The battle over drug prices in the US

There is a healthcare debate playing out in the US today that is as significant as any such debate has been since the early days of that country’s Affordable Care Act (ACA). This is because the proposed change being debated is big and consequential in ways that country’s healthcare system has not seen since the passage of the ACA.

This past August, President Joe Biden’s Inflation Reduction Act was passed into law. As part of that legislation, the federal health insurer Medicare will for the first time be allowed to negotiate directly with drug companies over the cost of the medications that the plan covers. Initially 10 drugs, including ones to treat diabetes, heart disease, blood cancer, blood clots and rheumatoid arthritis, will be eligible for price negotiations between their makers and Medicare. The move is clearly intended to help achieve the Biden administration’s stated goal of bringing down the cost of drugs, particularly for older patients.

The stakes here are very real. It is not an exaggeration to say that in the not-too-distant past, Americans too often had to choose between buying food or buying the medications they needed. Medicare provides health coverage to some 65 million Americans, and its ability to make that choice a thing of the past has been threatened by the increasing cost of drugs. This is what the new drug pricing provisions are designed to address.

This is not the first step that a president has taken in this regard. Indeed, every President going back to George W. Bush in 2003 has at least nibbled around the edges of the drug price problem. Fair to say, however, that Joe Biden has taken a very big bite, as the reaction of drug companies pretty clearly demonstrates.   

Several companies have joined together to take the Biden administration to court to put a halt to the drug pricing program, arguing that the new provisions are unconstitutional. Among the many claims they are making is that by requiring them to negotiate or pay a fine, the law violates the Fifth Amendment’s prohibition on the taking of private property for public use without just compensation.

It is interesting to note, however, that even as the drug companies are planning to meet the administration in court, they have also agreed to meet in the boardroom to begin the price negotiations. This may possibly be a sign that the drugmakers recognize an inevitability to the government negotiating drug prices – that regardless of whether they are able to win some legal battles in the short term, the long-term war is likely something they are going to lose.

The conflict south of the border is one that may be familiar to Canadians, notably to people in Ontario. That is because in 2006, Ontario passed Bill 102, the Transparent Drug System for Patients Act. The bill slashed the amount the province would pay pharmacies for the generic forms of drugs. And at the same time, for the first time in Canada, it introduced the practice of a provincial government negotiating with pharmaceutical companies in order to obtain better prices for its publicly-funded drug plan.

The Ontario initiative, with which I was heavily involved, led to the creation in 2010 of the pan-Canadian Pricing Alliance, now called the pan-Canadian Pharmaceutical Alliance (pCPA). It was created to achieve greater value for publicly-funded drug programs and patients through the combined negotiating power of participating jurisdictions. Since that time, the pCPA has negotiated deals resulting in overall savings of $2.67 billion annually on brand name drugs and $740 million annually on generic drugs, totalling $3.41 billion in annualized savings.

The battle in Ontario– and it was a real battle – came down to two words: Affordability and Sustainability. Drug plans must be affordable, both to employers/plan sponsors and plan members. The moment at which they stop being affordable is precisely when they, and the entire system of drug plans, become unsustainable.

It was that reality that led to Bill 102. It is that reality that has led to pharmaceutical companies in Canada agreeing to negotiate their prices with provincial governments, resulting in the relatively stable public drug plans that we have in our country today. And it is that reality that will, I believe, inevitably result in something comparable in the US.