The heads of the nation’s major pharmaceutical companies on Wednesday warned that Democrats’ plan to let Medicare set drug prices would push some of them out of business.
The warning upped the stakes in the industry’s fight against the drug-pricing measure in President Biden’s $3.5 trillion social welfare bill, which they previously argued would hamper drugmakers’ ability to create new cures.
“It’s going to wipe off the face of the earth some pharmaceutical companies that are household names,” David Ricks, CEO of Eli Lilly and Company and chairman of the industry’s lobbying group, the Pharmaceutical Research and Manufacturers of America (PhRMA), said in a call with reporters.
The industry set off the alarm at a strategic time when Democrats are racing to craft the details of the spending spree in the next few weeks. A key part of the plan is saving billions of dollars by giving Medicare power to force drug companies to negotiate lower prices. The savings would then go to pay for the expansion of government-run health care programs, including adding new benefits to Medicare coverage for senior citizens.
With Republicans unified in opposition to the package, Democrats face the daunting task of remaining united. They can afford just four defections in the House and none in the Senate. Ten moderate Democrats in the House and Sen. Robert Menendez, New Jersey Democrat, have raised concerns about the drug-pricing proposal, though none have publicly said they will oppose it.
Democrats backing the measure say it only requires companies to negotiate prices with Medicare. But Mr. Ricks noted that the Democrats’ plan to slap penalties on companies that don’t agree to the price the government wants.
“These new negotiations are really a smokescreen for implementing new government price controls,” he said.
The Congressional Budget Office has estimated the plan would save the federal government $456 billion over a decade that can be shifted to the spending package.
In a conference call with reporters, Mr. Ricks said the drugmakers would lose closer to $600 billion. The Democrats’ plan also would require the companies to offer lower prices to private insurers, pushing the cost on the drug industry to $1.5 trillion over a decade — a 40% reduction in revenue.
“That’s a huge reduction that no other industry is being asked to bear,” he said.
Democrats and consumer groups on the left have discounted the industry’s warnings. They said drug companies will be able to deal with the loss of money by cutting the billions of dollars it spends on marketing and bonuses for executives.
Ken Frazier, executive chairman of pharmaceutical giant Merck, noted the drug-pricing proposal would come on top of an increase in the corporate tax rate that Democrats also plan to help pay for the spending package.
He estimated his company would have to slash funding for research and development by half.
“The proposals we’re seeing out of Congress will devastate this industry,” Mr. Frazier said. “Large companies like Merck will survive, but we will do significantly less research.”