The Journal. - The Showdown Over Medicare's Drug Prices

Episode Date: August 31, 2023

This week, the U.S. government named 10 drugs that will be subject to the first ever price negotiations by Medicare. WSJ’s Jared S. Hopkins talks about how this major change came about and pharmaceutical companies’ efforts to stop it. Further Listening: -How Big Pharma Lost Its Swagger  Further Reading: -Expensive Drugs From Pfizer, Other Companies Targeted for First U.S. Price Negotiations  -U.S. Chamber of Commerce Challenges Federal Government’s New Drug-Price Powers  -Merck Challenges U.S. Government’s New Powers to Negotiate Drug Prices  Learn more about your ad choices. Visit megaphone.fm/adchoices

This week, there was big news for Medicare, the government's health care program for seniors and some people with disabilities. A big announcement today that may impact anyone who gets prescription drugs through Medicare. President Joe Biden says he's going after pharmaceutical giants with a plan to make them lower the price of prescription drugs. with a plan to make them lower the price of prescription drugs. Ten medications treating illnesses like diabetes and even cancer will be subject to price negotiations under Medicare. The ability to bargain directly with drug companies on prices, it's something Medicare has never been able to do before. And now, the Biden administration has named the ten drugs

that are first in line for negotiations. More are expected to be added over time. And the plan is supposed to save Medicare $25 billion a year by 2031. But drug companies don't like this new arrangement. They say the government has them over a barrel. And they're gearing up for a long fight. Well, I think there's billions of dollars here at stake. There's billions of dollars of sales from drug companies. There's billions of dollars

of government dollars that the government wants to save. And there's a whole host of money that Medicare beneficiaries could potentially save. Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Thursday, August 31st. Coming up on the show, the clash between the Biden administration and Big Pharma. With Uber Reserve, you can book your Uber ride in advance, 90 days in advance. Perfect for all you forward thinkers and planning gurus. Reserve your Uber ride up to 90 days in advance. Uber Reserve. See Uber app for details. Medicare started in 1965, but for decades, it didn't include a benefit for outpatient

prescription drugs. That changed under President George W. Bush in 2003. Our government is finally bringing prescription drug coverage to the seniors of America. With this law, we're giving older Americans better choices and more control over their health care. What the law didn't include was the ability for Medicare to negotiate directly with pharmaceutical companies on drug prices, the way private insurers can. The 2003 law actually banned Medicare from those negotiations. That was because of Republicans who controlled Congress at the time and influential industry lobbyists. They wanted insurers that administered drug plans on behalf of Medicare to do the haggling,

not Medicare itself. And since then, politicians have tried to undo that ban. President Obama supported the idea. Canada, Mexico, their governments are bulk purchasers of these drugs. And so they negotiate much cheaper prices with the drug companies. We still don't do that. And I actually think it's something we should do. And though it's mostly been Democrats

leading the charge, even President-elect Trump came out swinging against pharma just days before he took office. And the other thing we have to do is create new bidding procedures for the drug industry because they're getting away with murder. Pharma. Pharma has a lot of lobbies, a lot of lobbyists, a lot of power. And there's very little bidding on drugs.

But attempts to allow Medicare to negotiate with drug companies never got anywhere. Until last year. That's when President Biden was able to get his signature bill through Congress, the Inflation Reduction Act. Here's our colleague Jared Hopkins. Reduction Act passes, which was this like massive piece of legislation that included provisions related to climate change and energy, as well as health care. It includes a $35 cap on insulin per month. There is this out-of-pocket cap, which means that seniors don't have to pay more than $2,000 for what they pay out of their pocket. So it includes a host of things.

The biggest one, the one that sort of everybody in the industry and analysts and companies and maybe grandparents who follow the news was what drugs are going to be subject to price negotiations. That's what became clear this week. The 10 medications that the Biden administration chose are in high demand and have big price tags. Most of them treat illnesses that are common among seniors, like diabetes and heart disease. Could you name the 10 drugs that are subject to these price negotiations? Oh, is this like a test? Sure. Jared rattled off a few of them. Eloquist is a

blood thinner from Pfizer and Bristol-Myers. Eloquist reduces stroke risk better than Warfarin and has less major bleeding than Warfarin. Genuvia is a diabetes drug from Merck. If you have type 2 diabetes, you may know what it's like to deal with high and low blood sugar. Entresto is a heart drug. Your heart is the beat of life. From Novartis. What's the other one I'm missing? Farsica from AstraZeneca. Take aim at chronic kidney disease. Ask your doctor for your kidney numbers and ask for Farsica. You know what? That one I don't know how to pronounce. I'm sorry. You know what? If that was a test, you would have passed it. The drug companies have until October to say whether or not they will participate in the negotiations.

And whatever price they agree on would take effect in 2026. In terms of how these negotiations take place, they all just sort of come to sit down in a room and duke it out, basically, and decide. When we see these 10 drugs, like Eliquis, for example, which is from Bristol-Myers and Pfizer, Medicare or the government officials there are going to go to the negotiating table with those companies, and they're going to haggle over the price that Medicare should spend on that drug. And then based on those results, that's what Medicare and the payers that administer Medicare will offer those drugs at. And that's what hasn't been done before. So in the past, Medicare prices were worked out by Medicare and payers or insurance companies that sort of administer the benefits.

But the government is now doing something directly with the drug industry. And that just isn't what's happened before. Can pharmaceutical companies opt out of these negotiations, like not work with Medicare? You know, the companies choose to participate in Medicare, right? So like they don't they don't have to provide their drug to Medicare, but it happens to be the biggest purchaser. It happens to be drug company's biggest customer. If they ultimately choose not to participate

in the negotiating process, if they choose not to accept the price that results from the negotiating, they face a penalty of up to 95% of their U.S. sales, which is a lot of money because the federal government is the biggest purchaser of prescription drugs in the United States. So, you know, that's potentially very big for them. Now, a drug company is going to just drop out. You know, why not just not participate? That sort of seems

unlikely, given that these are widely used medications. These are really common. Millions of Americans use them. If you talk to literally any of these drug companies, especially their CEOs, they're going to tell you they don't look at this as negotiating. They don't call it negotiating. They call it price controls. And, you know, I talked to the Bristol-Myers CEO about the 10 drugs, their drug eloquence is in this. And, you know, he said it's like impractical for them to take this penalty. And at the same time, like, it would also mean that if they pulled the drug from Medicare, then, you know, patients are, so many patients are going to be without their medications. That's why the industry doesn't view this as negotiating. They view it as like, you're going to sit somewhere where the other party has all the leverage.

Okay, so you've talked a little bit about the penalty that drug companies face if they don't, if they decide not to participate or if they choose not to accept the price that results from negotiations. What other options do they have? Well, this is America, so, you know, they sued the government to prevent drug price negotiations from taking effect. Where the lawsuits could head, that's after the break. Summer is like a cocktail. It has to be mixed just right. Start with a handful of great friends.

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How much does the industry stand to lose in revenue once these new prices are implemented? So the estimates are like $40 billion over the next handful of years. So that's a big chunk of change for the industry. Under the new law, more drugs will be up for negotiation every year. The industry says this poses a serious threat to its business model. So drug companies, venture capitalists, and people in the drug industry have said that the Inflation Reduction Act will discourage investment and it will lead to fewer new innovative drugs. The industry's main lobby group, the Pharmaceutical Research and Manufacturers of America, has brought a lawsuit.

the Pharmaceutical Research and Manufacturers of America, has brought a lawsuit. So has the U.S. Chamber of Commerce. Companies, including Johnson & Johnson, Merck, and Bristol-Myers Squibb, have also filed suits in courts across the country. These lawsuits claim that drug price negotiations are unconstitutional and essentially amount to an unfair tax on the companies. The ultimate goal is to stop the law from taking effect. How likely is it that these cases will go all the way up to the Supreme Court?

So it seems like a pretty good chance they're going to go to the Supreme Court. The various lawsuits have been filed in different jurisdictions, which legal experts see as a way to sort of drive it up to the Supreme Court. It's worth mentioning, though, that it's possible that a single court issues a temporary injunction and sort of maybe it puts the negotiating process on hold. It might mean that the first set of drugs, of new negotiated drugs, are not in 2026, but maybe they come in future years. Or if the Supreme Court finds this law unconstitutional, maybe it never comes.

The Biden administration has said that it will fight the lawsuits. So what happens next? The negotiations will kick off like in a matter of weeks or months. And then the prices that result from that negotiating, those prices go into effect in 2026. What health experts say is that these drug price negotiations could lead to premiums not going up, which is helpful to seniors, and it will lead to savings in the government of health care spend, and that those savings are supposed to go towards capping out-of-pocket expenses for seniors. for seniors. Now, if you're wondering whether or not seniors will see their co-pays go down,

if they're going to see what's called co-insurance go down, that remains to be seen. So yes, then the negotiations will begin. And then, guess what? Next year, we're going to do all this again. What does this mean for drug makers as a political force? Like, does it threaten their power? Well, there are questions about sort of the influence of pharma in Washington right now.

This is a major loss. This is the biggest loss to the prescription drug industry. So there are questions as to sort of, does the drug industry need to sort of do things differently? The drug industry needs to sort of do things differently. That's all for today, Thursday, August 31st. The Journal is a co-production of Gimlet and The Wall Street Journal. Additional reporting in this episode by Stephanie Armour. Thanks for listening.

See you tomorrow.