Biden Administration: An Intriguing Encounter with the US Pharmaceuticals Sector

Steven Hadfield does not have the luxury of considering retirement. The 71-year-old from Charlotte, North Carolina, has worked multiple jobs over the past decade to help cover the steep costs of the prescription drugs he needs to treat a rare form of blood cancer and diabetes.

But drug pricing reforms unveiled in August by the Biden administration are poised to ease the financial burden facing Hadfield and millions of other Americans who struggle to pay for the drugs they need to stay alive. From next month Medicare, the taxpayer-funded healthcare system that covers 65mn US retirees, will for the first time get the power to negotiate lower prices directly with pharmaceutical companies for 10 of the most expensive drugs. Cancer, stroke, and diabetes medications made by Merck, Johnson & Johnson, and Bristol-Myers Squibb are among the first tranche of medications selected for negotiation.

For the US, the reforms represent the biggest shake-up in drug pricing in more than two decades. They stipulate prices must fall by at least 25 per cent for select commonly used drugs, including Januvia, a diabetes medication taken by Hadfield that costs $547 per month without rebates or discounts applied.

“I’ve had to forgo or ration some of my drugs in the past due to their high costs,” says Hadfield, who as a Medicare member pays a portion of the tens of thousands of dollars his prescription drugs cost each year — $7,400 for the first seven months of 2023. “These drug-pricing reforms are finally ending Big Pharma’s one-sided pricing power and giving patients a break.”

US authorities will implement the first price cuts in 2026 and select a further 50 drugs for negotiation over the next four years. The measure is forecast to save Medicare about $100bn over a decade and cut the out-of-pocket costs that patients on these schemes must shoulder themselves. Americans pay the highest prices for prescription drugs in the developed world.

The reforms have been welcomed by patient advocates, who accuse Big Pharma of profiteering in a marketplace that has been rigged by an industry that funnels tens of millions of dollars a year of donations to politicians. The hope is that the new rules will begin to address the profound inequality that has become a defining feature of US healthcare provision.

But they are bitterly opposed by the pharmaceutical industry, which has launched lawsuits aimed at blocking reforms that were legislated last year in President Joe Biden’s Inflation Reduction Act (IRA). Companies argue their prices are appropriate to cover the cost of the research needed to develop new medicines, estimated at $2.3bn per drug by Deloitte. Biden’s reforms are politically motivated, they add, and will cripple innovation and stall development of life-saving medicines. Given the partisan nature of US politics, and the power of the pharmaceutical lobby, it is a moment some thought would never come. “These historic reforms follow a public debate that persisted for half a century in the US,” says Fred Ledley, director of the Center for Integration of Science and Industry at Bentley University. “There has been a growing political consensus that something had to be done about drug prices, particularly given the huge profits generated by pharmaceutical companies,” he adds. “But it has been a polarising debate, given the potential impact of reforms on R&D budgets and what that means for global innovation.”

‘Historic change’

Drug pricing reform has been high on the political agenda in Washington for almost a decade following a litany of scandals that undermined public confidence in the pharmaceutical industry.

In 2015, then US presidential contenders Donald Trump and Hillary Clinton condemned Martin Shkreli, founder of Turing Pharmaceuticals, for raising the price of a potentially life-saving Aids and cancer medicine by more than 5,000 per cent overnight. Critics have also slammed industry leaders Eli Lilly and Biogen for charging excessive prices for treatments for common diseases such as diabetes and Alzheimer’s.

But clinching agreement in Congress on measures to bring down prices was challenging due to the strength of the industry lobby, disagreements over the best way to lower the cost, and the opaque nature of the drugs market. This changed last year with the passing of the IRA, which included the drug pricing reforms alongside a swath of clean energy legislation, in a knife-edge 51-50 vote in the Senate.

“This is a historic change and a big step towards reducing drug spending in Medicare,” says Stacie Dusetzina, a professor of health policy at Vanderbilt University Medical Centre in Nashville, Tennessee.

She says US legislators explicitly banned Medicare from negotiating drug prices directly with manufacturers in 2003 when the last big reforms were agreed. This has prevented US authorities from leveraging Medicare’s purchasing power to drive down prices, a common practice deployed by national health systems in Europe and elsewhere, says Dusetzina.  “The savings achieved by negotiating prices on a small number of selected medications will benefit all Medicare members as savings to the Medicare programme will be used to fund other significant reforms in the IRA, including limits on out-of-pocket spending for members,” says Dusetzina.

Some IRA reforms have already been implemented, including a $35 cap on the monthly cost of insulin for Medicare patients. And starting in January 2025, seniors’ total out-of-pocket costs for drugs will be capped at $2,000 a year — a change that patient advocates say will relieve an unpalatable choice facing many sick Americans to skip their medication or face bankruptcy.

“I really have a dog in this fight because the money they are talking about saving for me will be worth about $15,000 a year,” says David Mitchell, who has multiple myeloma and must take a cocktail of drugs with a total annual cost of almost $1mn to prolong his life.

Mitchell, who founded the advocacy group Patients for Affordable Drugs, should also benefit from price negotiations on Eliquis, a blood thinner he takes and which has an official price of almost $7,000 a year in the US, though usually insurers obtain discounts. The drug, which is made by BMS and Pfizer, cost Medicare $16.4bn last year — the highest amount for any of the 10 drugs selected for negotiation.

Mitchell says one of the reasons that Eliquis costs US taxpayers so much is that BMS has taken legal action to block alternative generic competitors from entering the market. In Canada, where there is a generic alternative on sale, the annual price for the same drug is less than $1,700, he says.

A BMS spokeswoman says: “protection of the intellectual property enables our ability to keep pushing the boundaries of science”. The company adds that the $16.4bn gross annual costs of Eliquis to Medicare last year, which were cited by health authorities, is more than three times the programme’s actual spend on the blood clot drug when all rebates, discounts, and fees paid to the public insurer were taken into consideration.

Companies already negotiate the price of some of their drugs with middlemen called pharmacy benefit managers. They work on behalf of health insurers, grouping large numbers of patients together from different clients in order to wring rebates from pharmaceutical companies, who in turn blame the managers for rising prices.

But critics of the current pricing regime allege American taxpayers and consumers are subsidising the global industry. Last year the US spent more than $600bn on medicines, almost half the total global outlay. A 2021 report by the Rand Corporation found Americans pay on average two and a half times more for prescription drugs than 32 comparable countries in the OECD. US prices for branded drugs were 3.5…


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