Congressional Democrats reached a deal Tuesday that would put drug pricing reform back into President Biden’s $1.75 trillion social spending package. The deal arrives only a week after the original pricing proposal was left out of an earlier framework.

While the new proposal is considered a weaker version of the original plan favored by Democrats, it allows the federal government to negotiate Medicare drug prices for medications administered at pharmacy counters through Medicare Part D and at doctor’s offices through Medicare Part B. The plan includes a tax penalty on drug companies that increase prices faster than inflation and caps out-of-pocket costs for seniors at $2,000 per year.

“For a generation, House Democrats have been fighting to deliver real drug price negotiations that will lower costs,” House Speaker Nancy Pelosi said in a statement on Tuesday. “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 proposal represents a big step toward true drug pricing reform, which has been discussed among bipartisan lawmakers for years. But according to Benedic Ippolito, an economist and senior fellow at the American Enterprise Institute, the ultimate impact on the pharma industry will be impossible to gauge until more details of the legislation are revealed.

“The effects of this proposal are going to be wildly different depending on what the enforcement mechanism is and what it means for companies to not comply with negotiations,” Ippolito said.

The legislation will also need to define precisely how the Centers for Medicare and Medicaid Services (CMS) will decide the price of drugs, Ippolito added.

“The specifics of what the federal agencies actually write down are going to be really important,” he said.

While the proposal’s latest “watered down” iteration is seen as a win for the pharma industry, some industry groups, which have spent millions of dollars in the last year lobbying and campaigning against reform, are painting it with a broad stroke. In a statement, PhRMA doubled down on its argument that the plan would leave “many patients facing a future with less access to medicines and fewer new treatments.”

“If passed, it will upend the same innovative ecosystem that brought us life-saving vaccines and therapies to combat COVID-19,” PhRMA president and CEO Stephen Ubl said in the statement.

Senator Kyrsten Sinema (D-Arizona) is seen in the halls of the US Capitol in Washington, DC, on November 2, 2021. Source: Getty Images.

While the proposal doesn’t go as far as previous plans for pricing reform, its symbolic value isn’t lost on drugmakers, according to Brian Reid, practice leader, value and access communications at Real Chemistry.

“This will be the single largest change to how Medicare approaches drugs since the drug benefit itself was established,” he explained. “It provides, in a limited way, a new power the government never had before. Even if the execution is going to be handicapped by all of these restrictions, it still is absolutely a new chapter in drug pricing.”

Nonetheless, pharma is likely to view some aspects of the proposal as positive – in particular, the out-of-pocket cap on senior spending.

“The absolute most important takeaway is that this proposal fixes one of the parts of Medicare that was broken and hurting seniors the most,” Reid said. “The problem in this country is not that drug prices are too high; it’s that patients are being asked to pay too much. Getting a $2,000 cap in place is going to cost the pharma industry money, but the companies want to do it because it fixes a broken system for patients.”

Reid added that the cap removes a “reputational albatross” for the pharma industry. “Even though it’s not the drug companies’ fault Medicare was broken, drug companies took a lot of flak that seniors had to choose between medicine and food,” he continued. “This solves that.”

Centrist Democrats who had opposed the Democrats’ original proposal, such as Arizona Sen. Kyrsten Sinema, have reportedly agreed to back the new version. But uncertainty remains over whether the social spending bill will be passed at all, with Sen. Joe Manchin (D-West Virginia) expressing tentative support at best. Democrats can’t afford a single defection in the divided Senate.

Still, drug pricing reform had been seen as inevitable for quite some time. “If there’s going to be a bill, this is the best industry can hope for,” Reid said.