Employers Support Empowering Medicare to Negotiate Drug Prices

Purchaser Business Group on Health (PBGH) supported President Joe Biden’s plan to allow Medicare to negotiate drug prices.

“The truth is high drug costs are perpetuated by all parties – drug manufacturers, pharmacy benefit managers (PBMs), and hospital systems,” PBGH stated. “It’s time for health care stakeholders to subject themselves to the same kind of market forces every other business must contend with – transparency, accountability for quality and outcomes and responsiveness to customers’ needs and experience.”

The purchaser organization argued that healthcare spending is a suppressant to job creation and income growth. When employers have to spend more money on prescription drugs, they have fewer funds to pour into benefits and wages. 

Furthermore, failing to subject certain stakeholders to the same market influences that other stakeholders must face—in this case, negotiation with a public payer—the market can become ripe for escalating prices.

However, even as the purchasers stated their support for President Biden’s proposal, they advised establishing safeguards for the commercial payer market with which employers often partner.

“It is absolutely vital that drug prices set at the Medicare negotiated rates, and limits on inflation of prices for drugs, are available to the commercial market,” PBGH argued. 

“Failure to protect the private market would mean that a majority of Americans would continue to see ever higher drug costs. Worse, drug companies could try to offset lower revenues from Medicare by increasing their prices on privately insured people even more.  The President and Congress must seize the opportunity to lower the costs for life-saving and necessary drugs for all Americans.”

In his remarks on the proposal, President Biden acknowledged that the conversation around allowing Medicare to negotiate prescription drug pricing is not a new one. 

For example, the Trump Administration sought to bolster Medicare Advantage prescription drug price negotiation capabilities with its contract year 2021 and 2022 Medicare Advantage and Part D Proposed Rule. Congress sought to give HHS more negotiating power in the Lower Drug Costs Now Act of 2019 (HR-3). 

“Every other type of healthcare service — from the cost of a doctor’s visit, how much a doctor can charge for a visit, hospital visits, crutches, wheelchairs — Medicare is allowed to negotiate,” the president said.

According to the fact sheet about President Biden’s proposal, Medicare negotiators would be allowed to negotiate the prices on high-cost drugs that do not have any marketplace competitors.

Medicare negotiators would base their negotiations on an established fair pricing framework. The proposal also incentivizes pharmaceutical companies to accommodate lower costs.

The proposal also enforces a cap on Medicare out-of-pocket healthcare spending for drugs and would penalize pharmaceutical companies whose price increases outpace inflation.

Previously, the administration issued an executive order directing relevant agencies to lower prescription drug pricing by importing lower-cost drugs from Canada. The order also required HHS to bolster biosimilars and generic drug use. Additionally, it gave HHS 45 days to compile a plan for lowering drug prices and reducing price gouging.

The executive order also urged the Federal Trade Commission (FTC) to ban the practice of “pay for delay,” which occurs when pharmaceutical companies financially incentivize generic manufacturers not to sell their lower-cost products on the market.

Employers agree that healthcare spending overall is growing at an unsustainable rate, according to a Kaiser Family Foundation survey. Over half of the employer respondents stated that prescription drugs were a considerable factor or a very large factor in high healthcare spending. 

However, employers also expressed that companies have the ability to change healthcare spending in some capacity. Many supported options such as pushing for value-based payment models, shifting more of the healthcare spending responsibility to employees, and using individual coverage health reimbursement arrangements (ICHRAs) to lighten the load.