Democrats’ Stumble on Drug Prices Shows Power of Industry

An attempt in the House to take a bite out of drug companies meets resistance.

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House Democrats writing the health provisions of their big social spending bill aimed high: new coverage for poor Americans without insurance; extra subsidies for people who buy their own coverage; and new dental, hearing and vision benefits for older Americans through Medicare.

To pay for those, they also aimed high when it came to lowering drug prices. A measure that would link the prices of certain prescription drugs to those paid overseas was devised to save the government enough money to offset the costs of those other priorities. The House approach, estimates suggest, could save the government around $500 billion over a decade, with that money coming out of the pockets of the pharmaceutical industry.

But it’s risky to bet against the drug companies.

Three House Democrats on a key committee voted against the measure on Wednesday. There are still ways for House leaders to keep the provision in the final bill, but the House Democratic majority is so slim that those three legislators, if determined, could represent a significant barrier to passing the broader package.

The dynamic is familiar to lawmakers who have worked on health issues: Health industries are large and powerful lobbies, and they do not enjoy having their revenues cut. As with measures that might reduce payments to hospitals, doctors and insurance companies, the House’s attempt to take a bite out of drug companies has generated a backlash.

“I just don’t think paying for a lot of things by crippling investments in life sciences is really the way to go forward,” Representative Scott Peters, Democrat of California, told my colleague Emily Cochrane on Tuesday. “Losing the investment in pharma is too big a price to pay.” (Kurt Schrader of Oregon and Kathleen Rice of New York are the other House Democrats who voted against the measure.)

Understand the Infrastructure Bill

One trillion dollar package passed. The Senate passed a sweeping bipartisan infrastructure package on Aug. 10, capping weeks of intense negotiations and debate over the largest federal investment in the nation’s aging public works system in more than a decade.The final vote. The final tally in the Senate was 69 in favor to 30 against. The legislation, which still must pass the House, would touch nearly every facet of the American economy and fortify the nation’s response to the warming of the planet.Main areas of spending. Overall, the bipartisan plan focuses spending on transportation, utilities and pollution cleanup.Transportation. About $110 billion would go to roads, bridges and other transportation projects; $25 billion for airports; and $66 billion for railways, giving Amtrak the most funding it has received since it was founded in 1971.Utilities. Senators have also included $65 billion meant to connect hard-to-reach rural communities to high-speed internet and help sign up low-income city dwellers who cannot afford it, and $8 billion for Western water infrastructure.Pollution cleanup: Roughly $21 billion would go to cleaning up abandoned wells and mines, and Superfund sites.

Mr. Peters’s district in the San Diego area includes tens of thousands of workers in medical research and drug development. Some might lose their jobs if pharmaceutical profits shrank, research investments dwindled or companies closed their doors. Mr. Peters has co-sponsored a competing drug pricing bill, which he argues would better target inefficiencies and market failures. The budgetary effects of that legislation have not been measured — and the House committee did not vote on it Wednesday — but it is similar to a Senate bill that was estimated to generate a fifth as much savings.

Without the drug pricing provision, Democrats will have a tough time financing their other priorities. They are passing their bill using a special budget procedure to avoid a Republican filibuster. But that process means their bill has to hit specified budget targets. If the money saved from drug price regulation is reduced, so, too, is the pot of money that can be spent on other goals. Democrats have already abandoned plans for some other revenue-generating policies, like a wealth tax.

How Drug Price Savings Would Help Pay for the Bill

Savings from lower drug prices make up a significant portion of the money Democrats have been planning to use to pay for their $3.5 trillion reconciliation package. They are also counting on higher taxes for wealthy individuals and corporations, and $600 billion in assumed economic growth.

Corporate taxes $946 billion

Individual taxes $999 billion

Potential drug price savings

>$500 billion

Increase corporate tax rate

to 26.5%

Expand net

investment

income tax

Raise top

rate to

39.6%

Limit business

loss deductions

Capital gains

and carried

interest

Medicare rebate rule

~$150 billion

Changes to international

and other tax rules

Assumed economic growth

$600 billion

Surtax on

income above

$5 million

Limit pass-through

deduction

Estate tax and

other increases

I.R.S. enforcement

Other tax

changes

Tobacco and

nicotine taxes

Other taxes $311 billion

Corporate taxes $946 billion

Individual taxes $999 billion

Potential drug price savings

>$500 billion

Increase corporate tax rate

to 26.5%

Expand net

investment

income tax

Raise top

rate to

39.6%

Limit business

loss deductions

Capital gains

and carried

interest

Medicare rebate rule

~$150 billion

Changes to international

and other tax rules

Assumed economic growth

$600 billion

Surtax on

income

above

$5 million

Limit pass-through

deduction

Estate tax and

other increases

I.R.S. enforcement

Tobacco and

nicotine taxes

Other tax

changes

Other taxes $311 billion

Individual taxes $999 billion

Raise top rate

to 39.6%

Capital gains

and carried

interest

Other

changes

Expand net

investment

income tax

Limit

business loss

deductions

Surtax on

income above

$5 million

Other

$311

billion

Corporate taxes

$946 billion

Changes to

international and

other tax rules

Increase corporate

tax rate to 26.5%

Assumed economic

growth

Potential drug price

savings

>$600 billion

>$500 billion

Medicare rebate rule

~$150 billion

Note: Estimates for new tax revenues by the Joint Committee on Taxation are based on proposals by the House Ways and Means Committee and may change as the bill moves through the legislative process. A leaked document from the committee suggests Democrats plan to count $600 billion in projected economic growth toward the cost of the bill. The document also assumes $120 billion in net revenue from I.R.S. tax enforcement and $700 billion in savings from drug price and rebate rule provisions based on estimates by the Congressional Budget Office.

By Alicia Parlapiano

The United States pays higher prices for prescription drugs than any of its peers — about 250 percent of the price paid on average by other Organization for Economic Cooperation and Development countries, according to a recent report from the RAND Corporation. And those high costs ripple through the federal budget and the economy, increasing insurance premiums, and putting lifesaving medications out of reach for some patients.

Democrats in Congress want to lower the drug prices that Medicare and other insurers pay, both to generate a way to pay for other things and also to benefit general consumers and businesses.

But lowering drug prices does come with trade-offs. Drug company businesses are built around assumptions of high margins in U.S. markets, and investors in early stage companies make choices based on their expectation that a drug that works will generate a big payday. The Congressional Budget Office — the same nonpartisan agency that told the House such a policy could save the federal government lots of money — recently released a report indicating that substantial drug price reductions would have corresponding negative effects on the number of new drugs developed in the future.

Biden’s 2022 Budget

The 2022 fiscal year for the federal government begins on October 1, and President Biden has revealed what he’d like to spend, starting then. But any spending requires approval from both chambers of Congress. Here’s what the plan includes:

Ambitious total spending: President Biden would like the federal government to spend $6 trillion in the 2022 fiscal year, and for total spending to rise to $8.2 trillion by 2031. That would take the United States to its highest sustained levels of federal spending since World War II, while running deficits above $1.3 trillion through the next decade.Infrastructure plan: The budget outlines the president’s desired first year of investment in his American Jobs Plan, which seeks to fund improvements to roads, bridges, public transit and more with a total of $2.3 trillion over eight years.Families plan: The budget also addresses the other major spending proposal Biden has already rolled out, his American Families Plan, aimed at bolstering the United States’ social safety net by expanding access to education, reducing the cost of child care and supporting women in the work force.Mandatory programs: As usual, mandatory spending on programs like Social Security, Medicaid and Medicare make up a significant portion of the proposed budget. They are growing as America’s population ages.Discretionary spending: Funding for the individual budgets of the agencies and programs under the executive branch would reach around $1.5 trillion in 2022, a 16 percent increase from the previous budget.How Biden would pay for it: The president would largely fund his agenda by raising taxes on corporations and high earners, which would begin to shrink budget deficits in the 2030s. Administration officials have said tax increases would fully offset the jobs and families plans over the course of 15 years, which the budget request backs up. In the meantime, the budget deficit would remain above $1.3 trillion each year.

Naturally, the pharmaceutical industry is not happy about the prospect of large price cuts. Steve Ubl, the C.E.O. of the industry trade group PhRMA, described the measure last week as “existential” to his industry. He also said it was unfair that drug companies alone were being asked to shoulder the costs of such a large health care expansion. “We’re being asked to pay a disproportionate share of the bill,” he said.

The drug industry has spent years donating to political campaigns, lobbying members of Congress, and developing allies in the business community. They are now urgently leveraging those relationships. PhRMA announced a “seven-figure” advertising buy on Wednesday, and published an open letter in several Washington publications, adding to television ads running on national news programs and football broadcasts.

It’s a playbook that other powerful health lobbies have used. Groups representing doctors, hospitals and private equity firms started an enormous campaign in 2019 to defeat bipartisan legislation to ban the practice of surprise medical billing. Their efforts stopped the ban, though Congress ultimately passed a more industry-friendly version a year later.

Leaders in the Senate have signaled that they want to pursue their own approach to drug price regulation. Whether their measure will differ in the policy fine print or in the magnitude of the cut to pharmaceutical profits remains to be seen. But the House has been generally perceived as more aggressive on the issue. Its difficulties this week could signal a softer approach, and perhaps a smaller budget for Congress and the White House’s other lofty goals.

Emily Cochrane and Alicia Parlapiano contributed reporting.

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