Prescription drug prices are high. Can the new Senate bill lower them?

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U.S. prescription drug prices have skyrocketed. What does the new Senate bill do to bring the prices down?

Prescription drugs in America are expensive.

A new Alzheimer’s treatment has a list price of $56,000 a year, and some are paying $1,000 per month for insulin. The high cost of drugs has generated fierce debate over whether the U.S. should intervene more heavily in drug pricing. The Senate bill revealed last week by Sens. Chuck Schumer (D-N.Y.) and Joe Manchin (D-W.Va.) would address one key element of the problem: the prices Medicaid pays for seniors’ drugs.

The bill unveiled last week would allow the federal government, the single largest purchaser of drugs in the U.S., to negotiate drug prices with pharmaceutical companies for the first time, bringing down costs for seniors and the government. Critics warn this government intervention will make drugs less profitable for pharmaceutical companies and in turn drive down research for new drugs. Government projections suggest the impact on new drug development would be negligible.

The new bill would allow the government to negotiate prices only for people over 65, generating significant savings for Medicare recipients and increasing access to the most expensive drugs. It would also save the government a lot of money: $100 billion over 10 years, according to the Congressional Budget Office, which in turn would help pay for other parts of the new bill.

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Here are some of Grid’s favorite resources for understanding why drugs are expensive in the U.S., and the benefits and drawbacks of changing drug policy:

Why are drug prices so high? The United States is unique in that the government does not negotiate prescription drug prices with pharmaceutical companies. As this cartoon explainer from Vox lays out clearly and simply, this hands-off approach has led to very high prices in the U.S. — but it also encourages investors to pour money into pharmaceutical research that leads to new drugs. Read the story by Sarah Kliff in Vox.

How do prices in the U.S. compare with other countries? Drug prices in the U.S. were 256 percent higher than prices in 32 other countries, a 2021 Rand Corporation study found. U.S. prices were higher than those in Canada, Italy, Japan and Mexico — and 779 percent higher than prices in Turkey. Read the Rand Corporation study.

A $56,000-a-year drug for Alzheimer’s? That was the price set by manufacturer Biogen for Aduhelm, a drug to treat Alzheimer’s. Setting a high price for so-called physician-administered drugs helps pharmaceutical companies reap the biggest possible profits from Medicare because of how Medicare currently sets prices, the New York Times explained in this story last year. Read the story by Amy Finkelstein in the New York Times.

Will allowing Medicare to negotiate drug prices stifle research? A little bit, the Congressional Budget Office says. CBO estimates that if this bill passes, about 15 of 1,300 drugs wouldn’t be brought to market over the next 30 years due to lost revenues, amounting to about 1 percent of drugs. Read the Congressional Budget Office estimate.

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Who is struggling to afford drugs? In short, people who have serious health issues and/or are low-income. People who take four or more prescriptions are more likely to report they struggle to pay for prescription drugs, as do people with a serious health condition and those with a household income of less than $40,000, according to Kaiser Family Foundation polling. Read the Kaiser Family Foundation polling.

Why are Democrats trying to add insulin to the new bill? Insulin is currently excluded from the Manchin-Schumer bill, but some Democrats have mounted a last-minute push to change that. The price of insulin — first discovered as a treatment for diabetes in 1922 — has shot up in recent years, and reports are rising of patients rationing their use of the drug. This Washington Post story on Alec Raeshawn Smith, who died after going off his parent’s health insurance in his mid-20s, shows how high prices for insulin have put patients in difficult positions. Read the story by Tiffany Stanley in the Washington Post.

Are PBMs part of the problem (and what is a PBM)? Pharmacy benefit managers, which are third-party companies that process drug claims and often negotiate drug discounts and rebates with pharmaceutical companies, are also coming under increasing scrutiny in Washington for their role in drug pricing. The Federal Trade Commission has launched an investigation into the country’s largest PBMs and is examining PBM pricing and rebate programs, Healthcare Dive reported in June. Read the story by Rebecca Pifer in Healthcare Dive.

Still have questions? There is a host of information on prescription drug terminology, prices and policy in this report from the Congressional Research Service. Read the report from the Congressional Research Service.

Thanks to Lillian Barkley for copy editing this article.

  • Maggie Severns
    Maggie Severns

    Domestic Policy Reporter

    Maggie Severns is a policy reporter for Grid covering complex policy stories and major headlines.

  • Jonathan Lambert
    Jonathan Lambert

    Public Health Reporter

    Jonathan Lambert is a public health reporter for Grid focused on how science, policy and the environment shape our collective well-being.

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