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Biden's Medicare price negotiation plan faces new challenges

The government can negotiate cheaper drug prices for seniors. What does that mean, and why pharmaceuticals have sued the government to stop the plan?
Biden's Medicare price negotiation plan faces new challenges
Posted at 2:33 PM, Sep 17, 2023

At a food distribution center in West Allis, Wisconsin, last year, volunteers heard from seniors who faced a harrowing dilemma, said Sherrie Tussler, director of the local Hunger Task Force. "Should I pay for my prescription medication or should I eat?"

76-year-old Dennis Kopp says he's on a "fixed budget." "I take ten pills in the morning and I take six pills at night," he says. He was prescribed a medication for diabetes that cost $2,700 for three months of pills. "I can't afford it," Kopp says.

Kopp, like more than 40 million seniors, gets his medications as part of Medicare. There's a new program, passed as part of the inflation reduction act last year, that will allow Medicare, for the first time, to negotiate lower drug prices—maybe helping seniors like him.

Between 2002 and 2021, the amount Americans shelled out for pharmaceuticals each month almost tripled. According to Kaiser Family Foundation polling, 60% of Americans say prescription drugs have made people's lives better. But 79% say their costs are "unreasonable."

82% of Americans polled say the government should negotiate with drug companies to get a lower price for Medicare patients.

"Before 2003, Medicare actually didn't cover prescription drugs at all. And as part of the 2003 Medicare reforms, prescription drug coverage was added for the first time," says Nicholas Bagley, a law professor at the University of Michigan.

Republicans resisted the negotiation part, Bagley says, and they included a provision that prohibited Medicare from negotiating prices for those drugs.

"The idea from Democrats was that Medicare ought to be able to use its immense bargaining power, its immense leverage to get a good price for drugs on behalf of the American taxpayer. But that wasn't the way the legislation was drafted, and it's been a bone of contention ever since," says Bagley.

SEE MORE: Medicare can now negotiate prices on these drugs to help seniors save

Until, that is, Senator Joe Manchin (D-WV) took on the issue. Last year, Manchin, a key centrist, joined President Biden to pass the two trillion-dollar Inflation Reduction Act.

That bill included a price cap for insulin, a two thousand dollar cap on the yearly spending Medicare recipients can pay for drugs, rebates to reduce the impact of inflation, and Medicare's new negotiating power.

"This year, the American people won and Big Pharma lost," said President Biden at a spring rally.

Here's how it's going to work: "So Medicare is going to select each year a list of drugs that will be subject to price negotiation the first year, which will begin in 2026," explains Bagley. "What happens during these negotiations is that the drugs that are selected, the manufacturers are told, 'Hey, you need to come and sit down with Medicare in order to negotiate a maximum fair price for your drug.' And if you don't, you're going to face either an immense excise tax on sales of that drug or you can choose just to leave the Medicare and Medicaid programs altogether."

The first ten drugs that will be subject to price negotiations include blockbuster medications for blood clots, diabetes, and heart failure. Roughly ten million Medicare patients receive the drugs through Medicare.

The drug companies say that if negotiations harm their bottom line, they'll have to scale back research into new medicines. And they're fighting the new program in court, having filed eight federal lawsuits to block it. "The basic argument that the drug manufacturers are making is that they're being coerced into participating in this drug negotiation scheme," says Bagley. "And they say that violates any number of constitutional provisions."

"The law is quite clear that private companies, private physicians, private hospitals, they get to make a choice about whether to participate in Medicare and Medicaid," says Bagley. "And if they don't want to, they can walk away. And it might be hard to walk away from the programs because Medicare and Medicaid are so lucrative."

The congressional budget office estimates that if the program survives the legal challenges, it will reduce the federal budget deficit by one hundred and twenty-nine billion dollars by 2031.

And it could have a big impact on millions of seniors pocketbooks and wallets as well.

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