Illustration: Gabriella Turrisi/Axios
Pharmaceutical companies are trying to defang the new drug pricing law without declaring open war on the same congressional Democrats who crafted it and will continue to have powerful sway over the industry's fortunes.
Why it matters: Most of pharma's options call for for strategic maneuvering rather than scorched-earth politicking — especially since the industry's wish list extends far beyond the recently enacted Medicare drug price negotiations.
Between the lines: Manufacturers have a multi-pronged strategy that calls for follow-on legislation to soften the financial blow, shaping regulations that spell out how the law will be implemented and even filing lawsuits challenging the government's authority to control prices, industry sources say.
- The first two require at least some cooperation with Democrats, unless Republicans recapture control of both Congress and the White House. The lawsuit option would take years to play out and could face long odds of success, legal experts say.
What they're saying: Industry sources say they need to be realistic as they try to manage the fallout. "We are not going to walk into a bunch of Democratic Senate offices and say, 'Hey, repeal what you just voted for,' that’s silly," said one industry source.
- "The bulk of the focus is going to be on the legislative approach, but it will be a longer time horizon just because it's just not realistic that they're going to pass some sort of technical fixes in the lame duck," the source added.
- While the rules for implementing the law remain to be seen, the fine print could vastly influence companies' bottom lines. The Biden administration will control that process for the next two years, regardless of what happens in the midterms.
"We want to work with lawmakers regardless of political party to explore every possible opportunity to ensure patients can get the medicines they need and our industry can continue developing lifesaving treatments," said Priscilla VanderVeer, vice president of public affairs at PhRMA.
- The industry has argued that the drug pricing portions of the Inflation Reduction Act will squelch innovation and deprive patients of promising new cures. Proponents counter that it will finally begin addressing high drug prices challenging patients.
Details: On the legislative front, several industry sources named two emerging policy changes that they'll likely push for, though the full list is still evolving and different companies have different priorities.
- The law as written creates a ceiling on the rate Medicare can negotiate for certain drugs, but no floor. Sources say the industry would like to see some kind of minimum price threshold added, in the belief it might at least prevent rock-bottom prices.
- Small molecule, or synthetic, drugs are exempt from negotiation for the first nine years after coming to market, while more complex biologics are exempt for 13 years. The industry says this incentivizes investment away from compounds that remain a pillar of modern medicine and is advocating for all drugs to get 13 years.
The most aggressive track is suing to challenge Medicare's power to cap prices, which observers expect at least some companies to do. One route could be challenging the excise taxes the IRA would levy on companies that refuse to negotiate with Medicare. But such a move would not only alienate Democrats but quite possibly fail.
- "No doubt there's conversations taking place to look to see where some of the flaws might be in the law and how that could be addressed through the legal process," an industry source said.
- But a lawsuit to gut the law is far from a slam-dunk, since it would have to dispute Medicare's authority.
- "The idea that the government can't set constraints on its own federally-funded program, is going to make it harder to win these lawsuits," said Katie Keith, a health law expert at Georgetown University.
Be smart: Now that Democrats have finally delivered on a multi-decade promise of direct government price negotiations, the emphasis could shift to more bipartisan reforms — including ones aimed at some of pharma's traditional adversaries.
- Drug chain middlemen called pharmacy benefit managers have increasingly drawn bipartisan ire, and a sprawling government program that allows certain hospitals to receive drugs at a discounted rate has also been coming under scrutiny.
The intrigue: Drug industry sources argue that their relationship with Democrats is one of mutual dependence, not just one-sided.
- "We are an industry of well-educated people ... so blowing up this industry is unhelpful to Democrats in that regard, but they clearly haven't connected those dots," one source said.
- A few more moderate Democratic lawmakers helped blunt the impact of the law before passage, and those members could be receptive to industry friendly tweaks. But much of the party remains happy to target the manufacturers, and polls show the public backs such controls.
The bottom line: The drug industry will undoubtedly continue to publicly rail against the law and highlight any adverse effects they say stem from it, but behind the scenes, sources acknowledge that their options are likely limited.
- "I think there seems to be a thread in the reporting on this that, you know, somehow the drug industry is going to figure out a way to get out of this," said Ian Spatz, a former vice president at Merck, now a consultant at Manatt Health. "But, you know, the law is very clear, and the chances of it being implemented are far greater than the chances that it won't be."