Menendez drug pricing concerns highlight budget obstacles for Democrats

New Jersey senator wants savings passed through to consumers, not spent on other programs

Sen. Bob Menendez, D-N.J., talks with reporters as he makes his way to the Senate floor Tuesday.  (Caroline Brehman/CQ Roll Call)
Sen. Bob Menendez, D-N.J., talks with reporters as he makes his way to the Senate floor Tuesday. (Caroline Brehman/CQ Roll Call)
Posted July 15, 2021 at 4:51pm

New Jersey Democratic Sen. Bob Menendez isn't ready to commit to voting for a budget blueprint that will count on hundreds of billions of dollars extracted from the prescription drug industry to help offset $3.5 trillion in new spending over a decade.

“I’m not ready to make any decisions on the budget resolution,” Menendez said Thursday in a brief interview. He reiterated his concerns that Democrats’ plans to have Medicare negotiate drug prices will be a tax on pharmaceutical companies and that savings won’t be passed onto consumers.

"The only industry that gets directly, I'll call taxed, mostly is the pharmaceutical industry. You have to show me that you're reducing the cost of prescription drugs to the consumers,” he said. “Because you keep taking money out of the industry and we never use it in a way that helps the consumer.”

Top Democrats say drug price savings will be used to expand Medicare to cover dental, vision and hearing benefits, among other new spending proposals.

Senate Budget Chairman Bernie Sanders, I-Vt., has said more than $600 billion could be wrung out of various proposals to cut drug costs, mainly through government negotiation to cap prices at a level commensurate with those of other wealthy countries.

Menendez questioned whether consumers would ultimately benefit if those savings go to other programs. "Are we going to now take the $600 billion in savings and reduce [prices] to the consumer, or not?" he asked. "Because otherwise we'll still have the problem that prescription drug costs are too high and what are we going to do then?"

Menendez is one of several Democratic senators who have concerns or questions about components of a leadership-negotiated outline for a $3.5 trillion reconciliation bill.

The outline is vague on policy details, to be worked out later in implementing legislation after the chamber adopts its budget resolution with reconciliation instructions to the appropriate committees. But some senators are seeking more details in advance of that vote to ensure they're not blessing a blueprint that will lead to legislation they can't support.

Senate Democrats have until Wednesday to reach consensus among all 50 of their members on the budget resolution, a deadline Senate Majority Leader Charles E. Schumer set Thursday.

To force the deadline, Schumer scheduled a procedural vote on the legislative vehicle for a separate but connected bipartisan infrastructure bill on Wednesday. He wants to have the votes locked in for both measures -- 51 for the budget resolution and 60 for the bipartisan infrastructure bill -- by the time of that vote.

"We have to have total agreement on both before we move either," Schumer told reporters Tuesday.

Several senators said Thursday they still need to study the $3.5 trillion budget reconciliation proposal before committing to vote for the budget resolution.

“I like the general structure, but we’ll see,” Sen. Angus King, I-Maine.

Sen. Jon Tester said he will vote to begin debate on the budget but couldn’t commit to vote for its final adoption without seeing all the details.

“Let's do the debate. Let's figure out how we can make this thing work,” the Montana Democrat said.

Drug dilemma

How Democrats plan to suction savings from the prescription drug industry is a delicate point of contention.

The majority of Democrats want to give Medicare authority to negotiate lower prices directly with drug manufacturers, but the far-reaching mechanisms embedded within the House Democrats’ bill are threatening to scare off moderates in the Senate. Republicans say the move would amount to price controls that stifle research and innovation.

Menendez, whose state of New Jersey is home to a number of drug companies, has remained noncommittal as Senate Finance Chair Ron Wyden, D-Ore., attempts to navigate the waters on a drug negotiation bill.

Menendez previously voted against a negotiation amendment during the Senate Finance Committee’s 2019 markup of a bipartisan bill led by Sen. Charles E. Grassley, R-Iowa.

Several of the world's largest pharmaceutical and biotech companies by revenue and research and development spending are headquartered in or have a large presence in Menendez' home state of New Jersey. The list includes Johnson & Johnson; Bristol Myers Squibb; Merck & Co.; Pfizer Inc.; and Paris-based Sanofi and Novartis AG, headquartered in Basel, Switzerland, among others.

Menendez earlier this week reintroduced a bill with Sen. Bill Cassidy, R-La., to cap cost-sharing in Medicare’s Part D prescription drug benefit and restructure government financing as an example of what he is looking for in a final package.

Under House Democrats’ approach, the U.S. would base maximum prices on what other wealthy countries pay. Wyden previously said the measure is causing some pushback among Senate Democrats, and at least one House Democrat, California Rep. Scott Peters, who also represents a number of biotech firms, is opposed.

[Onetime backer of drug pricing bill turns foe]

Another Democrat, Rep. Kurt Schrader of Oregon, supports the idea of negotiation but has said he will vote against a partisan reconciliation package because spending is too high.

Meanwhile more than two dozen vulnerable House Democrats, led by Pennsylvania's Susan Wild and Michigan's Haley Stevens, sent a letter to party leadership Wednesday urging negotiations be included in the final bill.

Democrats say reducing what Medicare pays for drugs would yield substantial savings to help finance other pieces of the reconciliation package; the CBO has previously estimated the price negotiation provisions of the House-passed bill would save roughly $500 billion. Sanders said he expects the final measure to include price negotiation provisions.

“People are tired of paying the highest prices in the world for prescription drugs,” he said. “They’re tired of the greed of the pharmaceutical industry and they want the Congress to act.”

Democrats also say they will assume savings from repealing a rule finalized under the Trump administration that would have required discounts negotiated by drugmakers and pharmacy benefit managers -- who manage insurers' prescription drug benefits -- to be passed through directly to the pharmacy and reflected in consumer prices.

The CBO estimated that if the rule took effect, Medicare spending could increase by as much as $170 billion. Among other reasons, pharmacy benefit managers would no longer be able to use rebates negotiated with drugmakers to reduce premiums for plan members. That in turn would increase Medicare Part D premiums and require more federal subsidies, the CBO said.

The rule was blocked in court and never formally took effect, so repealing it likely would only create savings on paper. But future litigation could always undo the prior ruling.

The prescription drug lobby's main trade group on Thursday came out swinging against the Democratic plan, citing the potential use of drug price savings to offset other programs, as well as repeal of the Trump-era rule.

"This plan puts in motion a system that will allow government bureaucrats to tell seniors which medicines they can have while repealing a policy that would immediately lower what they pay at the pharmacy counter," said Debra DeShong, executive vice president for public policy at the Pharmaceutical Research and Manufacturers of America. "This isn’t about lowering costs for prescription drugs. The real goal of this budget is to upend Medicare to help pay for Tesla tax credits and other government programs at seniors’ expense."

DeShong is a longtime Democratic operative who worked for former New Jersey Sen. Robert Torricelli, as well as the Democratic National Committee and former Massachusetts Sen. John Kerry's 2004 presidential campaign.

Border carbon adjustment

Another provision Democrats may want to see more details on before committing to vote for a budget resolution is a proposed border carbon adjustment, effectively a tariff or tax on imported goods that don't meet stringent emissions standards.

[In reconciliation, Democrats eye border tax for carbon]

The fee, whose cost could be passed on to consumers, could leave Democrats open to criticism that they are raising taxes on working families.

House Republicans in 2017 were forced to shelve a broader policy that would have taxed imports at the corporate rate while exempting exports from the tax, after a lobbying blitz by affected industries objecting to what was dubbed a "border adjustment tax."

Biden has pledged not to raise taxes on anyone making less than $400,000 a year, but top Democrats say they will figure out a way to shield lower- and middle-income consumers.

“On my watch, there is not going to be carbon policy that hurts workers and their families,” Wyden said Thursday. “That means honoring the Biden pledge.”

But Wyden said he would need more time to consider the mechanics of implementation. Other Democrats dismissed the criticism outright, saying a border fee should not be considered a tax.

“Every corporate tax can be passed on to consumers,” said Sen. Sheldon Whitehouse, D-R.I., a leading proponent of climate change legislation. “So if that’s the measure, then none of the Biden corporate tax program can be effectuated.”

Yet another concern is whether such a trade policy could be passed in a reconciliation bill without violating the Senate’s Byrd rule, which restricts the use of the procedure to matters that mostly affect spending and taxes.

“We’ll have to work through that and see if we can,” Whitehouse said.