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Democrats box in Republicans on drug pricing

Wednesday, December 18th, 2019

Burgess Everett

After months of wrangling, House Democrats finally passed a massive bill aimed at lowering drug prices. And Senate Republicans are flummoxed over how to respond.

The GOP is in a jam that makes action appear somewhere between unlikely and impossible. But if Republicans fail to act, it could easily become a major political liability for the party given the salience of high drug prices in public polling and President Donald Trump’s desire for sweeping reforms.

Yet with an election year cresting and massive divisions among his members, Senate Majority Leader Mitch McConnell is staying put. Associates say the Kentucky Republican is not eager to make a move that splits his caucus and could incur the wrath of the well-financed pharmaceutical industry.

A final decision will wait until after the Senate’s impeachment trial. Many Senate Republicans, however, know they need to do something to satisfy Trump and avoid the awful optics of doing nothing at all.

Senate Finance Chairman Chuck Grassley (R-Iowa) this summer advanced a bill that would fine drugmakers that hike prices above inflation rates, but from the start it had more Democratic support than Republican backing. Even though a significant number of GOP members say it’s a bold stroke with crucial presidential support, many Republicans liken the move to price controls that would kill innovation.

“God, I don’t know. We’re stuck with a price control concept,” said Sen. Lindsey Graham, referring to his opposition to Grassley’s bill. Trump “is nonconventional as a Republican. He would go to price controls … [McConnell] probably wants what I want.”

Summing up the party’s headache, the South Carolina senator said: ‘We’re not divided on if we should do something. We’re divided over what we should do. And I don’t think either of us as a party can walk away and end up doing nothing.”

Fresh off their victorious vote last week on Speaker Nancy Pelosi’s sweeping drug bill allowing the government to negotiate drug costs, House Democrats are trashing Senate inaction — and McConnell specifically. The GOP leader has likened Pelosi’s bill to “socialist price controls” and said in no uncertain terms it has no chance in the Senate. Trump also pledged to veto the measure.

Senate Republicans “keep saying they care about it, but then they do nothing,” said progressive Rep. Pramila Jayapal (D-Wash.), whose battle with House leadership led to last-minute changes that pushed the bill further left.

Republicans across the Capitol have slammed Pelosi’s bill as an even bigger boogeyman to biomedical innovation than the Senate option, and even Grassley has used it as evidence that the GOP needs to get behind his legislation or face a world with fewer new life-saving medicines.

“Thank goodness Republicans control the Senate. That said, we still need something to make medicines affordable,” said Bill Cassidy (R-La.), who voted for Grassley’s effort in committee and still backs it.

Yet without a clear path forward, senators say they feel stuck. And publicly, the White House is waffling on potential compromises. Joe Grogan, the director of the Domestic Policy Council who has worked closely with the senators on their package, first told POLITICO that the controversial inflation cap wasn’t a hill to die on — then later said it was a necessary compromise to keep Democrats on board.

When it comes to the Senate floor, McConnell is not eager to put anything up that doesn’t at a minimum have the support of half his members. He’s warned colleagues that the drug-pricing bill could result in a circular firing squad — exposing his Republicans to tough attacks as they run for reelection.

Take Sen. Thom Tillis of North Carolina, whose state is a hotbed for the pharmaceutical industry. He opposes the Grassley bill — but if he voted against it he’d be sure to take flak from Democrats looking to oust him. He said the need to put caps on drug prices is being “driven by a lot of populist pressure.”

This article was originally published on Politico on December 17, 2019. Reprinted with permission.

About the Author: Sarah Owermohle is a health care reporter for POLITICO Pro covering drug policy and the industry. Before joining POLITICO, she covered the business of health care for S&P Global Market Intelligence and spent five years in Dubai and Beirut reporting on business, finance and development in the Middle East and Africa, including a three-year stint as the editor of Banker Africa. She graduated from the College of William and Mary in Williamsburg, Va.
About the Author: John Burgess Everett is a congressional reporter for POLITICO. He previously was a transportation reporter for POLITICO Pro, Web producer, helping run POLITICO’s Twitter and Facebook accounts, and a contributor to the On Media blog.

Prescription Drug Spending is Consuming a Bigger Share of Wages

Tuesday, July 4th, 2017

Prescription drugs are a large and growing share of national income. While it is generally recognized that drugs are expensive, many people are unaware of how large a share of their income goes to paying for drugs because much of it goes through third party payers, specifically insurance companies and the government.

The Centers for Medicare & Medicaid Services (CMS) produce projections of national expenditures on prescription drugs through 2025, along with historical estimates dating back to 1960. As shown below, prescription drug spending from 1960 to 1980 was equivalent to about one percent of total wage and salary income. In the years leading up to the passage of the Bayh-Dole act in 1980, wage income was rising faster than spending on prescription drugs. As a result, the share of wages spent on prescription drugs was actually falling, reaching a low in 1979 of 0.86%.

However, after 1980, prescription drug spending rose rapidly relative to wage income. The ratio of drug spending to wages rose each year from 1980 to 2007. In 2007 wage growth finally outpaced drug expenditures, with the ratio again increasing in the Great Recession. By 2010, prescription drug spending had climbed above four percent of wage income.

The three percent of annual wage income lost to higher drug spending over the past 40 years makes a big difference to working individuals and families. This increase in annual spending averages out to roughly $2,400 per household. CMS projections, combined with projections on wage income growth from the Congressional Budget Office, suggest that spending on prescription drugs will increase further through 2025. This ratio is expected to exceed five percent by 2024.

While an aging population has been a factor increasing spending on drugs, demographics alone cannot explain the sharp increase in prescription drug spending. Inflation-adjusted prescription drug spending per household has increased more than eightfold since 1980, far outpacing any demographic trend surrounding age. The share of people over age 65 in the population has increased from 9.2% in 1960 to 14.8% in 2015. This can at most explain a small part of the increase in spending on drugs over this period.

It is important to recognize that the high cost of drugs is the result of a conscious policy decision to give drug companies monopolies in the form of patents and other forms of exclusive marketing rights. Without these protections drugs would almost invariably be cheap, likely costing on average less than one fifth as much as they do now. Even worse, the perverse incentives resulting from patent monopolies distort the research process and can lead drug companies to misrepresent evidence on the safety and effectiveness of their drugs.

 This blog was originally published at CEPR on June 27, 2017. Reprinted with permission. 
About the Authors: Dean Baker co-founded CEPR in 1999. His areas of research include housing and macroeconomics, intellectual property, Social Security, Medicare and European labor markets. He is the author of several books, including Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich RicherGetting Back to Full Employment: A Better Bargain for Working PeopleThe End of Loser Liberalism: Making Markets ProgressiveThe United States Since 1980Social Security: The Phony Crisis (with Mark Weisbrot), and The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. His blog, “Beat the Press,” provides commentary on economic reporting. He received his B.A. from Swarthmore College and his Ph.D. in Economics from the University of Michigan. Brian Dew holds a B.A. in Psychology and Organizational Sciences from the George Washington University and an M.A. in Economics from American University. His previous research has focused on international trade, network analysis, and open-economy macroeconomics, while his current research interests include domestic trade, employment, and monetary policies. Brian worked previously for the International Monetary Fund.

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