The Senate takes a bipartisan swing at drug price reform. Can it connect?

Marriott International CEO Arne Sorenson has been called to testify at a March 7 Senate hearing regarding data breaches in the private sector.
A bipartisan bill from the Senate Finance Committee would overhaul Medicare Part B and D and limit out-of-pocket drug costs. (Pixabay)

With drug price reform at a fever pitch and the 2020 election fast approaching, D.C. is buzzing with flashy proposals to confront pharma.

All of them face big hurdles, though—not least of which is pharma's lobbying prowess. Could a new Senate bill get over the hump?

Two chief members of the Senate Finance Committee—Chairman Chuck Grassley and ranking Democrat Ron Wyden—certainly hope so. They unfurled a bipartisan bill Tuesday aimed at lowering drug prices through a combination of Medicare Part B and D changes and rebates forced on brand-name drugmakers.

Altogether, the plan is designed to save taxpayers $100 billion in annual Medicare and Medicaid costs, and lower out-of-pocket costs for beneficiaries by $27 billion, the senators said.

The bill itself is a broad mix of previously proposed initiatives and new measures that could act as standalone legislation or part of an omnibus appropriations bill. On Monday, the White House and House Majority Leader Nancy Pelosi announced a bipartisan budget deal that did not include the inflationary rebates or Medicare changes, necessitating a separate drug pricing bill.

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The Senate bill comes as President Donald Trump gears up for his 2020 re-election campaign, shooting arrows at pharma along the way—and amid a string of Democratic challengers calling for increasingly punitive measures on drug pricing.

Last week, both Joe Biden and Sen. Kamala Harris released competing pharma overhaul bills aiming to cap prices, boost importation of foreign drugs and go hard after drugmakers with the highest annual price increases.

Changes for pharma

Those proposals are just speechifying now, though. The Senate bill’s unveiling sparked a wave of reactions from analysts eager to parse which measures were most likely to pass—and how those changes would affect pharma’s bottom line.

At the center of the plan are changes to Medicare Part B and D—which cover physician-administered and retail pharmacy drugs respectively. Those changes would cut patients' share of drug costs and require drugmakers to pay rebates on drugs whose price increases outpace inflation.

In a breakdown of the bill, Evercore ISA analyst Umer Raffat said the proposed changes to the “donut hole” provision—lowering beneficiaries’ annual catastrophic coverage threshold to $3,100—would hit oral cancer meds with monthly costs greater than $10,000 particularly hard.

The bill would also close the Part D “donut hole” provision by lowering patients’ catastrophic coverage limit, a major sticking point for drugmakers. Additional "donut hole" contributions, mandated last year, have already cut into drug sales; just ask Johnson & Johnson about its Xarelto donut-hole hit.

RELATED: Roche, Merck, Novartis and others hike prices on 83 meds starting in July: analyst

Wells Fargo analyst David Maris called the plan “a sensible approach to meaningful and non-controversial change that should find bipartisan legislative support, and push back from industry” in a note to investors.

That industry pushback is already in the works after pharma posted a record six months of lobbying spending on Capitol Hill, the Financial Times said. According to Congressional records, industry group Pharmaceutical Research and Manufacturers of America (PhRMA) spent $16.1 million in lobbying in the first half, up 4% from its previous record. 

Meanwhile, Big Pharma companies like Pfizer, Merck and Johnson & Johnson all posted increased spending in the first six months with $7.1 million, $5 million, and $3.6 million spent, respectively.  

In a bit of a barb—at the industry and perhaps the Senate bill, too—Pelosi’s staff said a competing House bill would likely not be released until September to “prevent outside influence from pharma” during Congress’ August recess, according to Cowen analyst Eric Assaraf. 

Another Trump setback?

Despite the wealth of measures included in the Senate bill, one is noticeably absent: President Donald Trump’s personal call for an International Price Index (IPI) to put U.S. prices more on par with those in other countries.

That doesn't mean it's dead, Assaraf said. Though Trump officials were involved in the Senate discussions, the analyst noted, the White House would likely release the index as a separate measure later.

“We continue to believe the Trump Administration will still put out the draft IPI rule to keep pressure on Congress to act, but this plan effectively puts the IPI on hold until the action on the Hill concludes, probably in December,” Assaraf said.

RELATED: Trump seeks 'favored-nation' order on drug prices—but what would that even look like?

Wolfe Research analysts said the IPI measure “does not have broad support in Washington” and even if passed would likely face pharma pushback in the courts.

“If widespread implementation were sought, the drug industry would likely mount a legal challenge,” the analysts wrote.

Another Trump initiative, a “favored-nation” clause on drug prices, faces an uncertain future—if anyone can figure out how exactly it would work. The term, typically reserved for trading partners, would be designed to peg prices for drugs sold to government payers to the lowest cost seen in other industrialized nations, Trump said.

In early July, a federal judge knocked down another Trump initiative to list the price of drugs in direct-to-consumer TV advertising, saying the new rule violated drugmakers’ First Amendment rights.