Drug-Price Bill Pruned by Senate Arbiter in Partial Industry Win

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(Bloomberg) — Medicare was cleared to negotiate drug prices for the first time by the Senate’s top rules official, though the Democrats’ proposal intended to cap price increases for prescription drugs in the commercial market was blocked.

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The ruling is a partial victory for drug makers, who could try to make up their lost profits in Medicare on private insurers.

The Senate parliamentarian, Elizabeth MacDonough, ruled that most of the drug-price bill is eligible for a fast-track budget process whereby Democrats, who have a narrow majority in the chamber, can pass legislation without the threat of a Republican filibuster.  

The drug price provisions are part of a budget bill that the Senate plans to begin debating later Saturday, representing a slimmed-down version of President Joe Biden’s multi-trillion dollar domestic agenda.

“Democrats have received extremely good news: for the first time, Medicare will finally be allowed to negotiate prescription drug prices, seniors will have free vaccines and their costs capped, and much more,” Senate Majority Leader Chuck Schumer said in a statement. 

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Yet the Senate rules official disallowed some provisions meant to stop drug companies from raising prices at a rate faster than inflation. The inflation rebate is allowed to be applied to Medicare prices, but not in the commercial market according to two people familiar with the ruling.

A provision capping out-of-pocket costs for insulin at $35 per month for Medicare and private insurance is still under review, according to one of the people. The ruling on the inflation price penalty suggests the Senate official is likely to strike the cap in the private market as not closely related to the federal budget.

“I am disappointed that the calculation for the Medicare inflation rebate that included commercial units sold was ruled out of compliance, but the legislation nevertheless puts a substantial check on Big Pharma’s ability to price gouge,” Senate Finance Committee Chairman Ron Wyden said in a statement.

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With midterm elections looming in November, the tax, climate and spending package is on track for passage after a year of wrangling with moderate holdout senators Joe Manchin and Kyrsten Sinema over the contents.

The parliamentarian ruled earlier Saturday that energy tax credits, including for the purchase of electric vehicles, can be allowed in the bill. 

Democrats originally designed the bill to require drug makers to pay the government revenue earned from raising the price of their products at more than the US inflation rate, calculated by units sold in both Medicare and commercial markets. Now, the legislation will not count commercial markets, which cover roughly 180 million Americans.

MacDonough found that under Senate rules the inflation provisions of the bill were not primarily budgetary in nature.  

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The bill would still allow Medicare to negotiate the prices for drugs it provides under Part B and Part D for the first time, would apply a tax to companies failing to comply with the negotiated price and apply a $2,000 cap on annual out-of-pocket expenses for people enrolled in Medicare Part D. Those parts were approved, Schumer said.

Limiting the inflation rebates to just Medicare means that drug makers can still annually raise prices for the two-thirds of Americans younger than 65 who have private health insurance. It will also limit some of the savings from the drug pricing provisions of the legislation, although how much is unclear.

Under Senate rules designed by late West Virginia Senator Robert Byrd, provisions must be fiscal in nature rather than primarily regulatory in order to qualify for the fast-track budget reconciliation process. 

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Manchin, a West Virginia Democrat, recently backed a package of $369 billion in climate and energy provisions as well as a 15% corporate minimum tax, increased tax audits and three years of Obamacare premium subsidies.  

Sinema this week signed off on the package after paring back the minimum tax to spare depreciation tax deductions, eliminating a change to carried interest taxes and inserting a 1% stock buyback tax. 

Last December, Manchin, who succeeded Byrd in the Senate, walked away from talks on a $2 trillion measure that would have provided child tax credits, paid family leave, childcare subsidies, Medicare hearing coverage and other social benefits. His vote is essential to any agreement.

The drug bill was the proposed funding mechanism for a plan to extend Obamacare premium subsidies that are set to expire in January. The bill was estimated to save the government $288 billion over 10 years, providing a funding stream for the subsidy spending.

Losing the inflation caps entirely would cost Democrats at least $36 billion, according to the Congressional Budget Office’s previous estimate of the provision. CBO has told Democrats their total drugs package would reduce spending by $288 billion.

(Updates with Wyden comment in eighth paragraph.)