The Biden administration on Thursday endorsed an aggressive proposal to limit prices for prescription drugs, calling for the government to negotiate with drug makers on prices and applying those prices not just to Medicare but to all drug purchasers in the country.
The proposal, published as a 29-page white paper from the Department of Health and Human Services, was included a range of recommendations to foster more competition among drugmakers and improve the affordability of drugs for patients enrolled in Medicare.
The administration cannot make such large changes on its own; it amounts to a signal to congressional Democrats. Democratic leaders in Congress have suggested that they hope to regulate prices in some way as part of the $3.5 trillion legislative package now being considered. The House passed a bill with similar provisions in 2019, but senators working on the package have released few policy details as they wrestle with their approach.
Steve Ubl, the C.E.O. of the industry trade group PhRMA, called the policy “an existential risk to the industry.” Major across-the-board price reductions would result in reduced revenues for drug companies, and could hurt companies’ ability to spend on research as well as cause smaller companies to close if investors leave the sector, he said. His group and the companies it represents have mobilized to fight such a plan.
Drug price regulation represents a crucial piece of the still-developing Democratic package because it is one of the few proposed policies that could reduce, rather than increase, federal spending.
Any policy that substantially reduces drug prices has the potential to save the government a lot of money. The federal government pays a large share of drugs for patients with Medicare, and subsidizes insurance plans that purchase drugs for other Americans.
This new approach could help fund other expensive priorities, such as expanding Medicare benefits to cover dental care, and providing insurance coverage to uninsured people in states that have not expanded Medicaid. An approach that lowers drug prices less would leave less funding available for those other goals.
High prescription drug prices are a major consumer issue, one that voters consistently identify as a top concern. Reducing their prices could matter for many American households.
But broad price controls like the one endorsed by the white paper could encounter both political and logistical problems. The pharmaceutical industry has long opposed government price negotiations of any sort in the United States, and some Democratic lawmakers are sympathetic to their concerns that price restrictions could stymie innovation and hamper future drug development.
Democrats are also hoping to pass their package through a special procedure known as budget reconciliation. That process would allow them to pass the bill without needing to overcome a legislative filibuster in the Senate, but it comes with a series of special rules. Price negotiations outside the Medicare program may be hard to achieve using that process.
While most other Western governments negotiate directly with companies over prices, the United States has done so only in very limited contexts. Medicare is currently barred from negotiating over drug prices under law. Most commercial health plans negotiate with drug companies for discounts below their advertised prices, but their success varies depending on the type of drug and the number of choices on the market.
In general, American drug purchasers pay substantially higher prices for drugs than their counterparts in other developed countries. A recent paper from the RAND Corporation cited in the government proposal estimates that prescription drugs in the United States cost more than 250 percent of the prices paid by other countries in the Organization for Economic Cooperation and Development.
The paper is somewhat silent on the details of how the health secretary should negotiate or establish fair prices for drugs. But Congress will need to be more specific if it pursues such legislation. In 2019, the House passed a bill that would establish price limits for certain drugs based on what other countries pay, but that bill was not taken up in the Republican-led Senate.
President Biden has identified drug prices as a health care priority for his administration. Thursday’s paper comes in response to a July executive order calling for action on the issue. Mr. Biden also gave a speech last month calling for price negotiations, and limitations on drug price increases, another policy listed in the paper. From the time of his presidential campaign, Mr. Biden has called for Medicare to negotiate with drugmakers on prices, but the call for the government to negotiate on prices for all U.S. purchasers goes further than his campaign proposal.
Drug prices were also a priority for President Donald J. Trump, whose Health and Human Services department released its own blueprint for policies to reduce drug prices. The Trump administration proposed several regulations and demonstration projects to address the issue, but it was unable to persuade Congress to take legislative action.