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Legislation to encourage rare disease drug development, enable tax deductions for research, and put checks on middlemen who drive up drug prices moved forward as a proposed reconciliation bill advanced in the House on May 18.
Additional positive measures in the package, which passed through several House committees in a matter of days, include continuation of tax credits for producing sustainable aviation fuel (SAF).
A busy week in Congress also saw lawmakers in both chambers raise concerns about plans to cap drug prices in the U.S. based on prices in other countries. And a Senate hearing featured calls for further measures to rein in the pharmacy benefit managers (PBMs), drug market middlemen.
Budget legislation was hammered out during marathon May 13-14 markups in the House Energy & Commerce and Ways & Means committees. The committees both gave approval to portions of a massive reconciliation bill that would outline federal spending and taxes for years to come. The package stalled in the House Budget Committee during initial voting on May 16 but was approved 17-16 in a May 18 vote.
The bill will go to the Rules Committee and, if approved, to the House Floor. If the bill passes the House, it will go to the Senate for consideration.
E&C health package includes PBMs, orphan drugs
The House Energy & Commerce Committee forwarded reconciliation legislation with a 30-24 party-line vote. This included a health subtitle with several pro-biotech provisions supported by the Biotechnology Innovation Organization (BIO):
- Language from the ORPHAN Cures Act, to fix Inflation Reduction Act’s disincentives for orphan drug research by allowing protection from price controls for rare disease treatments, even if the drugs treat more than one rare disease.
- Measures to keep PBMs from driving up drug prices by adding transparency to their operations, regulating their fees and other sources of income, and ensuring pharmacies are fairly compensated for drugs they sell. Rep. Earl “Buddy” Carter (R-GA) told the session that banning PBM spread pricing in Medicaid will save the government nearly $3 billion. Most of these PBM measures were cut at the last minute from spending legislation passed in December.
- The Accelerating Kids’ Access to Care Act, which is supported by patient groups because it provides a boost to children with rare diseases by facilitating Medicaid payments for specialized care that is only available out of state.
While these provisions have received bipartisan support, the full health package was criticized by most of the committee’s Democrats, including Ranking Member Frank Pallone (D-NJ), who said the bill would lead to reductions in Medicaid coverage.
The debate also featured discussion of a recent Executive Order on “Most Favored Nation” drug price controls designed to promote capping U.S. drug prices at levels paid by other developed countries.
Committee Chair Brett Guthrie (R-KY) said he sees the need to contain drug prices but he warned against adopting a European methodology for pricing drugs. He said America still wants to be a leader in research and noted the billions spent on research in the U.S.
Rep. Richard Hudson (R-NC) strongly opposed the “Most Favored Nations” or MFN idea, saying that this model of drug pricing would halt innovation of new cures and emphasizing that government price controls are not the answer.
Ways & Means approves tax breaks for R&D and SAF
The House Ways & Means Committee forwarded its segment of the reconciliation legislation, focused on taxes, in a party-line 26-19 vote. Among other actions, the tax package would make several of the 2017 tax cuts from the first Trump Administration permanent.
One key provision included in the tax package would reinstate the ability to deduct R&D expenses in the same taxable year in which they occurred. The 2017 Tax Cuts and Jobs Act (TCJA) modified Section 174 of the Internal Revenue Code so that, starting in 2022, businesses could no longer deduct such expenses in the same taxable year. Currently, businesses must amortize these deductions over five years for domestic expenditures or over 15 years for foreign expenditures.
Restoring same-year deduction is vital to biotechnology, as the industry spends an average of nearly 20% of its revenues on R&D, among the most of any industry. As the law currently stands, funds spent on research that has not produced any revenue are being taxed.
The Ways & Means tax legislation would also continue the Inflation Reduction Act’s 45Z tax credit for producing low-emissions fuels until 2031—including credits ranging from 35 cents to $1.75 per gallon for producing SAF.
Produced from renewable feedstocks through biotechnology, SAF can be dropped into existing commercial airline engines and can reduce carbon emissions by 70% compared to conventional fossil fuels.
“SAF is a key solution for strengthening U.S. energy dominance, driving investment in rural economies and positioning the United States as a global leader in SAF production,” according to an SAF Coalition announcement praising the decision. BIO is a member of the SAF coalition.
Senate Judiciary eyes further PBM reform
Elsewhere on Capitol Hill, a May 13 Senate Judiciary hearing covered the potential for further legislation on PBMs. Chair Chuck Grassley (R-IW) noted his work to reform PBMs, including sponsoring the PBM Transparency Act (S.526) and the Prescription Pricing for the People Act (S. 527), as well as working on the Finance Committee’s PBM legislation.
“While PBMs get richer, hardworking Americans are paying more and more for their medications,” he said.
Sen. Thom Tillis (R-NC) said the 60% reduction in small molecule research following the introduction of drug price controls proved that these measures have a real impact on research.
Past and current efforts to make drugs more affordable simply by forcing drug makers to charge less are “wrong-minded,” Sen. Tillis said.
“The Most Favored Nation coming out of the administration, all these things are short sighted, unsustainable measures that are not going to produce the result, I do believe all of us on the Committee want to achieve,” he explained.
“What is right-minded,” Sen. Tillis said, “is to modernize PBMs, figure out what their value added is, determine how we implement price transparency and then we will create something that has an enduring value for the only person I care about and that’s the patient.”
