President Joe Biden and Congressional Democrats announced they reached a compromise plan for drug pricing that will reduce the costs of prescription drugs and insulin and finally allow Medicare to negotiate prices for high-cost prescription drugs.

While the plan doesn’t go as far as previous House versions, it is a big win for American seniors who pay high prices at the pharmacy counter.

Biden announced the compromise plan on Tuesday as part of the Build Better Back social spending plan. If finalized, the plan will:

Allow Medicare to negotiate drug prices for prescriptions at the pharmacy counter through Medicare Part D and those administered via a doctor’s office through Medicare Part B. Drugs will become eligible for negotiation after a fixed number of years: Nine years for small molecule drugs and 12 years for biologics. Medicare will be able to negotiate up to 10 drugs per year during 2023 (increasing up to 20 drugs per year). The prices negotiated in 2023 will take effect in 2025. Drug companies that refuse to negotiate will owe an excise tax.

Impose a tax penalty if drug companies increase their prices faster than inflation. If the bill becomes law, future drug price increases will be compared to their current prices. “We will finally put an end to the days where drug companies could raise their prices with impunity,” Biden said in the statement. “If prices for a drug increase faster than inflation, manufacturers will owe a tax penalty, holding down prices for Americans with all types of health insurance.”

Directly lower out-of-pocket costs for seniors. There currently is no cap on how much seniors and people with disabilities must pay for drugs. Millions of seniors pay more than $6,000 a year in cost-sharing. This proposal ensures that seniors never pay more than $2,000 a year for their drugs under Medicare Part D.

Lower insulin prices so that Americans with diabetes don’t pay more than $35 per month for their insulin.

“For a generation, House Democrats have been fighting to deliver real drug price negotiations that will lower costs,” House Speaker Nancy Pelosi said.With today’s agreement on strong lower drug price provisions for the Build Back Better Act, Democrats have a path forward to make good on this transformational agenda for our seniors.”

The House Committee on Rules may take up the text of the compromise plan today as part of its consideration of the Build Back Better Act.

Industry reaction

AARP CEO Jo Ann Jenkins called the plan a “big win for seniors.”

“There’s no greater issue affecting the pocketbooks of seniors on Medicare than the ever-increasing costs of prescription drugs,” she said in a statement. “For decades, seniors have been at the mercy of Big Pharma. Allowing Medicare to finally negotiate drug prices is a big win for seniors. Preventing prices from rising faster than inflation and adding a hard out-of-pocket cap to Part D will provide real relief for seniors with the highest drug costs. Lawmakers must work quickly to turn today’s announcement into a legislative reality that delivers on the promises made to older Americans.

But the Pharmaceutical Research and Manufacturers of America (PhRMA), which represents biopharmaceutical research companies, called the plan disastrous, stating it “threatens innovation and makes a broken health care system even worse.”

“It gives the government the power to dictate how much a medicine is worth and leaves many patients facing a future with less access to medicines and fewer new treatments,” PhRMA President and CEO Stephen J. Ubl said in a statement. “While we’re pleased to see changes to Medicare that cap what seniors pay out of pocket for prescription drugs, the proposal lets insurers and middlemen like pharmacy benefit managers off the hook when it comes to lowering costs for patients at the pharmacy counter.”