Biden’s Latest Drug Plan Picks Revive Push on ‘Pill Penalty’ Fix

The Biden administration’s selection of 15 new drugs for price negotiations is reigniting the call from opponents to amend how drugs can be selected for the Medicare program.

The Centers for Medicare & Medicaid Services unveiled Friday the list of 15 additional Part D drugs selected for a program that allows the US government to slash the cost of some of the most expensive and widely used drugs covered under Medicare.

The list included Novo Nordisk A/S blockblusters Ozempic and Wegovy; Astellas Pharma Inc.’s Xtandi; Pfizer Inc.’s Ibrance; and Bristol Myers Squibb Co.’s Pomalyst.

The pharmaceutical industry has long pushed back on the Inflation Reduction Act program, claiming it will harm innovation and affect patient access to medicines. Now, the second negotiation cycle is drawing resistance over how medicines are selected and calls for Congress to change the program.

“Over half the medicines selected for price setting by the Biden Administration are being targeted because of the ‘pill penalty’ included in the IRA, which lets the government set the price of medicines that often come in pill form much earlier than other types of medicines,” Stephen Ubl, CEO of the Pharmaceutical Research and Manufacturers of America, said in a statement Friday.

“The pill penalty sends a clear message to innovators to stop developing these medicines even though they may be the most effective, convenient, and lowest cost option for patients.”

Under the Inflation Reduction Act, small molecule drugs are eligible for selection seven years after Food and Drug Administration approval. There is a two-year negotiation period and the price control goes into effect at year nine. Biologics are eligible for selection 11 years after FDA approval, with a two-year negotiation period, and the price control goes into effect at year 13.

Biologics are often large and more-complex molecules that are granted longer market exclusivity by the FDA, while small molecule drugs have a shorter protection period. All the drugs selected Friday were small molecule.

The effort to fix the “pill penalty” isn’t new, as industry groups and lawmakers have raised concerns about its affect on innovation. But with the release of the next round of drugs, and the potential to influence the incoming Trump administration, the fix may gain momentum. Republicans now also hold the majority in the House and Senate, which could give some fuel to potential program amendments.

President-elect Donald Trump hasn’t revealed his plans for the program, but Eli Lilly & Co. and other drugmakers plan to ask him to pause the negotiations.

Request to Congress

One attempt to eliminate the pill penalty stems from a bill by Reps. Greg Murphy (R-N.C.), Don Davis (D-N.C.), and Brett Guthrie (R-Ky.).

Murphy told Bloomberg Government that he plans to reintroduce this bill, while Guthrie said he’s been for “changing the exclusion of small molecules from 9 to 13 to match biologics.”

If there is a plan to eliminate the penalty, how it’s implemented is a “big question,” said Duane Wright, senior government analyst for Bloomberg Intelligence.

“Do you do it prospectively or apply it retroactively? If retroactive to at least the current list, Ozempic isn’t negotiation-eligible until 2029,” Wright wrote in an email. “That would likely complicate efforts to open up Medicare to obesity drugs if the government can’t set a price lower than net prices.”

“Given all the other health care priorities Democrats are likely to face in the minority—they would be wise to engage on IRA fixes, including the ‘pill penalty,’” Nicholas Shipley, former chief advocacy officer for BIO, told Bloomberg Government.

Shipley, the founder of Cronus Consulting, said Democrats are prioritizing extending Affordable Care Act subsidies and Medicaid, and it would be politically “smart for them to entertain IRA fixes in exchange for their own policy goals.”

The Biotechnology Innovation Group, which informed lawmakers about unintended consequences of the law, said in a statement Friday that “patients and biotech researchers are looking to this new Congress and administration to fix the flaws in this law.”

The unintended consequences are also fueled by the latest list, said John O’Brien, president of the National Pharmaceutical Council. This includes “delayed launches, fewer subsequent indications, less post-approval research, all with uncertain impact for the patient,” O’Brien said in a statement.

Program Up to Trump

The program will also be steered by Trump’s health picks—vaccine skeptic Robert F. Kennedy Jr. to lead the health department and TV personality and surgeon Mehmet Oz to lead the CMS.

While major components of the negotiation plan already set forth in statute would restrict Trump’s administration from tossing out the program altogether, it could take steps to delay or modify the plan’s implementation.

A CMS spokesperson said in a press call prior to Friday’s release that the Inflation Reduction Act is “clearly defined in statute and there is no ability for a policy official to say ‘I prefer this drug over that drug.’”

Another agency spokesperson said in a press call Friday that any changes to the program would need to consider new information and require additional guidance and new decision-making.

But any changes would be met with resistance by advocates of the program and the lower prices it brings.

“If the Trump administration is serious about affordability, they will maintain the Inflation Reduction Act and their authority to ensure robust negotiation of prescription drug prices, and use it to maximize savings for these 15 drugs,” Anthony Wright, executive director of Families USA, said in statement.

“Reducing Medicare’s spending on prescription drugs is a bipartisan policy priority,” said So-Yeon Kang, an assistant professor at Georgetown University School of Health.

“Given the successful outcomes of the first round of price negotiations, I am optimistic that the second round will be a step forward in addressing prescription drug affordability for seniors, while also ensuring the effective use of taxpayers’ money,” Kang said.