The beginning of the end of higher drug prices in the US

Introduction

In the US, an Act recently passed through the House of Representatives which plans to expand affordable healthcare and to begin pricing negotiations for drugs for Medicare. This is ground-breaking as, unlike in most other nations, it would be the first time that the government could limit the prices of medicines. If passed through the Senate we speculate whether it could spur further changes to the pricing and reimbursement of drugs in the US, lowering healthcare costs for many Americans.  

What is Biden’s Build Back Better Act? 

On the 19th of November 2021 after months of negotiations US President, Joe Biden, and his party passed the Build Back Better Act through the House of Representatives, which could be the largest expansion of affordable healthcare that has been seen in more than a decade1.  

Currently, the US spends more per capita on healthcare than any other country2 and the rate of increase of healthcare spending is higher than of any other developed nation2. There are multiple reasons for why treatment is more expensive in the US including higher administrative costs, higher costs for trips to the doctor or stays in hospital and higher prescription drug costs. But despite the higher costs per capita, people in the US use healthcare services less and have worse health outcomes compared to other nations. Biden’s new Act aims to be a “giant step forward”3 but could it also herald larger changes to come in making healthcare more affordable for the American public? 

Reimbursement and pricing in the US? 

Unlike most other developed nations, the US government does not impose any regulation on the prices of new drugs when they come to market. Whereas other countries have dedicated governmental departments to stringently assess and negotiate the appropriate price for a new therapy given its efficacy compared to current treatments, the drug makers in the US have been allowed to set their own prices. The outcome has been that any drug proven to be effective and safe can come to market usually at higher prices than elsewhere in the world. This has resulted in high patient co-payment on drugs and people who can be priced out of life saving medication. 

So how will the Build Back Better Act change this? 

The US reimbursement system is fragmented, with coverage coming from federal sources like Medicare and Medicaid (which is also operated at a state level), from the Department of Defence or the Veterans Healthcare Administration (which treat serving military personnel and veterans respectively) and through private health insurance (which is most frequently provided by employers).  

The new Act will primarily affect how drugs are reimbursed to Medicare, a service which is primarily available for the elderly and disabled. It is split into 4 parts A (Inpatient coverage), B (Outpatient coverage), C (Medicare Advantage Plan) and D (Prescription drug coverage)5. 

If written into law the Build Back Better Act would affect pricing in the following areas6: 

• The government will be able to select from a list of eligible drugs to begin pricing negotiations. Eligible drugs will include fifty drugs with the highest expenditure from the previous 12-months from Medicare part B and part D (totalling 100 eligible drugs) that do not have generic or biosimilar competitors as well as any single source insulin products. However, there are several exclusion criteria such as  
• The product must have been approved for at least 7 years for small molecule drugs and 11 years for biologicals 
• Negotiations will not apply for drugs treating just one rare disease  
• Small biotech companies will also be excluded until 2028 
• The negotiations will begin in 2025 with ten drugs selected from the fifty eligible for negotiation from Medicare part D. This will expand sequentially until 2028 where twenty drugs from the list of one hundred eligible for negotiation from Medicare part B and D, plus all eligible insulin products will be subjected to negotiations. Two years after the drugs are selected for negotiation is when the price changes will come into place  
• The upper limit for price negotiations will be set at:
  • 75% of the non-federal average manufacture price between 9-12 years from when the drug was approved 
  • 65% of this price between 12-16 years from when the drug was approved  
  • 40% if it is beyond 16 years from when the drug was approved  
  • However, for smaller biotech companies there will be a floor price of 66% of the non-federal average if they are selected for negotiation 

• Companies will also have to pay rebates on single sourced drug and biologics in Medicare part B and almost all from part D if the prices increase greater than the rate of inflation 
• Currently, prescription costs can be much more than what Medicare has the allowance for, leaving patients to pay substantial amounts out-of-pocket, in some cases covering just 5% of the drug costs. The Act will cap the out-of-pocket spending to $2,000 in 2024 with this amount increasing with the rate of inflation 
• Vaccines will be covered at no costs in Medicare part B, similar to how they are already covered in part D
• Although most of these measures will just affect Medicare, limits on cost of insulin to $35 is expected to also be rolled out for private insurers by 2023 
• On top of this, Medicaid will be expanded in the twelve states that have not already done so to include adults who are on very low incomes thus aiming to cover a gap of 2.2 million uninsured Americans so that they are eligible for subsidised healthcare coverage 

Opposition to the changes 

Although analysts have predicted that these changes will make only a small effect on industry as only a few drugs will be encompassed in the Act7, there have been some arguments proposed for the Act and the US moving toward a more European style drug pricing system: 

• Will investors still be willing to invest into the pharmaceutical industry if they know there could be caps on the product costs? 
• Currently returns on drugs in the US helps to finance global research and development into new therapies. Questions have been raised about whether this could continue if America begins regulating drug prices 
• Will Americans begin to see less choice in the drugs they are offered if there is a move to only cover drugs which have had price negotiations 

What happens next? 

The Act must still pass through the United States Senate where President Biden “look[s] forward to it passing as soon as possible”3 and is hopeful that it will pass by Christmas. However, as the Senate is divided in its members, the Democrats will require every one of its 50 members to back the Act (and there is some resistance), otherwise in must return to the House of Representatives for another vote. Nevertheless, after months of negotiations attempting to appease as many members of congress as possible there is a feeling that this Act will be signed into law without too many changes that could have rendered it unrecognisable.  

But what does this mean for drug pricing in the US going forward? Well, this Act is limited only encompassing a small number of drugs. So initially, overall changes are likely to be minor. However, the passing of this Act could be a turning point, in that government will have the ability to control drug prices in the US (albeit limited). Could this be the beginning of an overhaul to drug pricing in the States? If the Act is written into law, it may allow for further expansion of pricing controls in Medicare in the years to come. It could also provide a framework to expand to other federal programs, like Medicaid. The Act could initiate private insurers take a similar approach or use negotiated prices as a benchmark, thus reducing medical costs for vast numbers of US citizens. If controls on drug pricing were to expand in this way, it could mean that the drug industry would have to re-evaluate their pricing and business strategies in the future.   

Sources 

1. The Build Back Better Framework. Accessed at https://www.whitehouse.gov/build-back-better/ December 2021 
2. U.S. Health Care from a Global Perspective, 2019: Higher Spending, Worse Outcomes?. Accessed at https://www.commonwealthfund.org/publications/issue-briefs/2020/jan/us-health-care-global-perspective-2019 December 2021 
3. Statement by President Joe Biden on Passage of the Build Back Better Act in the U.S. House of Representatives. Accessed at https://www.whitehouse.gov/briefing-room/statements-releases/2021/11/19/statement-by-president-joe-biden-on-passage-of-the-build-back-better-act-in-the-u-s-house-of-representatives/ December 2021 
4. Luca Lorenzoni et al., Health Spending Projections to 2030: New Results Based on a Revised OECD Methodology, OECD Health Working Papers, no. 110 (Organisation for Economic Co-operation and Development, May 2019). 
5. The parts of Medicare (A, B, C, D). Accessed at https://www.medicareinteractive.org/get-answers/medicare-basics/medicare-coverage-overview/original-medicare December 2021 
6. Build Back Better Act. Assessed at https://www.congress.gov/bill/117th-congress/house-bill/5376/text Published on September 2021 
7. Democrats’ drug pricing deal is ‘not a bad outcome’ for pharma, analysts write. Accessed at https://www.fiercepharma.com/pharma/democrats-drug-pricing-deal-not-a-bad-outcome-for-pharma-analysts-write December 2021