Drug pricing overhaul sparks tension with industry

Up until recently, political rhetoric targeting the pharma industry had been largely all bark and no bite. Ben Hargreaves finds that the Biden-Harris Administration has finally shown its teeth and major players in the industry are facing the prospect of losing drug revenue in the coming years.

The pharmaceutical industry has long had an issue with its reputation among the general public. This did changed briefly during the pandemic, when the industry succeeded in developing vaccines at record speeds. However, a recent poll by Gallup found that the industry’s reputation in the US has fallen again to be among the worst-rated sectors, with 60% of respondents holding a negative view of companies in the space.

It is no wonder, then, that recent election cycles in the US have placed a significant amount of pressure on the industry, as it is an easy target with its poor reputation. This allowed Donald Trump to regularly threaten action against the pharma industry over pricing during his presidency. For President Biden, this led to him declaring victory over big pharma over recent proposals to lower drug pricing. In the major move towards turning the rhetoric into concrete action, the Biden Administration announced the finalised prices for the first 10 medicines subject to Medicare negotiations under the Inflation Reduction Act (IRA).

Tense negotiations

The White House released a statement mid-way through August outlining how the move would allow Medicare the power to negotiate prescription drug prices for the first time. Within the statement, it was suggested that the first raft of drug price reductions will see US taxpayers pay $6 billion less on prescription drug costs, and people enrolled in Medicare are expected to save $1.5 billion in out-of-pocket costs in the first year of implementation. The list price of the 10 products will be reduced by between 38% and 79% once the new prices come into effect for Medicare Part D prescription drug coverage in 2026.

The IRA was signed into law in August 2022 and during the intervening years, the Administration and the Centers for Medicare & Medicaid Services (CMS) engaged in discussions with the pharmaceutical industry over the first wave of treatments. The 10 treatments targeted are some of the most widely used treatments in the country, with Bristol Myers Squibb (BMS) and Pfizer’s Eliquis (apixaban) at the top of the list, with nearly four million Medicare enrolees using the drug in 2023. For this particular drug, the negotiated list price will be 56% lower in 2026. The White House noted that the 10 treatments were selected as being among those with the highest total spending in Medicare Part D.

Other treatments impacted by the IRA include AstraZeneca’s Farxiga (dapagliflozin), Johnson & Johnson’s Stelara (ustekinumab) and Xarelto (rivaroxaban), and Novartis’ Entresto (sacubitril/valsartan). In terms of what dialogue occurred between CMS and the industry, the former stated: “CMS developed an initial offer for each drug, consistent with the process described in the statute and the agency’s guidance, and each manufacturer responded with a counteroffer. CMS held three meetings with each participating drug company to discuss the offers and counteroffers, discuss evidence, and attempt to arrive at a mutually acceptable price for the drug. During the course of the negotiation process, CMS revised its offers for each of the drugs upward in response to these discussions.”

CMS added that negotiations for five of the listed drugs failed to conclude during active discussions and instead ended with the organisation submitting a written final offer, with each company ultimately accepting the offer “on or before the statutory deadline.”

Industry backed into a corner

The pharma industry’s reaction from the outset had been naturally unsupportive, given that the IRA is expected to reduce revenue to the companies impacted by the lowered price of treatments. After moves were made for the IRA to allow for negotiated pricing, various companies across the industry launched lawsuits in an attempt to block the legislation.

PhRMA, the industry lobby, stated that the negotiation that had taken place to decide pricing could not be considered a true discussion as any rejection would lead to one of two outcomes:

• Pay a tax of up to 1,900% (not 95%) on the total sales revenue of the medicine selected for price setting. News coverage misreports the tax as an “up to a 95% tax.” To be sure, a 95% tax on all sales would be devastating, but the real tax is up to 1,900% due to the convoluted formula in the statute
• Watch all their medicines get withdrawn from Medicare (Parts B and D) and Medicaid, not just the medicine selected for price-setting. Even if manufacturers were to consider this option, it’s not up to them; CMS gets to decide. A manufacturer-initiated withdrawal would take 11 to 23 months to take effect, during which period the manufacturer would be required to disclose proprietary information and “agree” with CMS’ actions

BMS released its own statement stating that the price designated by the CMS “does not reflect the substantial clinical and economic value of this essential medicine.” The company also continued that by focusing on price setting, and not the influence of insurance plans and their pharmacy benefit managers, the IRA “overlooks the biggest problem in patient affordability.”

The only company with two treatments included in the list of 10 treatments, Johnson & Johnson, recently announced pricing plans for the two treatments (Stelara and Xarelto) that would change the way it pays discounts on drugs to hospitals participating in the 340B programme. The potential change would require full upfront payment for the treatments, rather than delivering discounts in advance – a proposal that was not welcomed by the US Department of Health and Human Services.

Here to stay?

For the pharma industry, the price changes announced do not mark the end of the Administration’s efforts to reduce prices. The CMS plans to select up to 15 more drugs covered under Part D for negotiation in 2025, and again in 2026. After this point, up to 20 drugs will be selected each following year.

However, much could change based on the outcome of the presidential election later this year. The Biden-Harris Administration has claimed the IRA as one of its major achievements, and it could therefore be a target should a second Trump term become a reality. Whereas, if Kamala Harris becomes president, she has already stated that Medicare’s negotiation powers could be extended, as well as suggesting a broader initiative to ‘crackdown’ on pharma companies who block competition. The pharma industry will be following the election closely, the future of certain big-selling treatments could be determined by the result.