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Forbes post, “The Prescription Drug Price Negotiation Plan In The Biden BBB Bill Is Not What It’s Claimed To Be”
Originally published at Forbes.com on November 6, 2021.
Earlier this week, the New York Times reported, with the headline, “Democrats Add Drug Cost Curbs to Social Policy Plan, Pushing for Vote,” that House Democrats “agree[d] to allow the government for the first time to negotiate prices for medications covered by Medicare.”
The article explains,
“Starting in 2023, negotiations could begin on what Senator Ron Wyden of Oregon called the most expensive drugs — treatments for cancer and rheumatoid arthritis, as well as anticoagulants. Most drugs would still be granted patent exclusivity for nine years before negotiations could start, and more complex drugs, called biologics, would be protected for 12 years.”
But, to be perfectly clear, what is planned to happen is not negotiation. It is simply a matter of the federal government mandating price reductions for the selected drugs, for all Medicare Part B and Part D participants. And as regular readers know, twisting the plain meaning of words to achieve one’s objective frustrates me to no end.
Here’s how the system would work, if enacted into law as-is, based on the November 3 version of the bill (summary description here, and top menu here):
The Department of Health and Human Service would, beginning in 2025, select the 100 targeted drugs based on the total expenditure by Medicare for these drugs, as potential targets for “negotiation”/mandatory discounts. One hundred drugs may not seem like much, but a 2019 Kaiser analysis found that for Part D drugs (pills, injectables, etc.), the top 50 drugs account for 37% of all spending, and for Part B (drugs administered at the doctor’s office, such as infusions, such as cancer drugs), the top 50 drugs account for 80% of all Part B drug spending. Only drugs which had been approved more recently than 7 years ago (or 10 years ago for biologics) would be exempt (per the legislative text; the summary claims it’s a protected period of 9 and 12 years).
Upon being selected, the manufacturer would be required to produce all requested information, and would be penalized for a failure to comply at a rate of $1 million per day. Information which is deemed to be false would be penalized at a rate of $100 million per false information item. And in the end, a manufacturer which refuses to participate in the process and sign a “negotiation” agreement by a specified deadline would be deemed noncompliant, with penalties in the form of an excise tax ranging from 65% to 95% of the drug’s sales, for the time periods immediately upon being deemed noncompliant, to the 270th day of noncompliance and later.
After information has been submitted, the HHS Secretary would make an offer, the manufacturer would make a counter offer, and so on, but in the end, there are prescribed ceilings: the “non-Federal average manufacturer price” (something like a drug’s MSRP, but not the “retail price” you might see elsewhere; this is kept secret from the public but used to set government prices for Medicaid, VA healthcare and other programs) would be multiplied by
- 75%, for drugs approved no more than 12 years prior (or a 25% mandatory discount);
- 65%, for drugs approved between 12 & 16 years prior (a 35% discount); or
- 40%, for drugs approved more than 16 years prior (a 60% discount).
In addition, the baseline price for these drugs would be fixed at the price in 2020, adjusted each year by no more than the general inflation rate.
The law provides a list of factors that the HHS would use in determining their offer, including the R&D costs for the drug (but not the R&D costs for other drugs whose trials fail to prove effectiveness) as well as the actual production costs, alongside considerations of how much better it is (or isn’t) than other drugs for the same condition. Third parties would also be able to submit information for consideration. If a new use is found for the drug or for other unspecified reasons, HHS could also declare a renegotiation.
What’s more, the “most favored nation” price reduction process that was initiated under the Trump administration had been wholly abandoned by the Biden administration during the summer. Likewise, a bill introduced into Congress in April, H.R. 3, would have set its target price not with reference to US pricing but instead, according to Kaiser, would have
“define[d] a target price for a selected drug equal to the lowest average price in one of six countries (Australia, Canada, France, Germany, Japan, and the United Kingdom), or 80% of the average manufacturer price in cases where there is no international price, as might be the case for relatively new drugs.”
and would have
“establishe[d] an upper limit for the negotiated price equal to 120% of the Average International Market (AIM) price paid by at least one of the six applicable countries. For selected drugs where there is no AIM price available, the proposal establishes a maximum price equal to 85% of the average manufacturer price (AMP).”
What does it mean that the Build Back Better version of this legislation abandoned the use of reference prices from other wealthy countries? That version of price reduction would have essentially forced those other countries to share the burden of R&D that they currently, more or less, escape. The new version instead may mean that it will be privately-insured Americans who will bear the cost, for drugs where the elderly comprise a relatively small fraction of the overall market. What happens with drugs where virtually the entire market is the elderly, and, in particular, drugs which are still in the process of being researched or tested? Will drugmakers find new ways to game the system, setting their AMP high in anticipation of taking a reduction?
When private sector insurance companies negotiate drug prices, there is true give-and-take; if drug companies won’t agree to a low enough rebate, the insurer will place them in a non-preferred status. The same is true for Medicare Part D insurers, except that there are restrictions placed on insurer’s ability to do so for significant numbers of drugs.
The “negotiation” envisioned in this bill is nothing of the sort, and, once again, Americans deserve some honesty about the government’s plans.
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.
Forbes post, “No, The ‘Build Back Better Bill’ Is Not Fully Paid For – But Do Americans Care?”
Originally published at Forbes.com on October 29, 2021.
Yesterday, the Biden administration unveiled its new iteration of the “Build Back Better Bill,” proclaiming that it is “fully paid for.” But this is far from true.
While it has indeed reduced the overall scope of spending, eliminating such programs as paid leave and Medicare dental benefits, and trimming the scope of other benefits, the administration’s claims that the plan is “paid for” are not remotely credible for the simple fact that so many of its programs end after 6, 3, or even only 1 year, but are funded with 10 years’ worth of tax increases. The Committee for a Responsible Federal Budget has compiled a list:
- Universal preschool for 3 and 4 year-olds ends after 6 years (and with a 40% state cost-share by year 6).
- Child care subsidies are phased in over 3 years, operate in full for another 3 years, and then end.
- The child care tax credit and the expanded EITC end after a single year.
- ACA/Obamacare expanded premium subsidies end after 3 years.
- And the expansion of ACA credits to individuals in states which haven’t expanded Medicaid, ends after 4 years.
The CRFB calculated that expanding these benefits over the full 10 year window would more than double the real cost of the bill — but most news coverage fails to mention these expiration dates, or fails to remark on their significance, focusing instead on the political machinations or mentioning what’s in, what’s out in single-sentence reporting, such as in this coverage at the New York Times, which simply reports that
“provisions to provide universal preschool for more than six million 3- and 4-year-olds and subsidies to limit the costs of child care to no more than 7 percent of income for most families would offer a significant boost to the middle class.”
Are the Democrats taking it for granted that political pressure will keep these programs going, and that their successors will be obliged to either find new tax revenue or finance them with deficit spending, or are they simply indifferent to what happens one year or six years from now?
And what’s even more maddening is that the Democrats have treated this as something of a smorgasbord, in which they are loading up their plates for a first go-round now, but will go back up to the buffet later for the items they had to forego the first time around. Family leave, expanded Medicare benefits, Social Security expansion, SSI increases, and free community or four-year college are only the elements of the wishlist that come to mind, but there is, of course, more — and beyond this Democratic Party wishlist, there are key, fundamental budgetary issues that will need to be resolved, namely, the coming Medicare Part A Trust Fund depletion and, a bit later, the Social Security Trust Fund depletion.
Which matters more: providing $300 per month per child to nearly all taxpayers, or providing dental benefits to Medicare recipients?
Which should have greater priority: paying child care workers the same wages as elementary school teachers, or ensuring that Social Security is solvent?
And the poor design of some of these programs compounds the program. For example, in the subsidized child care program, each state would calculate a payment rate deemed to be equal to the “cost of child care” and providers may neither charge parents amounts in excess of their copay nor give them a discount or rebate. (In this respect, it’s quite different than the ACA for healthcare, where subsidies are based on the average “Silver” plan cost and recipients can shop around for the price and coverage that suits them best.) Will the state calculate the cost “correctly,” or will they overshoot and give providers unintended profits, or will they be stingy in their calculation because of state cost-share requirements, putting providers out of business? In any event, the legislation requires that child care workers with credentials and education similar to elementary school teachers be paid equivalently, which will cause costs to explode — along with other determinations of “quality,” this could more than double costs not just for parents who don’t qualify for subsidies, but for the government, where every dollar spent on these subsidies is a dollar that can’t be spent on some other program of equal importance.
And that’s just one program, which I happen to have read the full details on. What else is in there?
To be sure, there are far too many Democrats (and, yes, Republicans before them) who simply believe there are no trade-offs needed, except in the pragmatic, political sense of passing legislation, that we can indeed “have it all” — have all the social welfare spending programs they desire, funded through their “tax the rich” rallying cry or by ever-increasing deficits.
All of which means that we desperately need people to call the Biden administration out when they continually, preposterously, make this “fully paid for” claim, because the American people should not stand for being lied to — but the plan’s funding and its expiration dates seem to be the furthest thing from the minds of even those following the bill.
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.
Forbes post, “Here’s Why, Actually, The IRS $600 Bank Reporting Proposal Is Entirely Reasonable
Originally published at Forbes.com on October 16, 2021.
Over the last several days, we’ve seen the Outrage Machine in action over a new Treasury proposal to require banks to report to the IRS new information on U.S. bank accounts, in addition to the existing reporting of interest payments. This proposal, as described at CBS News (among, of course, many other sites) would require banks to report the gross annual inflows and outflows in bank accounts, ostensibly to catch high-income tax-dodgers. Because the threshold for reporting was set at $600, skeptics are, well, skeptical of the assertion that this change would only affect, as the Biden administration claims, those earning over $400,000 per year.
At the Heritage Foundation, a commentary claims that this change would be “invading your privacy and putting more of your financial data at risk,” citing past leaks at and politicization of the IRS. A group of 40 banking/credit industry organizations likewise objected that Americans’ financial privacy was at risk and claimed that this new requirement would deter unbanked households from establishing accounts. And other politicians, as cited in fact checks, mischaracterizing the proposal, claim that it would result in the IRS examining the particulars of every $600 transaction. Whether the very low threshold is an indication that the administration is being dishonest in its claims that their objective is only to catch wealthy tax cheats when they are, in fact setting the stage for a wider pursuit, or whether this is more a matter of failing to think through the implications of such a low threshold, who can say.
But at the same time, the other day, while driving home, I listened to a fairly generic conservative radio talk show host angry about this proposal. He was not angry about privacy concerns, and certainly not about whether people at the margins would be deterred from opening bank accounts, nor about the cost to banks of compliance with the new regulations. No, what he was up in arms about was the fact that Americans would be obliged to pay tax on their moonlighting self-employment income.
So here’s the plain-and-simple reality: Americans owe FICA tax on all their income up to the ceiling, and are obligated to report all their income in calculating their income tax. There is no legal, moral, or ethical right to underreport just because your income came from some other source than a “real job.” A babysitter, an Ebay reseller, someone who picks up handyman jobs on the side — all these folks have an obligation to report their income. (As a parent and Band Mom, I’m personally learning the ropes here, as our group navigates sending Form 1099s to college students and local musicians who are hired periodically.)
And — without wishing to wade into the entirely separate issue of high-income tax cheats — the “shadow economy” in the United States is substantial. Estimates are hard to come by, but one guesstimate is that the underground economy amounted to 11 – 12% of US GDP in 2018. A 2012 survey indicated that 91% of nannies reported being paid under the table. Among all household workers, another estimate found rates of between 74% and 97%, depending on methodology. And of course, the under-the-table workforce extends far beyond household workers, though it gets harder to quantify when we’re talking about other sorts of self-employed people not reporting their income, or small employers paying under the table. (A brief perusal of reddit suggests this is not unusual for restaurants.)
But consider this: some time ago I discussed a book, Downhill from Here by Katherine S. Newman, which lamented gaps in the retirement system, such as multiemployer pension insolvencies and the retirees of Detroit, whose pensions were cut modestly with the city’s bankruptcy. I didn’t place too much credence in her arguments, lamenting as she did, for example, that the city of Detroit did not, in fact, sell art from the Detroit Institute of Arts to preserve pensioners’ benefits in full.
But in addition to these stories, she featured profiles of Americans who were working well past traditional retirement age, including Leslie, who ran a home daycare “off the books” and built up so little official employment history that her Social Security benefit was “almost nothing,” and Marissa, who was mostly paid under the table for housecleaning work and likewise had no meaningful Social Security benefit. In case case, Newman implies that it is a matter of unjust Social Security plan design that these women have no/few benefits rather than acknowledging that it was an intentional decision not to report their income.
In the same way, there are periodic sympathetic news reports of women formerly employed as nannies or housecleaners who became unemployed in the wake of the pandemic — but it doesn’t occur to those journalists that, to the extent that those women were employed, rather than self-employed, they should have qualified for unemployment benefits, or would have, had they been paid on the books. And, of course, again, people who are employed, rather than self-employed, under-the-table lose access to workers’ compensation should they be injured.
Yes it’s unpopular to talk about this. There’s a presumption that people working under the table are poor, so that it would be unfair to enforce the requirement to pay taxes. Certainly, many of these workers would have incomes low enough that they would not be obliged to pay income taxes, though payroll/FICA taxes apply to all income. But for others, this is a sideline, and in yet other cases, they are genuinely employed, not self-employed, and have an employer who profits from the ability to escape taxation on some of their payroll.
And it’s not just a matter of lost taxes, or lost Social Security benefits. There’s something more fundamental that’s lost in our society when we treat participating in taxation and social insurance systems as somehow optional.
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.