to hate House pricing plan

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House Democrats released their drug pricing plan Thursday, and its contents largely follow an earlier leaked draft. (Pixabay)

House Democrats raised eyebrows last week when a draft of their drug pricing plan leaked. Now that the industry has had more than a week to pore over, second-guess and handicap the details, House speaker Nancy Pelosi office unveiled the official proposal—and drugmakers will certainly take notice.

Pelosi’s plan calls for the HHS secretary to negotiate prices on up to 250 drugs each year to drive savings for not only government programs, but across the U.S. healthcare system. Drugs where Medicare spends big will be first up for negotiation, but pharma would be forced to offer the same cut-rate prices to private payers.

And drugmakers wouldn't have much power after that to raise them. After the sides agree, a company couldn’t increase a price more than the rate of inflation until “sufficient” generic competition reaches the market. Either HHS or the manufacturer could request a new negotiation based on new information. 

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And if drugmakers think they might dodge negotiations, they'll have to think twice. The plan calls for extreme financial penalties starting at 65% of the drugmaker’s annual sales, climbing each quarter to a max of 95%. Such a penalty would be necessary to ensure drugmakers show up to the negotiating table, the proposal says. And the approach avoids using a formulary that could restrict patient access. 

RELATED: What's at stake for pharma in Pelosi's pricing plan? Megabillions—but there's reason not to panic 

The negotiations would set out to find a “maximum fair price” for the drugs, but the definition of "fair" includes a look at prices in other countries, which are usually far lower. Under the plan, negotiated prices couldn't come in higher than 120% of costs in six foreign markets, the proposal says.  

There’s more about the plan drugmakers won’t favor. It includes a measure to roll back price hikes since 2016 and another that would force companies to pay a bigger share of costs throughout different phases of Medicare Part D coverage, which encompasses drugs patients take on their own. 

Currently, drugmakers pay 70% of costs during the coverage gap, or the doughnut hole, which represents an increase from 50% just last year; the industry ardently resisted that change. Pelosi’s plan would add to that doughnut hole contribution, requiring drugmakers to pay 10% of costs until patients get to the doughnut-hole gap, 70% through the gap, and 30% in the catastrophic coverage phase that follows it. 

Lastly, the plan calls for a $2,000 annual out-of-pocket cap for Medicare patients and would reinvest the government's savings into funding new R&D. 

RELATED: Pharma's worst nightmare? Leaked Democrat pricing plan calls for negotiations, price index, fines and more 

Thursday's proposal comes after an earlier version leaked last week. After the leak, analysts said the plan was too aggressive and unrealistic. Some wondered whether Democrats were sincere or simply want to demonstrate that they’re serious about drug prices as the 2020 elections approach. Either way, the proposal wouldn't likely clear the Senate, according to experts. 

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