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Biden proposes strengthening Medicare’s drug pricing power

Dive Brief:

  • President Biden is taking on a bipartisan bogeyman ahead of a critical State of the Union speech, targeting the pharmaceutical industry and saying he will work to expand the government’s power to lower drug prices.

  • In a fact sheet released Wednesday, the White House said Medicare should be allowed to negotiate prices for 50 medications every year. That would be a significant jump from the limit of 20 under the Inflation Reduction Act.

  • Biden is also looking to expand a $2,000 cap on out-of-pocket drug expenses to private insurers, extend a $2 cost-sharing limit for high-value generic drugs to all Medicare plans and widen requirements for rebates when price increases exceed inflation. The White House additionally listed a series of new efforts that would affect health insurance, research and home care. 

Dive Insight:

With national polls showing Biden trailing former President Trump, Thursday’s State of the Union address is taking on outsized importance. Biden will be working to remind Americans of his accomplishments in office and persuade them that he can get even more done with another four years.

Both Republicans and Democrats overwhelmingly favor more regulation of prescription drug prices, according to polling by the Kaiser Family Foundation. Because of the IRA, Biden’s administration is the first to have the authority to negotiate prices on behalf of Medicare and began that process in August by releasing the list of the first 10 drugs to enter talks.

The pharmaceutical industry says the negotiation provision of the 2022 law will chill innovation, and the administration faced a number of lawsuits before the list of targeted drugs even came out. PhRMA and AstraZeneca have already lost their initial legal bids, while on Thursday four drugmakers are making oral arguments at a court in New Jersey. 

The White House says that the manufacturers of all 10 drugs selected for the first round of negotiations remain at the table after submitting counteroffers. The administration plans to announce the new prices later this year. Under the law, the Centers for Medicare and Medicaid Services can add an additional 15 drugs for negotiation in 2027 and 2028 and 20 more in 2029 and each year after that.

While raising that figure to 50 would undoubtedly hurt pharmaceutical profits, analysts are skeptical that Biden’s proposals will become reality under what’s likely to be a divided government in Washington. And despite the initial dire warnings issued by the industry about the consequences of negotiation, several executives have recently indicated the effects “may not be too onerous,”  Leerink analyst David Risinger wrote in a note to clients on Wednesday.

“While rhetoric and headlines going into the election could create some transient volatility for the space, we would not expect most investors to be overly spooked by these developments,” RBC Capital Markets analyst Brian Abrahams wrote in a note to clients Thursday.