Senate passage of drug pricing bill brings major defeat closer for pharma industry

Senate Democrats passed major drug pricing legislation on Sunday in a significant political defeat for the pharmaceutical industry, which has for decades staved off any attempt to limit drugmakers’ pricing power.

The $739 billion climate, tax and healthcare legislation, dubbed the Inflation Reduction Act, passed 51-50 on a party-line vote, with Vice President Kamala Harris casting the tie-breaker. The House of Representative will take up the measure on Friday and is expected to quickly pass it and send it to President Joe Biden for his signature. A pared-down version of the White House’s “Build Back Better” plan, the bill would still represent an important legislative victory for his administration.

“Senate Democrats sided with American families over special interests, voting to lower the cost of prescription drugs, health insurance, and everyday energy costs and reduce the deficit, while making the wealthiest corporations finally pay their fair share,” Biden said in a statement.

The bill would allow Medicare to negotiate prices on up to 60 drugs by 2029, starting with 10 in 2026. It caps Medicare Part D out-of-pocket spending on drugs at $2,000 starting in 2025, a provision that could affect a broad group of seniors. More than one million enrollees in Plan D paid more than that amount in 2019, per data from the Kaiser Family Foundation. Part D premiums cannot increase at more than 6% through at least 2029, according to the AARP.

However, Democrats failed to cap out-of-pocket insulin costs at $35 a month for private insurance after the Senate parliamentarian ruled the measure was outside the fast-track budget “reconciliation” procedures that allow for a simple majority vote. The monthly cap was still retained for Medicare enrollees.

Also narrowed in scope were rebates that drugmakers must pay for any drug price increases they take above the rate of inflation. The parliamentarian ruled these rebates could not apply to private health insurance, so that provision was also confined to Medicare.

Medicare drug price negotiations could start as soon as 2023, when the legislation authorizes the U.S. Department of Health and Human Services to begin talks on prices for 10 drugs, with the first negotiated prices to take effect in 2026.

The pharma industry has fiercely opposed any controls on drug prices in the U.S., and spent heavily to lobby against the bill. But despite previous setbacks, addressing drug pricing has remained a political priority for Democrats and even for Republicans under President Donald Trump. While drugmakers have moderated price increases, new medicines routinely cost tens of thousands of dollars a year — costs that patients can remain exposed to due to gaps in insurance coverage.

“Today’s vote may feel like a political win for Democrats, but it’s really a tragic loss for patients,” the pharma industry’s main lobbying group PhRMA said. The bill “gives the government unchecked authority to set the price of medicines” and “will lead to fewer new cures and treatments for patients battling cancer, Alzheimer’s and other diseases.”

PhRMA said the bill ignores other major fixes to affordability with insurance and drug middlemen and sets a bad precedent that will lead to further damage later. In particular, drugmakers have objected to how the negotiations process is designed, with the government gaining power to levy high tax penalties on product sales if companies don’t cooperate.

The bill’s passage is a “seminal event,” SVB Securities analyst David Risinger. Still, he and other analysts laid out more optimistic scenarios for the pharma industry, too. Drugmaker CEOs have in recent weeks said their companies can manage the short-term consequences of the bill, but warned of greater impacts to research over time.

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