The final bill is weaker than earlier versions, which would have extended negotiations to more drugs and included private insurance plans. The bill would enable only Medicare to negotiate prices beginning in 2026, initially for just 10 drugs.
The bill’s champions say that PhRMA’s gloomy prophecies are overblown, and that history is on their side.
“It’s complete bulls**t and a scare tactic,” Andy Slavitt told KHN. As a leading federal health official in 2016, he tried to change part of a Medicare program that pays doctors a fixed 6% of the cost of a drug each time they administer it, creating an incentive to use the most expensive infusion drugs. PhRMA funded most of the loud campaign that defeated his efforts, Slavitt said.xf
Another scare tactic: The drug industry warns that any price negotiation will kill innovation. Such warnings “constitute the pharma response in literally every instance since 1906,” the year the first drug regulation agency was created, said Dr. Aaron Kesselheim, who leads the Program on Regulation, Therapeutics, and Law at Brigham and Women’s Hospital in Boston. And yet, he said, regulatory changes rarely choked out investment in new drugs.
For example, the drug industry bemoaned a bill to boost generic drugs sponsored by Rep. Henry Waxman (D-Calif.) in 1984. Yet while 50% of prescribed drugs were generics in 2000 — up from 15% in 1980 — approvals of important new drugs also soared during the period, Kesselheim noted. The threat of losing market share to generics, he said, may have induced manufacturers to invest in innovation.
The drug industry’s attacks on regulation have a rich and florid history. In the early 1900s, the Proprietary Association of America warned newspapers that their advertising revenue would dry up if the industry had to list its ingredients (mostly alcohol). The law passed in 1906, but newspapers — and the drug industry — survived it.
Sometimes the industry’s breast-beating is a negotiating tactic, one that has led to concessions from Congress and the federal government.
If Medicare negotiations cut into the profits of the biggest earners, investors in risky biotech companies, whose drugs rarely strike it rich, will shift some of their portfolios from pharmaceuticals into other sectors, said Craig Garthwaite, director of health care at Northwestern University’s Kellogg School of Management. “There’s a fair argument as to how much,” he said.
He noted that after Medicare’s drug program was created in 2003 — the drug industry initially opposed it — an increase in federal spending on medicines inspired pharmaceutical companies to spend more on drugs aimed at older people. “Once you invest in clinical trials, that money never comes back unless it’s in revenue for products sold,” he said.
Yet some experts argue that Medicare drug pricing negotiations could hasten innovation if they steer companies away from drugs that modestly improve outcomes but can earn massive amounts of cash in the current system of unchecked prices.
In other high-income countries, drug price negotiations are the norm. “Right now, we are the odd man out,” Rajkumar said. “Are we really that brainy that we are right and everyone else is wrong? Are we really looking out for our public better than everyone else?”
Large patient groups such as the American Cancer Society and American Heart Association, all of which have significant drug industry support, stayed on the sidelines of the debate over the language in the drug price negotiation bill.
Some other patient groups, fearful that the industry will lose interest in drugs for smaller populations should prices decline, opposed the bill — and successfully won exceptions that would prevent Medicare from negotiating prices on drugs for rare diseases.
David Mitchell, a multiple myeloma patient who founded Patients for Affordable Drugs in 2017, said he’s sure the bill won’t discourage innovation — and his life may depend on it. The 68-year-old said he’s on a four-drug regimen but “cancer is very clever and finds a way to get around drugs.”
“The idea that taking a small bite out of pharma revenue is going to stop them from creating new drugs is bulls**t,” he said.
KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.
Correction: This article was updated on Aug. 13 to remove a reference to the American Diabetes Association’s position on the drug bill.