U.S. Would Gain Power to Negotiate Drug Prices Under Manchin-Schumer Bill

The legislation, part of a climate, tax and healthcare package agreed to by holdout Sen.

Joe Manchin

(D., W.Va.) and Senate Majority Leader

Chuck Schumer

(D., N.Y.), would also cap out-of-pocket drug costs for Medicare beneficiaries at $2,000 a year.

Among the drugs that could face price negotiation are blood thinner Eliquis from Bristol-Myers Squibb Co. and

Pfizer Inc.,

PFE -0.41%

Johnson & Johnson’s

JNJ 0.18%

Darzalex multiple-myeloma therapy and

Novo Nordisk

NVO -0.28%

A/S’s diabetes and weight-loss treatment Ozempic, according to an analysis by SVB Securities.

The provisions would inflict a relatively modest financial hit on the pharmaceutical industry, analysts say, because only a small basket of medicines that have been on the market for many years and lack competition will be eligible for direct negotiation each year.

Government price negotiation and the inflation rebate would reduce U.S. drug spending by $202.5 billion over a decade, according to the Congressional Budget Office. The U.S. is projected to spend $380.4 billion on prescription drugs this year, excluding those used in hospitals and outpatient clinics, and $567.1 billion in 2030, according to Medicare actuaries.

For the first time, however, the provisions would give the federal government a say in determining drug prices in Medicare, including the Part D drug-benefit program, which currently forbids it and represents a third of total pharmaceutical spending.

Lawmakers have for years threatened to take action in response to polls showing that prescription-drug prices are among the biggest concerns of voters. Yet virtually all such efforts have stalled. If Congress succeeds this time, it will be a watershed, said Brian Abrahams, a biotech analyst at RBC Capital Markets.

“The biggest element that’s been underappreciated is Congress’s ability to push through any drug-pricing legislation,” said Dr. Abrahams. “It’s not a done deal, but it’s moving closer and closer to reality, and investors are reassessing how to think about the potential impact, rather than thinking that gridlock is going to prevent anything from happening.”

Several industry executives said, while discussing quarterly financial results last week, that they supported the lowering of patients’ costs but opposed government price negotiation.

The executives said the law, if enacted, will depress research investments. Many also said the legislation won’t prompt true negotiation, because the government will have power to levy an excise tax on sales of drugs on which manufacturers refuse to negotiate.

“In reality, it is not price negotiation because they are forcing their will by implementing a 95% tax,” Pfizer Chief Executive

Albert Bourla

said.

Merck

MRK -0.67%

& Co. CEO

Robert Davis

said the bill “will be highly chilling on future innovation.”

Sanofi SA

CEO

Paul Hudson

said that he had one-on-one meetings with several senators last week to discuss the bill, which he said is “not good for affordability for patients, not good for innovation in general.”

Sen. Manchin’s backing clears a major hurdle to passing the legislation, but others remain, including approval by the Senate’s nonpartisan parliamentarian, who is reviewing whether the climate, tax and healthcare bill complies with the rules for bypassing a Republican filibuster.

The bill would redesign key features of Medicare Part D by capping how much seniors spend in copays and coinsurance at $2,000 annually, compared with potentially unlimited cost-sharing currently. Seniors also would no longer have to pay 5% of their drug’s total cost after their out-of-pocket spending exceeds a certain threshold, which is $7,050 this year.

An estimated 1.4 million people with Medicare had out-of-pocket spending higher than $2,000 in 2020, according to the Kaiser Family Foundation.

There may be more people who will benefit from the changes who aren’t currently counted, however, because they can’t afford the copays for expensive prescriptions and don’t fill them, said Stacie B. Dusetzina, an associate professor of health policy at Vanderbilt University Medical Center.

Among Medicare patients who didn’t receive low-income subsidies, 30% didn’t fill their cancer drug prescriptions and more than half skipped filling disease-modifying drugs for immune-related disease, according to a study published in Health Affairs earlier this year and co-written by Dr. Dusetzina.

For expensive drugs costing more than $100,000 a year, the $2,000 cap on out-of-pocket spending would make a “a huge, huge difference from today which is unlimited spending, and somebody needing an expensive set of drugs would spend over $10,000,” Dr. Dusetzina said.

Starting in 2026, the bill would require the Department of Health and Human Services to negotiate prices for 10 drugs with the highest Part D spending that have been on the market for at least nine to 13 years and lack generic competition. More drugs would be added to the price negotiation each year afterward.

In 2028, HHS would start negotiating prices for 20 drugs that meet the same criteria in Medicare Part B, which pays for drugs such as chemotherapy that are administered in outpatient healthcare facilities.

Starting next year, drugmakers that raise prices faster than inflation would have to pay a rebate to the government amounting to the extra revenue they received beyond the overall inflation-increase percentage. The inflation rebate would apply to Medicare and private insurance drug sales, and reduce the federal deficit by a net $100.7 billion over 10 years, according to the CBO.

Write to Joseph Walker at joseph.walker@wsj.com

The legislation, part of a climate, tax and healthcare package agreed to by holdout Sen.

Joe Manchin

(D., W.Va.) and Senate Majority Leader

Chuck Schumer

(D., N.Y.), would also cap out-of-pocket drug costs for Medicare beneficiaries at $2,000 a year.

Among the drugs that could face price negotiation are blood thinner Eliquis from Bristol-Myers Squibb Co. and

Pfizer Inc.,

PFE -0.41%

Johnson & Johnson’s

JNJ 0.18%

Darzalex multiple-myeloma therapy and

Novo Nordisk

NVO -0.28%

A/S’s diabetes and weight-loss treatment Ozempic, according to an analysis by SVB Securities.

The provisions would inflict a relatively modest financial hit on the pharmaceutical industry, analysts say, because only a small basket of medicines that have been on the market for many years and lack competition will be eligible for direct negotiation each year.

Government price negotiation and the inflation rebate would reduce U.S. drug spending by $202.5 billion over a decade, according to the Congressional Budget Office. The U.S. is projected to spend $380.4 billion on prescription drugs this year, excluding those used in hospitals and outpatient clinics, and $567.1 billion in 2030, according to Medicare actuaries.

For the first time, however, the provisions would give the federal government a say in determining drug prices in Medicare, including the Part D drug-benefit program, which currently forbids it and represents a third of total pharmaceutical spending.

Lawmakers have for years threatened to take action in response to polls showing that prescription-drug prices are among the biggest concerns of voters. Yet virtually all such efforts have stalled. If Congress succeeds this time, it will be a watershed, said Brian Abrahams, a biotech analyst at RBC Capital Markets.

“The biggest element that’s been underappreciated is Congress’s ability to push through any drug-pricing legislation,” said Dr. Abrahams. “It’s not a done deal, but it’s moving closer and closer to reality, and investors are reassessing how to think about the potential impact, rather than thinking that gridlock is going to prevent anything from happening.”

Several industry executives said, while discussing quarterly financial results last week, that they supported the lowering of patients’ costs but opposed government price negotiation.

The executives said the law, if enacted, will depress research investments. Many also said the legislation won’t prompt true negotiation, because the government will have power to levy an excise tax on sales of drugs on which manufacturers refuse to negotiate.

“In reality, it is not price negotiation because they are forcing their will by implementing a 95% tax,” Pfizer Chief Executive

Albert Bourla

said.

Merck

MRK -0.67%

& Co. CEO

Robert Davis

said the bill “will be highly chilling on future innovation.”

Sanofi SA

CEO

Paul Hudson

said that he had one-on-one meetings with several senators last week to discuss the bill, which he said is “not good for affordability for patients, not good for innovation in general.”

Sen. Manchin’s backing clears a major hurdle to passing the legislation, but others remain, including approval by the Senate’s nonpartisan parliamentarian, who is reviewing whether the climate, tax and healthcare bill complies with the rules for bypassing a Republican filibuster.

The bill would redesign key features of Medicare Part D by capping how much seniors spend in copays and coinsurance at $2,000 annually, compared with potentially unlimited cost-sharing currently. Seniors also would no longer have to pay 5% of their drug’s total cost after their out-of-pocket spending exceeds a certain threshold, which is $7,050 this year.

An estimated 1.4 million people with Medicare had out-of-pocket spending higher than $2,000 in 2020, according to the Kaiser Family Foundation.

There may be more people who will benefit from the changes who aren’t currently counted, however, because they can’t afford the copays for expensive prescriptions and don’t fill them, said Stacie B. Dusetzina, an associate professor of health policy at Vanderbilt University Medical Center.

Among Medicare patients who didn’t receive low-income subsidies, 30% didn’t fill their cancer drug prescriptions and more than half skipped filling disease-modifying drugs for immune-related disease, according to a study published in Health Affairs earlier this year and co-written by Dr. Dusetzina.

For expensive drugs costing more than $100,000 a year, the $2,000 cap on out-of-pocket spending would make a “a huge, huge difference from today which is unlimited spending, and somebody needing an expensive set of drugs would spend over $10,000,” Dr. Dusetzina said.

Starting in 2026, the bill would require the Department of Health and Human Services to negotiate prices for 10 drugs with the highest Part D spending that have been on the market for at least nine to 13 years and lack generic competition. More drugs would be added to the price negotiation each year afterward.

In 2028, HHS would start negotiating prices for 20 drugs that meet the same criteria in Medicare Part B, which pays for drugs such as chemotherapy that are administered in outpatient healthcare facilities.

Starting next year, drugmakers that raise prices faster than inflation would have to pay a rebate to the government amounting to the extra revenue they received beyond the overall inflation-increase percentage. The inflation rebate would apply to Medicare and private insurance drug sales, and reduce the federal deficit by a net $100.7 billion over 10 years, according to the CBO.

Write to Joseph Walker at joseph.walker@wsj.com