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Drug Price Deal Hailed by Employers as Key Step to Slash Costs

Nov. 3, 2021, 8:19 PM

Employers view the drug pricing deal agreed to by congressional Democrats as an important “foot in the door” even though they won’t benefit from a provision allowing Medicare to negotiate some of the highest-priced drugs.

The agreement reached this week allowing the government to negotiate prices on a small number of expensive drugs is “an important first step,” in making drug prices affordable for workers and their employers, Bill Kramer, executive director for health policy with the Purchaser Business Group on Health (PBGH), said in an interview. “We’ve broken through the fortress wall that pharma has erected over decades, and this is the first time we’ve been able to get through with anything.”

Still, Kramer added, “We have a long way to go in order to get drug prices that are affordable for the payers and their workers and families.” The PBGH represents 40 private employers and public entities across the U.S. spending about $100 billion a year to cover more than 15 million workers and families.

Employers had lobbied heavily to be allowed to take advantage of any lower prices that Medicare negotiates. Although not successful on that front, they were encouraged by other provisions in the Democrats’ agreement.

Under the deal, the government would negotiate beginning in 2025 for lower prices on 10 drugs that rank among those that cost Medicare the most. That number would rise to 20 in subsequent years.

The proposal—which would become part of President Joe Biden‘s $1.75 trillion spending bill—would also require drugmakers to pay back to the government any profits made from increasing the price of their products past inflation starting in 2022. This would apply to price hikes on Medicare and on employer-sponsored health plans.

Employers’ Shift

Employers in recent years have changed their views to support government intervention on drug pricing as they increasingly fear new drugs priced in the millions of dollars.

“Part of our concern for any drug pricing negotiation or inflation caps that Congress may have enacted as part of the budget reconciliation bill is the potential for cost shifting to employer plans to make up any lost revenue as a result of what was enacted,” Mark Wilson, vice president of health and employment policy for the HR Policy Association, said.

“We’re pleased that they included commercial plans in the inflation caps to limit the negative impacts of any cost-shifting that might occur as a result of any drug pricing negotiations,” Wilson said.

“The negotiations provision will be a foot in the door,” and employers will continue to work with Congress to be allowed to benefit from Medicare-negotiated prices, James Gelfand, executive vice president of public affairs for the ERISA Industry Committee, said in a press briefing Tuesday. ERIC represents large employers that provide employee benefits.

Congressional negotiators were unable to include commercial health plans and employers in the protections of the deal because it wouldn’t meet the terms required under Senate budget reconciliation rules.

Inflation Caps

Ilyse Schuman, senior vice president for health policy with the American Benefits Council, said her organization was “very supportive of the provisions” in an outline of the deal, including the inflation caps. That provision requires drug manufacturers to rebate any cost increase beyond inflation to the government.

“While employers will not receive a rebate directly, the prices they pay will be included in calculating the rebate, thereby meaningfully limiting future price growth on existing drugs for American working families,” Schuman said. The ABC represents large companies that provide health-care and other benefits for employees.

Kramer also touted the inflation caps. “The benefit to the employers and their employees is that the drug manufacturers will keep their price increases to be no higher than general inflation,” he said. “Why would they raise them if they just have to turn that money over to the government?”

The threat of the rebate “would provide a sufficient incentive, so ideally no rebates would ever be paid, and the price increases would be indexed to general inflation,” Kramer said.

—With assistance from Alex Ruoff

To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

To contact the editor responsible for this story: Brent Bierman at bbierman@bloomberglaw.com

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