“Democrats have a multi-pronged strategy for addressing drug prices in the Build Back Better Act. First, they would allow Medicare to negotiate with pharmaceutical manufacturers on the prices of a certain number of prescription drugs, something they have been promising to do for years. But Democrats also want to limit drug companies’ ability to hike the prices of their medications for everyone — regardless of what kind of health insurance they have — in the future.
To do that, Congress has proposed requiring drugmakers to pay rebates for any price increases, in either the Medicare health program or the commercial health plans that cover 180 million Americans.
But, as Politico reported this week, the plan to apply the inflation-indexed rebates to the commercial market could be in trouble.
Senate Republicans — at the urging of the drug industry — plan to challenge whether the rebates for commercial health plans are permissible in a bill passed through the budget reconciliation process.”
“the Byrd Rule requires that all the provisions in a budget reconciliation bill directly change federal spending or revenue.
Republicans will argue that the purpose of the provision is to control drug prices for the private plans, full stop, and that does not have anything to do with federal spending or revenue — at least not directly.
The Democratic counterargument would be that applying these rebates to commercial plans would have a serious, more than incidental, effect on the federal budget. The federal government subsidizes almost all private insurance plans in one way or another, and so lower or higher costs for those plans could have major implications and lower costs for private health plans could also mean higher wages for workers, who would then pay more in taxes.
Who wins is likely ultimately a decision for the Senate parliamentarian.”
“what would happen if the parliamentarian determines rebates covering commercial plans cannot be allowed under the Byrd Rule?
The big fear, voiced by advocates of the Democrats’ plan, is that drug companies would extract higher prices from the commercial market in order to make up for the revenue they would lose from Medicare once that program’s new price controls take effect.
According to several experts, that appears unlikely. Loren Adler, associate director of the USC-Brookings Schaeffer Initiative for Health Policy, covered why in a lengthy analysis published in September.
“Fundamentally, for this to occur, it would have to be the case that drug companies are benevolently choosing not to profit-maximize at present,” Adler told me this week, “which I find rather difficult to believe.””
“Under the current plan, drugmakers would pay a rebate based on their sales volume in both the Medicare and commercial markets. In that scenario, there would be little reason to raise list prices faster than inflation, because you are paying the penalty based on the entire market.
But if those rebates can’t include the commercial market, the penalty will be based on the Medicare market only — making it a smaller price to pay if a company does decide to hike the list price of a drug at a rate higher than inflation.”