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A drug pricing bill was cut by a Senate arbitrator in a partial industry victory

Medicare was given permission by the Senate’s top rules official to negotiate drug prices for the first time, although a proposal by Democrats to cap price increases for prescription drugs on the commercial market was blocked.

The ruling is a partial victory for drugmakers, who may try to make up for their lost profits on Medicare over private insurers.

A Senate lawmaker, Elizabeth McDonough, ruled that the high drug price bill deserved a fast-track budget process so that Democrats, who have a slim majority in the chamber, could pass the legislation without the threat of a Republican filibuster.

The drug price provisions are part of a budget bill the Senate plans to begin debating later Saturday, representing a slimmed-down version of President Biden’s multi-trillion dollar domestic agenda.

“Democrats received very good news: for the first time, Medicare will finally be allowed to negotiate drug prices, free vaccines for seniors and their costs capped, and more,” Senate Majority Leader Chuck Schumer said in a statement.

Yet the Senate rules did not authorize certain provisions to prevent drug companies from raising prices at a rate faster than inflation. The inflation discount is allowed to be applied to Medicare prices, but not in the commercial market, according to two people familiar with the ruling.

A provision that would cap out-of-pocket costs for insulin at $35 a month for Medicare and private insurance is still under review, according to one of the people. The ruling on inflation pricing penalties suggests the Senate official is likely to slap a cap on the private market because it is not closely tied to the federal budget.

“I am disappointed that the calculation of the Medicare inflation discount, which includes sold commercial units, is out of compliance, but the legislation significantly checks Big Pharma’s ability to raise prices,” Senate Finance Committee Chairman Ron Wyden, D-Ore., said in a statement.

With midterm elections looming in November, the package is on track for passage after a year of wrangling with moderate senators Joe Manchin, D-W., and Kirsten Sinema, D-Ariz., over tax, climate and spending issues.

MPs ruled earlier on Saturday that the bill could allow fuel tax exemptions, including for the purchase of electric vehicles.

Democrats originally designed the bill to require drugmakers to pay the government revenue earned by raising the price of their products above the U.S. inflation rate calculated by units sold in both Medicare and commercial markets. Now, the legislation does not consider commercial markets, which cover roughly 180 million Americans.

McDonough found that the bill’s inflation provisions were not primarily in the nature of a budget under Senate rules.

The bill would allow Medicare to negotiate the prices of drugs it provides for the first time under Part B and Part D, impose a tax on companies that fail to comply with the negotiated price, and apply a $2,000 cap on annual out-of-pocket. Costs for people enrolled in Medicare Part D. Those parts have been approved, Schumer said.

Limiting inflation discounts to just Medicare means drugmakers can raise prices annually for the two-thirds of Americans under 65 who have private health insurance. This would limit some savings from the legislation’s drug pricing provisions, though how much is unclear.

Under Senate rules designed by the late West Virginia Senator Robert Byrd, provisions must be primarily fiscal rather than regulatory in nature to qualify for the fast-track budget reconciliation process.

Manchin recently supported a $369 billion package on climate and energy regulations and a 15% corporate minimum tax, increased tax audits and three years of Obamacare premium subsidies.

Cinema signed the package this week after paying back the minimum tax to save depreciation tax breaks, eliminate a change in carried interest taxes and add a 1% stock repurchase tax.

Last December, Manchin, Byrd’s successor in the Senate, walked out of negotiations on a $2 trillion measure that would have provided child tax credits, paid family leave, childcare subsidies, Medicare hearing coverage and other social benefits. Their vote is essential to any agreement.

The drug bill is a proposed funding mechanism for a plan to extend Obamacare premium subsidies that expires in January. The bill is estimated to save the government $288 billion over 10 years, providing a stream of funding to subsidize spending.

Losing the inflation cap entirely would cost Democrats at least $36 billion, according to previous estimates by the Congressional Budget Office. The CBO told Democrats their total drug package would reduce spending by $288 billion.

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