New House Bill Seeks to Allow HHS to Negotiate Medicare Drug Prices

Posted 10 December 2015 | By Zachary Brennan 

New House Bill Seeks to Allow HHS to Negotiate Medicare Drug Prices

Rep. Jan Schakowsky (D-IL) on Thursday introduced a new bill that would allow the Department of Health and Human Services (HHS) secretary to negotiate Medicare Part D prices for either sole-source drugs or biologics and are not manufactured by more than two drug companies.

Under the bill, drug manufacturers and the secretary would have 90 days to negotiate the price of a drug covered by Medicare Part D. If the two parties fail to reach an agreement after the allotted time, the secretary would have the authority to set the price using existing fee schedules and consulting with MEDPAC, the Comptroller General, and other outside, independent entities.

The price set by either the negotiations or the secretary would be in effect until more than two drug manufacturers with competitor drugs enter the market, one of which must be a generic, according to the bill.

The bill would also require the secretary to produce a report outlining if a similar negotiation process could be applied to drugs covered under Medicare Part B

Schakowsky, a founding member of the Affordable Drug Pricing Task Force, which endorsed her bill, said last week that she’s committed to push for more accountability and transparency around drug prices and with this latest bill, known as the Medicare Fair Drug Pricing Act.

And though the idea behind the bill isn’t new (President Barack Obama’s fiscal year 2016 budget plan also proposed allowing HHS Secretary Sylvia Burwell to negotiate prices under Part D), Schakowsky is re-starting the conversation around drug pricing and what government can do.

A similar Senate bill was also introduced by Minnesota’s Amy Klobuchar (D) in January, known as the Medicare Prescription Drug Price Negotiation Act of 2015, but which has failed to gain traction since its introduction.

That bill, like Schakowsky’s, would amend the Social Security Act to allow Burwell to negotiate with pharmaceutical companies “the prices (including discounts, rebates, and other price concessions) that may be charged to PDP [prescription drug plan] sponsors and MA [Medicare Advantage] organizations for covered part D drugs for part D eligible individuals who are enrolled under a prescription drug plan or under an MA–PD plan.”


Congressional Republicans, who control both the House and Senate, have in the past voiced their opposition to such a plan. And when Congress in 2003 initially created Part D, which offers private coverage for drugs for seniors and the disabled, the government was prohibited from negotiating directly with drug companies.

Industry group PhRMA also has previously come out against the idea of negotiating Part D drug prices, telling the Wall Street Journal earlier this year: “Proposals to fundamentally alter the structure of the successful Medicare Part D program would hurt both taxpayers and beneficiaries…Robust negotiation occurs in Medicare Part D between plans and biopharmaceutical companies, resulting in substantial rebates, often as much as 20 to 30%, with average rebate levels increasing each year of the program.”

The American Enterprise Institute, a conservative think-tank, also has said that officials at both the Office of the Actuary at HHS and the Congressional Budget Office have said that government price negotiation for Part D “will not lead to lower costs for taxpayers.” 

Other opponents claim that if industry loses profits from such negotiations, companies will spend less on research and development, or just increase drug prices further to try to recoup losses from the new negotiated prices.

Potential Savings

But because Medicare Part D represents such a large chunk of spending on pharmaceuticals -- about 7% of sales of the total global pharmaceutical market – proponents of negotiating prices seem to think it’s inevitable as Part D continues to grow with more baby boomers retiring.

Some proponents point to the fact that after-rebate prices Medicare Part D plan sponsors pay for brand-name drugs remain significantly higher than the current market prices found in other countries or in other programs such as Medicaid or the Veterans Benefits Administration, which do negotiate, though options for drug coverage in some of those programs may be more limited.

And if negotiations for Part D was on par with the same brand-name drug pricing negotiations that already occur under Medicaid and the VBA, a July report from Carleton University and Public Citizen estimates that “Medicare Part D would save between $15.2 billion and $16 billion a year.”

Supporters of Part D negotiations also point to a HHS Office of Inspector General report that found more than two-thirds of sponsors underestimated rebates in 2008, causing beneficiary premiums to spike higher and forcing government and beneficiaries to overpay.

In addition, the growth rate for Part D costs per beneficiary is expected to rise considerably in the coming years. According to the Kaiser Family Foundation, the average annual rate of growth in Part D costs per beneficiary was 3.2% between 2006 and 2014, but is projected to rise at a more rapid rate (5.7%) between 2014 and 2024.

Schakowsky Introduces Medicare Fair Drug Pricing Act

 H.R. 4207, the Medicare Fair Drug Pricing Act

S.31 - Medicare Prescription Drug Price Negotiation Act of 2015

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