Nationwide, prescription drug spending last year is estimated to be $328 billion among all payers, including private insurance, Medicare Part D, and patients’ out-of-pocket expenses. Reforms to let Medicare negotiate prices, cap out-of-pocket costs for prescription drugs, and limit insulin cost-sharing would make lifesaving drugs more affordable. Still, the pharma industry is fighting hard to keep it off the table.
Nearly 9 in 10 older adults take prescription medication. Yet, high drug prices lead to soaring out-of-pocket costs, dangerous drug rationing, and a depletion of limited financial resources—especially for those with fixed incomes.
Currently, federal law prohibits Medicare from negotiating drug prices directly with manufacturers. Consequently, drug companies can set prices as high as the market will bear, meaning the government has no choice but to cover many medications at unfair prices.
Late last year, the Senate Finance Committee released draft legislation enabling Medicare negotiation for up to 10 drugs in 2025, 15 in 2026 and 2027, and 20 in 2028 and beyond. This would include drugs covered by both Medicare Part B (physician-administered drugs) and Part D (prescription medications). The secretary of the U.S. Department of Health and Human Services (HHS) would be empowered to negotiate prices directly with drug manufacturers for drugs with the highest spending for both Medicare Part B and Part D, as well as for all insulin products.
According to the Congressional Budget Office, the drug price negotiation provisions of the House-passed Build Back Better Act would result in $79 billion in savings from 2022 to 2031.
The Dark Side is trying to prevent pricing reform
Republican lawmakers are working behind closed doors to tank Democrats’ watered-down but potentially impactful proposal to require Medicare to negotiate the prices of a small number of prescription drugs directly with pharmaceutical companies. The GOP’s efforts come as the pharmaceutical industry is mobilizing its vast army of Capitol Hill lobbyists in a last-ditch campaign to defeat the Democrats’ plan, which would require Medicare to negotiate the prices of a subset of prescription drugs directly. This idea is overwhelmingly popular with the U.S. public.
Pharma is a very profitable industry.
According to a JAMA cross-sectional study that compared the profits of 35 large pharmaceutical companies with those of 357 large, nonpharmaceutical companies from 2000 to 2018, the median net income (earnings) expressed as a fraction of revenue was significantly greater for pharmaceutical companies compared with nonpharmaceutical companies (13.8% vs. 7.7%).
The pharma industry has been a solid place to invest money over time. The largest companies are profitable and typically share a portion of their cash flow with shareholders through dividends and share repurchases.
Johnson & Johnson, Pfizer, and AbbVie earned operating profit margins well above 20 percent over the past five years. Pharmac companies earned about 25 cents in operating profit for every dollar of revenue they took in compared to about 12 cents for the overall market, according to January 2022 data from New York University.
If voters want lower drug prices, then why isn’t Congress moving to enact legislation to lower costs? The answer is a common theme that has the potential to damage our democracy: money. PhRMA is showering politicians with tons of cash to prevent lower drug prices and save taxpayers billions. Once again, profits prevent”doing the “right” thing.
The shame of pharma…