Drug-price negotiation proposals could clear Senate rules

Originally written by Erin Durkin and posted on National Journal on April 1, 2021.

Policy experts say measures allowing government negotiation of drug prices for Medicare could get past Senate restrictions.

Democrats may be teeing up provisions to let the U.S. government negotiate prices for prescription drugs in one of their next major legislative packages.

But with Republicans staunchly against measures to allow the Health and Human Services secretary negotiate drug prices, Democrats will likely have to turn to a legislative vehicle that can circumvent Republican opposition.

If Democrats take this route, the proposal would have to clear arcane and strict Senate rules first or risk being knocked out of the bill.

House Speaker Nancy Pelosi has floated including drug-pricing provisions as part of the forthcoming infrastructure package, while Sen. Bernie Sanders has reportedly pressed for their inclusion in a reconciliation bill.

A reconciliation bill would allow Senate Democrats to pass these provisions with just a simple majority–effectively, along party lines. In order to accomplish this, their proposals need to meet strict parameters for budget reconciliation legislation.

The restrictions, also known as the Byrd Rule, dictate that legislation must have a budget impact that isn’t considered merely incidental to the provisions and doesn’t increase the deficit beyond the “budget window.”

Policy experts told National Journal that depending on the details, Democrats could have a decent chance of getting a proposal through the process that would allow Medicare to negotiate high drug prices. The proposals would likely need to provide other tools along with negotiating power in order to have an actual budgetary impact and make it past the Byrd Rule.

When the drug benefit was established under Medicare in 2003, known as Part D, lawmakers included a clause barring the government from negotiating drug prices for the program.

The Congressional Budget Office in 2019 said that negotiating drug prices alone would not yield substantial savings. “Negotiation is likely to be effective only if it is accompanied by some source of pressure on drug manufacturers to secure price concessions,” the report said.

Edwin Park, a research professor at Georgetown University, said both the House Democratic proposal, known as H.R. 3, and a separate plan from Sanders setting up a negotiation process for Medicare include tools that would help result in potential savings.

“The secretary could negotiate, but without either fallbacks or minimum discounts or rebates, or the ability to impose a preferred drug list, or other types of formulary requirements, then it wouldn’t produce savings,” said Park.

“Just striking those words might not have a budgetary impact and therefore might not survive the Byrd Rule,” he added.

The drug price negotiation program proposed in H.R. 3 could potentially clear the Byrd Rule, according to Rachel Sachs, an associate professor of law at Washington University in St. Louis.

Under the proposal, the HHS secretary would be required to negotiate the prices for certain drugs so that they do not exceed 120 percent of the average price from selected countries. Medicare Part D would be required to use this price and it would be available to insurers in the commercial market. It does not repeal the non-interference clause but amends the law to allow for the price-negotiation process.

“Since we’re talking about governmental expenditures and federal payers, then I think the budgetary effect is clear,” said Sachs. “The question is whether we would be able to expand the reach of that negotiation provision far beyond federal payers, and that would be a Byrd question, but I think as it relates to Medicare and Medicaid, there’s no question that we’re talking about federal government spending and expenditures.”

Pelosi said during a March 23 event celebrating the anniversary of the passage of the Affordable Care Act that lawmakers are contemplating including parts of the H.R. 3 legislation in an infrastructure package. The Congressional Budget Office estimated the drug-price-negotiation piece of H.R. 3 would save $448 billion for Medicare.

“One of the considerations that members are discussing is whether we have aspects of H.R. 3 … If we were able to do that, we could save almost half a trillion dollars, almost $450 billion,” said Pelosi during the event hosted by advocacy group Protect Our Care.

The Pharmaceutical Research and Manufacturers of America is concerned that their industry will end up funding Democratic projects.

“Threatening hundreds of thousands of jobs, jeopardizing access to medicines, and upending an innovative biopharmaceutical industry to pay for unrelated government programs is the wrong approach,” said PhRMA spokesperson Brian Newell. “This is an irresponsible scheme—particularly as we continue to combat a deadly pandemic—and we hope policy makers reject it and work together with us on real solutions.”

The Sanders bill would strike the language from statute that bars the government from negotiating drug prices and would direct the secretary to negotiate the prices of drugs for Medicare Part D that are considered high-cost. If negotiations fail, fallback prices would be based on what other federal agencies and certain foreign countries pay.

But the popularity of H.R. 3 and the massive CBO score may make the House bill attractive to leadership, said Phil Waters, staff attorney for the Center for Health Law and Policy Innovation at Harvard Law School.

“I think Pelosi and [Senate Majority Leader Chuck Schumer] would be looking to that giant CBO number right now as they’re trying to put together the next budget resolution and reconciliation instructions,” he said.

“They need to find some way to pay for what they want to spend,” he said. “One of the things that you saw in the last reconciliation packages is that a lot of the health things were temporary, because if you want to make changes to an entitlement program permanent, you have to find a permanent offset for it or some way to pay for it.”