Tangle - The debate over Medicare drug price negotiations.

Episode Date: August 31, 2023

Medicare drug pricing. On Tuesday, the Biden administration named 10 drugs that will be subjected to the first-ever price negotiations by Medicare, the government's health program that covers 65 million Americans.You can read today's podcast here, today’s Under the Radar story here, and today’s “Have a nice day” story here. You can also check out our latest YouTube video here.Today’s clickables: Quick hits (1:28), Today’s story (3:24), Left’s take (7:34), Right’s take (12:01), Isaac’s take (15:54), Listener question (20:32), Under the Radar (23:16), Numbers (24:04), Have a nice day (24:56)You can subscribe to Tangle by clicking here or drop something in our tip jar by clicking here.Our podcast is written by Isaac Saul and edited by Jon Lall. Music for the podcast was produced by Diet 75. Our newsletter is edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle’s social media manager Magdalena Bokowa, who also created our logo.--- Send in a voice message: https://podcasters.spotify.com/pod/show/tanglenews/message Hosted on Acast. See acast.com/privacy for more information.

Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is Chinatown is streaming November 19th, only on Disney+. yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages six months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at flucellvax.ca.

From executive producer Isaac Saul, this is Tangle. Good morning, good afternoon, and good evening, and welcome to the Tangle podcast, the place we get views from across the political spectrum, some independent thinking, and a little bit of my take. I'm your host, Isaac Saul, and on today's episode, we get views from across the political spectrum, some independent thinking, and a little bit of my take. I'm your host, Isaac Saul, and on today's episode, we're going to be talking about Medicare drug price negotiations, a little bit of wonky policy stuff, but we're going to try to break it down, make it interesting, make sure you understand exactly what is going on. Before we jump in, though, a quick heads up. We are going to be off on Labor Day. Labor Day is a bank holiday, which our team observes. But we will be here tomorrow sending out a newsletter to our 10,000 plus Tangle members who get Friday editions every week.

Tomorrow, I'm going to be breaking down a two minute clip of an interview I saw with a Republican candidate for president and explaining how both the interviewer, the media, and the candidate politicians mislead viewers on cable television. A reminder, if you want to receive those Friday editions, you can go to readtangle.com slash membership. All right, with that out of the way, we're going to jump in, starting off with some quick hits. First up, Senate Minority Leader Mitch McConnell appeared to freeze while speaking at a press conference in Kentucky, the second such incident this summer. Number two, a federal judge has ruled that Rudy Giuliani forfeited a defamation case brought by two election workers in Georgia, thus losing by default. Number three, Hurricane Adalia moved through Florida's northern Gulf Coast yesterday, making landfall as a Category 3 storm. It hit the sparsely populated Big Ben region and drove significant storm surge into cities in the

South. Number four, the Department of Health and Human Services recommended that the DEA reclassify marijuana as a lower-risk controlled substance, a first step in a shift in federal policy. And number five, a fourth detainee at the Fulton County Jail in Atlanta died this month as the Justice Department is already investigating the jail for poor conditions and violence. For the first time, the federal government is prepared to negotiate with pharmaceutical companies over the price of some very popular drugs under Medicare. This is part of President Biden's plan to lower prescription drug costs, part of the Inflation Reduction Act passed by Congress last year. drug costs, part of the Inflation Reduction Act passed by Congress last year. This morning, the White House is naming 10 historically expensive drugs that it selected for Medicare price negotiations. The announcement is part of President Biden's ongoing plan to lower

health costs across the nation, particularly when it comes to Medicare. President Biden today announced the first batch of drugs designated for Medicare price negotiations, a goal of Democrats and supported by much of the American public for decades. The 10 medications selected today are among those that cost Medicare the most money and could save the government billions of dollars. But drug manufacturers are attempting to block the effort. On Tuesday, the Biden administration named 10 drugs that will be subjected to the first ever price negotiations by Medicare, the government's health program that covers 65 million Americans.

A quick explainer, Medicare is the health insurance program in America for people who are 65 and older. Some younger people with disabilities and some Americans with end-stage kidney disease are also on Medicare. Medicare is split into three parts, hospital insurance, medical insurance, and prescription drug coverage, also known as Medicare D. Typically, patients have to pay some drug costs out of pocket, but this program helps people cover the prescription price of both generic and brand name drugs. In 2021, Medicare spent $378 billion on drugs. In last year's Inflation Reduction Act, Democrats included a measure that allowed Medicare to negotiate drug prices directly with pharmaceutical

manufacturers for the first time ever. Under the new law, Medicare can negotiate the prices of a certain number of drugs each year. The drugs are limited to those that the program spends the most on and that don't face completion from less expensive alternatives. The Biden administration's announcement on Tuesday of those 10 drugs was a major moment in the government's efforts to lower drug costs. In 2019, the U.S. spent about double the amount on prescription drugs that peer countries did per OECD data. We pay more for prescription drugs than any other economy in the world, President Biden said in the announcement. The list of drugs announced by the administration includes treatments for diabetes, heart disease, and cancer.

Some of the drugs are taken by hundreds of thousands or millions of Americans and cost upwards of $500 a month, while other drugs are less common but much more expensive, sometimes costing more than $100,000 per year. The price changes would not go into effect until 2026. Medicare could save $25 billion on the drugs by 2031 and an estimated $99 billion over 10 years. For patients, the price negotiations may not have a direct impact on costs. However, Medicare plans to use the savings to cap annual out-of-pocket costs for patients at $2,000 starting in 2025. That means Medicare recipients who don't use the drugs listed may still benefit from the savings. Pharmaceutical companies and business trade groups are expected to challenge the constitutionality of the new drug pricing negotiating powers,

arguing that it violates Eighth and Fifth Amendment prohibitions against excessive fines and the taking of private property without just compensation. Further, critics say, many of the drugs are already discounted, and price negotiations will hurt these companies' bottom lines. This ultimately could curb research into new drugs. With the list revealed, drug makers will have to sign an agreement to negotiate and submit data for Medicare to consider for its negotiated prices. Medicare will then offer its initial price on the selected drugs, and manufacturers can counterbid or accept the offer after one month. However, the law allows Medicare to set the final prices and impose tax penalties of up to 95% of the drug company's U.S. sales

if it does not negotiate or adhere to the prices set. By September 2024, the prices of the newly announced drugs should be set. The pharmaceutical research and manufacturers of America criticized the new negotiating powers. Giving a single government agency the power to arbitrarily set the price of medicines with little accountability, oversight, or input from patients and their doctors will have significant negative consequences long after this administration is gone, they said. In a 2021 poll, KFF found that 83% of Americans support Medicare negotiating drug prices, including 95% of Democrats and 71% of Republicans, even after being presented with arguments from both parties on either side of the legislative debate. Today, we're going to focus on the debate over how this policy will impact drug prices and how it will play out politically. We'll save the legal

arguments about the constitutionality of these changes for another day. As always, we're going to share some views from the right and the left agree that drug prices in America are a real problem and in some cases out of control. There are also commentators on the left and the right who suggest more focus should be put on the middlemen in the supply chain. However, their solutions for how to solve the problem vary, and there is considerable disagreement on specifics even within the left and right factions. So first, let's start with what the left is saying. The left agrees that prescription drug prices in America are out of control, and most believe Medicare should have a larger role in price negotiations. Many in support argue that the negotiations are smart policy and great politics.

Others suggest that price controls won't address the real culprits, who are the middlemen. And MSNBC's Sean Aleem said this is good politics and good policy. The Biden administration took a big first step Tuesday toward reducing the cost of prescription drugs for tens of millions of Americans, Aleem wrote. It's good news for the public and an exceptionally powerful asset for President Joe Biden as he makes his case for re-election. Prices could be reduced by 50%, saving the government nearly $100 billion over a decade. This should lower premiums and out-of-pocket spending for Medicare beneficiaries. The list's unveiling marks Biden's most tangible step toward fulfilling his campaign pledge of lowering drug prices,

and he's already planning on making it a key part of his 2024 messaging. Lowering drug prices plays extraordinarily well across the political spectrum, Alim noted, and huge majorities of Republicans and Democrats want the government to negotiate drug prices. Pharmaceutical companies are suing, and it's unclear how those legal challenges will go. But at least for now, it's another case of his administration executing policies that are both substantively good and politically advantageous. It's also a long overdue measure that would help bring the U.S. one step closer to its peer nations who use the government to regulate prices and protect their citizens from extortion.

In Forbes, Howard Gleckman said the pharmaceutical industry's argument that high prices are necessary is unconvincing. This isn't like price controls, where the government tells a supermarket how much it can charge for a banana. Most economists agree such efforts to cap market prices usually are doomed to fail, Gleckman said. When it comes to drugs, the government agency, the Department of Health and Human Services, isn't acting as a regulator. It is a consumer, and not just any consumer. It is by far the biggest purchaser of prescription drugs in the world. I imagine, for example, that Pfizer gets a pretty good deal from makers of the test tubes it purchases in bulk. Pharma and its supporters say U.S. drug prices are a major incentive to do the official work of drug research, which often results in failure. If we are not well compensated for the rare winners, they say, we'll develop fewer drugs, Gleckman wrote. But much cutting-edge,

early-stage research is done by small startups, which bear the financial risks, not by big pharma. The large firms often acquire successful drugs or even buy the companies that make them and act as more marketers than researchers. Whatever the outcome of the industry's legal claims, its economic argument against drug price negotiations is weak. The Economist's editors argue that the healthcare costs are out of control, but believe price controls can miss the real culprits, the middlemen. The ban on negotiations was illogical, and allowing Medicare to bargain with drug makers makes sense. Alas, the new rules are too heavy-handed and could have damaging effects. One problem is that they have swung from one

extreme to another. Officials will not so much be negotiating the price as setting it, they said. Pharmaceutical firms are not earning vast excess profits considering the risk of their investments. If they doubt that they will make a sufficient profit on their investments, they will spend less on finding new drugs. Sure enough, studies suggest that falling revenues hit research and development spending hard. The new rules will have further perverse consequences. Currently, it can be beneficial for a new drug to win its first approval for use by a small group of patients, such as those with rare or late stage cancer, and after that go through trials for diseases that affect more patients, they wrote. But the new rules allow a fixed term of unregulated pricing that begins with the first drug approval.

This encourages firms to seek treatments for the most lucrative diseases first. Regulators would do better to pay more attention to the rest of the supply chain. The system is packed with opaque middlemen, such as pharmacy benefit managers, many of which are making big rents. That is it for the leftist thing, which brings us to what the right is saying. Many on the right agree that prescription drug prices are too high, but view these as price controls that will ultimately harm consumers. Some argue that this policy is going to create some very negative outcomes, including less innovation in the drug space and call on targeting the middlemen. Others suggest the policy could simply drive prices up for people on private insurance. In the Boston Herald, Wolfgang

Klepman said this will hurt innovation. The problem with such a system is that it would diminish patient access to treatments. We only need to look at countries with drug price controls to see the effects. Overall, the European Union, South Korea, Japan, Canada, and Australia saw significantly fewer new treatments introduced over the last two decades than the United States, Kleitman said. A study by health analytics firm Vital Transformation shows that piling the Smart Prices Act on top of the IRA's drug policies would result in about 230 fewer new FDA-approved medicines and more than 1 million jobs lost over the next 10 years. There are better ways legislators could tackle drug costs. For example, the middlemen known as pharmacy benefit managers, or PBMs,

make billions of dollars a year by negotiating rebates from drug makers in exchange for favorable treatment by insurance plans. This has had the perverse effect of pressuring drug companies to raise list prices in order to increase the size of rebates and therefore PBM revenue. Americans would benefit from legislation that targets these predatory practices, but enacting more price controls before the first ones have even taken effect would do far more harm than good to American patients and the future of medicine. In Deseret News, Kelvin Colmore said Congress should look elsewhere to reduce the prices for consumers. Based on Charles Yu's award-winning book, Interior Chinatown follows

the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is nearly double the historic average of 52,000 cases. What can you do this flu season?

Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages six months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at FluCellVax.ca. These latest proposals would significantly increase and speed up the number of drugs subject to Medicare price controls under the Inflation Reduction Act, cutting by half the

period from FDA approval to when price setting kicks in. This is particularly concerning since the Inflation Reduction Act's drug pricing provisions have yet to be fully implemented. Studies have already shown that the Inflation Reduction Act in its current form will hurt drug research and development or R&D. We all agree that Congress should explore measures that address the affordability and accessibility of drugs, but an in-depth review of price-setting proposals demonstrates that producing fewer medicines is not the right answer, Colamore said. Further, these policies fail to take into account the full scope of the real drivers of high out-of-pocket drug costs by including all players in the supply chain, such as pharmacy benefit managers and insurers.

The Wall Street Journal editorial board said price controls mean slower cures. The Inflation Reduction Act, or IRA, is the worst legislation to pass Congress in many years, and its drug price controls are especially harmful, the board wrote. Drug makers that don't participate or reject the government's price will incur a crippling daily excise tax that starts at 186% and eventually climbs to 1,900% of the drug's daily revenues. This is extortion, not a negotiation. The problem is also being overstated. Medicare spending on prescription drugs has grown less than for hospital and physician services in the last decade, and total out-of-pocket spending on prescription drugs has grown less than for hospital and physician services in the last decade, and total out-of-pocket spending on prescription drugs in nominal dollars is lower

than it was in 2003 and accounted for only 1% of the $4.25 trillion the U.S. spent on healthcare in 2021. Competition from generics has held down drug prices, yet the IRA will discourage investment in new generics and biosimilars because their manufacturers could later be undercut by government price controls on brand drugs, the board said. That means Americans may end up paying more for prescription drugs thanks to the IRA. This will also give companies incentives to launch drugs at higher prices and raise those prices for the 218 million privately insured Americans. All right, that is it for the left and right are saying, which brings us to my take. So first of all, I have to say, after a couple of weeks of covering political investigations and not so mysterious deathsmysterious deaths and wildfires and debates,

it's nice to do some actual policy coverage. It's also nice to see some agreement. Like the vast majority of Americans and pundits, I believe the government should do more to bring down the cost of prescription drug prices, and I'm glad to see the Biden administration, Democrats, and a handful of Republicans getting behind some actual solutions. I also think it's clear from reading these arguments that Medicare drug pricing is an extremely complicated issue, and anytime a policy change like this happens, it's almost certain to produce unintended consequences. That said, it seems to me that the best way for the government to implement a policy like this is threefold. First, they should frame this as more of a baby step than a massive overhaul.

After all, these initial negotiations will only apply to 10 drugs, and the drugs eligible for negotiations have to meet specific qualifications like no generic competition, having been on the market for a long time, and being a major cost for Medicare. Second, if the drug prices actually come down, it could reduce healthcare costs in a cyclical way. When drugs are less expensive, more people take them, especially drugs for diabetes and blood thinners, which would actually make Medicare recipients healthier. Improving the health of these patients will reduce healthcare costs for everyone, the entire country, not just Medicare and its patients.

The benefits could be cyclical. Third is a counterpoint. Even if you accept that this is heavy-handed policy, you could argue persuasively that this is what it takes to reign in big pharma. Put differently, making big pharma the victim here after decades of its largest customer not even being able to negotiate is an overreach. These companies are already gaming the patent system to block out competitors, and the examples of big pharma companies implementing unethical pricing practices that hurt consumers are numerous. The position we're in warrants decisive government action. At this point, it might even warrant government overaction.

The best arguments against this policy are pretty straightforwardly laid out above. For starters, this isn't really a negotiation in the traditional sense. It wasn't right that Medicare couldn't negotiate prices, but now we've effectively flipped it. Medicare will get to decide the prices, and these drug companies will have to deal with it or face incredibly harsh penalties and the removal of their drugs from the program. Price controls is probably closer to an accurate description of what this is than price negotiations. Given that, there's pretty good research and real-world data on the way price controls impact investment, and it's not good. One University of Chicago study estimated that the drug price controls would reduce R&D by

$663 billion through 2039, with 135 fewer drugs approved. Each of those drugs could have the potential to save or dramatically improve thousands of people's lives, but would effectively be stymied. Second is the middleman argument, which also appears under what the left is saying, courtesy of the very slightly left-of-center economists. I like the focus on the middleman because it doesn't just offer criticism of this policy, it offers another solution. In fact, House Republicans are already investigating how pharmacy benefit managers, or PBMs, negotiate drug prices and charge fees. Health insurers and employers hire PBMs to negotiate prices, and PBMs seek out rebates and discounts from Big Pharma in exchange for selecting their drugs for the programs. Even for huge pharmacy companies, failing to land these deals can do serious damage to the bottom line, giving PBMs a great deal of leverage

in the process. To me, a more holistic policy proposal may have packaged some kind of PBM reforms with Medicare price negotiations that were more negotiation and less hostage-taking, as the Wall Street Journal editorial board put it. Unfortunately, despite bipartisan interest in regulating PBMs, Congress doesn't seem to know exactly what it wants to do about them yet, which makes reining them in impossible. Biden and Democrats decided not to wait, and instead forged ahead with price negotiation legislation that's been in the works for years. And it's hard to blame them, given the public interest in this kind of reform. It also seems to be one of the rare divides between Republican voters, who overwhelmingly

want this, and Republican pundits and legislators who seem uniformly against it. Perhaps that is reflective of Big Pharma's stranglehold on Congress and the corporate media. Either story would be politically advantageous for Biden. Politics aside, I'm hopeful this works as the administration intends, but I can't honestly say after reading all these arguments I feel confident one way or another. All right, that is it for my take, which brings us to your questions answered. Today's question comes from Emery in Regina, Canada. Emery wrote in about how Biden may be stretching or reinterpreting the law to enact his latest monument. I'm sure it has always happened, but it seems this is happening a lot with Biden. I'm Canadian, so I don't really

know, Emery said. But it makes me think, what does this stretch or reinterpretation do for the Republicans? How might this bite Democrats back when Republicans are back in power? And what are some examples of this in the past? And vice versa, what are some Republican reinterpretations that came back to haunt them or help the Dems get what they wanted when they became in power? So this is a great series of questions. As a quick recap, in our edition about the new national monument in Arizona, we discussed how President Biden was stretching the Antiquities Act past what it was intended to do. We referenced Tristan Justice explaining that Joe Biden is establishing quasi-national parks that do not seem to, as the act requires, use the

quote, smallest area compatible with the proper care and management of the objects to be protected, end quote. Biden has used the Antiquities Act to create or restore national monuments five times as president. So how could using this same logic benefit Republicans? Well, first and foremost, what is done with executive action can be just as easily undone by executive action as President Biden did with Obama's monuments and then as Biden redid when he took office. In general, Republicans seem to be more quote-unquote pro-development than Democrats, so I don't know if they'd want to use the same logic to extend protections of greater area in the same way that Obama and Biden have. What I could see, though, and this is just pure speculation on my part, is Republicans sidestepping

the federal land provision and observing existing mining contracts in the same way Biden did when he established the newest national monument. Since that monument is partially on tribal lands and non-contiguous, I could see Republicans using this logic and precedent to put protections around existing mining operations on tribal lands and then grant exemptions for current contracts on that land, effectively protecting mining operations. I think that would be a giant electoral loser for Republicans and I doubt they'd want to do that, but I could see how they could make it work, in theory. As for examples from the other way around, I'm sure our listeners can help out

here, but the first thing that comes to mind for me is the Supreme Court's reversal of Roe v. Wade. The ruling was only possible through Republican court appointments, which many pundits believe led directly to their huge underperformance in the 2022 midterms. If you have an example, let us know right in. You can reach me, Isaac, I-S-A-A-C, at retangle.com. All right, and next up is our under the radar section. Despite so many Americans having doubts about K-12 education in the United States, it turns out parents are actually pretty happy. New Gallup polling shows

that while only 36% of U.S. adults are satisfied with the country's schools, 76% of parents say they feel good about their own kids' education. Since the pandemic hit and education issues became central in the culture wars, the divide between parents' firsthand experiences and the rest of the country has only grown. While the overall satisfaction with schools is the lowest it's been since Gallup was polling the question in 1999, parent satisfaction is as high as it's been for most of the last decade. Axios has this story and there's a link to it in today's episode description. All right, next up is our numbers section. The per capita prescribed medicine spending in the United States is now $1,126. That's the most of any OECD country. The per capita prescribed medicine spending in Germany is now $825, the second most of any OECD country. The average

per capita prescribed medicine spending in comparable countries to the U.S. is $552. The amount of that per capita medicine spending that is paid for out of pocket in the United States is $164. The amount of that per capita medicine spending that is paid for out of pocket in Germany is $55. Finally, the amount of money the pharmaceuticals and health products industry spent on lobbying in the United States in 2022 was $373 million. That's the most of any industry. All right, and last but not least, our have a nice day section. Eight people were left stranded in a cable car in Pakistan for

hours after two of the three supporting cables snapped. A military helicopter originally came to attempt a rescue, but fading light and high winds allowed them to save only one individual. That's when Sahib and Nasir Khan, with their experience running a cable car business, stepped up. The two brothers used a zip line to reach the cable car and help the five children and two adults who remained stranded inside back to solid ground, one at a time. Today, the way these two young men carried the rescue operation out has made the whole nation proud of them, said Javed Nasir, a local resident. Good News Network has the story on their heroics, and there is a link to it in today's episode description. All right, everybody, that is it for today's podcast. As I said at the top,

if you want to hear from us tomorrow, please go subscribe, readtangle.com slash membership. We're going to be breaking down an interview I watched on cable TV yesterday, really just a two minute clip that made me angry and curious and wanting to write about it. And I'm going to let it out tomorrow in our Friday edition, because I think it's very illustrative of what's wrong with our media and politics today. So we'll be doing that tomorrow. You know where to find us, readtangle.com. Also keep your eyes out. I'm recording this. It's morning on Thursday. By the time you're hearing this, there's going to be a new YouTube video up on our channel, Tangle News at YouTube about President Biden and whether he is too old to run again. Another one that made me crack open the whiskey. So I highly recommend going to check it

out. All right. We'll be back here on the podcast on Tuesday. See you then. Have a great Labor Day weekend. Peace. Peace. was produced by Diet 75. For more on Tangle, please go to readtangle.com and check out our website. Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, Thanks for watching. history and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is nearly double the historic average of 52,000 cases. What can you do this flu season? Talk to your pharmacist or doctor about getting a flu shot.

Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages six months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at FluCellVax.ca.