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Passage of Inflation Reduction Act gives Medicare historic new powers

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A pharmacist collects medications for prescriptions at a pharmacy.

Simon Dawson | Bloomberg | Getty Images

Medicare is poised to renegotiate the prices of some of its most expensive drugs through a historic expansion of its power, which could reduce costs for many seniors as well as federal spending on its prescription drug plan.

The changes are tucked inside a massive spending-and-tax bill in Congress that includes $433 billion in investments in health-care and clean energy. House Democrats passed the Inflation Reduction Act on Friday in a 220 to 207 vote along party lines, ending a tortured legislative process that took more than a year.

The bill empowers the Health and Human Services Secretary to negotiate prices for certain drugs covered under two different parts of Medicare and punish pharmaceutical companies that don’t play by the rules. The legislation also caps out-of-pocket costs at $2,000 starting in 2025 for people who participate in Medicare Part D, the prescription drug plan for seniors.

Democrats have been fighting for decades to give Medicare the power to cajole drugmakers into lowering prices. But the powerful pharmaceutical lobby and Republican opposition shot down past efforts. Medicare Part D currently bars HHS from negotiating prices with the industry.

But HHS is now on the cusp of gaining the power to negotiate. President Joe Biden is expected soon to sign the bill into law.

The American Association of Retired Persons, which represents 38 million people, described the legislation as a historic victory for older adults. AARP CEO Jo Ann Jenkins said the group has fought for nearly two decades to allow Medicare to negotiate drug prices. Millions of older adults are now “one step closer to real relief from out-of-control prescription drug prices,” Jenkins said earlier this week.

Though the legislation is historic, the negotiation provisions are “very narrow” in design, according to Andrew Mulcahy, an expert on prescription drug prices at the RAND Corporation. And the negotiations won’t provide relief until 2026 when the renegotiated prices on ten of the program’s most expensive drugs take effect.

Lawmakers on the left such as Sen. Bernie Sanders, I-VT, have criticized the legislation for leaving out the overwhelming majority of Americans who are not on Medicare. For the pharmaceutical industry, on the other hand, even the limited scope of the bill is a bridge too far.

Timeline for negotiations

Under the legislation, the HHS can negotiate prices for some of the most expensive drugs covered under Medicare Part B and Medicare Part D. The former covers specialized drugs administered by health-care providers, while the latter covers drugs that are filled at retail pharmacies.

The program is phased in through four stages over several years. Here’s how it works:

  • Phase 1: HHS negotiates 10 Medicare Part D drugs. Prices take effect in 2026.
  • Phase 2: HHS negotiates 15 Part D drugs. Prices take effect in 2027.
  • Phase 3: HHS can negotiate 15 Medicare Part B or D drugs. Prices take effect in 2028.
  • Phase 4: HHS negotiates 20 Part B or D drugs. Prices take effect in 2029. The secretary can negotiate 20 drugs in all subsequent years.

Possible drug candidates

How many seniors will benefit from the negotiations depends in large part on which drugs the HHS secretary decides to target. More than 63 million Americans are insured through Medicare overall and about 49 million are enrolled in Medicare Part D.

Before the Inflation Reduction Act was set to be enacted into law, Medicare Part D was estimated to cost just over $1.6 trillion over the next decade, according to the non-partisan Congressional Budget Office. Medicare Part B had an estimated cost of $6.5 trillion over the next decade. The CBO projects the drug price negotiations alone will save taxpayers an estimated $102 billion through 2031.

HHS can only negotiate prices for drugs that Medicare Parts B and D spend the most money on and have been on the market for years without any generic or other competitors, according Mulcahy. “The focus is on these older drugs that for one reason or another don’t have competition,” he said.

There is no official, publicly available list of drugs that HHS plans to target for negotiations. But Bank of America highlighted some potential Medicare D candidates based on how much Medicare spent on them in 2020:

  • Bristol-Myers‘ Eliquis, $9.9 billion. It is an anticoagulant to prevent blood clotting to reduce the risk of stroke.
  • J&J‘s Xarelto, $4.7 billion. It is another blood thinner.
  • Merck‘s Januvia, $3.8 billion. It is a pill to lower blood sugar for people with type 2 diabetes.
  • Abbvie‘s Imbruvica, $2.9 billion. It is a pill for different types of blood cancers.

And Bank of America views these Medicare B drugs as possibly impacted by negotiations. Here are their costs to Medicare in 2020:

  • Merck’s Keytruda, $3.5 billion. It is an immune therapy for certain cancers.
  • Regeneron‘s Eylea, $3 billion. It is an injection for macular degeneration.
  • Amgen‘s Prolia, $1.6 billion. It is an injection for osteoporosis.
  • Bristol Myers’ Opdivo, $1.5 billion. It is an immune therapy treatment certain cancers.
  • Roche’s Rituxan, $1.3 billion. It is an immune therapy for certain cancers and inflammatory disorders.

But it’s difficult to determine which drugs HHS will really target. The list of drugs that would qualify for negotiations will change substantially by the time the bill’s provisions go into effect because many lose their patent protections by then, according to a Bank of America research note.

Still, negotiations through Medicare could cut prices by 25% for the 25 drugs the program spends the most on in 2026 and beyond, according to Bank of America.

How much prices are reduced ultimately depends on whether HHS really leans into negotiations with the drug companies, Mulcahy said. Bill Sweeney, head of government affairs at AARP, said proper implementation of the bill is crucial. AARP wants to make sure HHS fights hard for the best price for seniors and there aren’t loopholes the industry can exploit, Sweeney said.

Industry could game the system by authorizing limited competition for their drugs to avoid price controls, according to an analyst note from SVB Securities.

HHS will have enforcement power. Companies face hefty financial penalties for not abiding by negotiated prices, $1 million fines for violating agreement terms, and $100 million fines for providing false information.

Inflation rebate

Although seniors won’t see the lower prices until 2026, the legislation would penalize drug companies for raising Medicare drug prices faster than the rate of inflation later this year. If a drug’s price increases more than inflation, the company must pay the government the difference between the price charged and the inflation rate for all Medicare sales of that drug, according to AARP.

Prices rose faster than inflation in 2020 for the overwhelming majority of the 25 drugs Medicare Parts B and D spent the most money on, according to the Kaiser Family Foundation.

The U.S. spent more than $1,000 per capita on prescription drugs in 2019, double the $552 that other high-income nations spent per capita on average, according to KFF and the Peterson Institute on Healthcare. U.S. spending on prescription drugs surged 69% from 2004 to 2019, compared to a 41% increase in comparable countries.

‘Baby step forward’

Sanders has called the negotiation powers given to the HHS secretary a “baby step forward.” The senator pointed out that the first round of price reductions won’t go into effect for four years, and people who aren’t on Medicare – the overwhelming majority of people are under age 65 – are completely left out.

“If anybody thinks that as a result of this bill we’re suddenly going to see lower prices for Medicare you are mistaken,” Sanders said during a speech in the Senate earlier this week. “If you’re under 65, this bill will not impact you at all and the drug companies will be able to continue on their merry way and raise prices to any level they want.”

The pharmaceutical industry, on other hand, has argued that the bill goes too far. Stephen Ubl, CEO of the Pharmaceutical Research and Manufacturers of America, said the legislation will slow innovation and lead to fewer new cures and treatments for diseases.

Bank of America doesn’t view the bill as a major negative for industry growth, according to a research note from August. Analysts at UBS said the Medicare negotiation provisions, which are limited in scope, are far from the worst case scenario for industry. The legislation would provide clarity for the market and takes the threat of even tougher drug pricing off the table, according to UBS.

“We think the ultimate passage of the current drug pricing reforms represents a clarifying event in terms of future industry earnings, removing the risk of more onerous drug pricing that has weighed on biopharma valuations since the drug pricing issue first rose to political prominence in 2015,” UBS analysts wrote in a research note earlier this week.

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Tim Draper predicts bitcoin will reach $250,000 despite FTX collapse

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Tim Draper, founder of Draper Associates, onstage at the Web Summit 2022 tech conference.

Ben McShane | Sportsfile via Getty Images

Venture capitalist Tim Draper thinks bitcoin will hit $250,000 a coin by the middle of 2023, even after a bruising year for the cryptocurrency marked by industry failures and sinking prices.

Draper previously predicted that bitcoin would top $250,000 by the end of 2022, but in early November, at the Web Summit tech conference in Lisbon, he said it would take until June 2023 for this to materialize.

He reaffirmed this position Saturday when asked how he felt about his price call following the collapse of FTX.

“I have extended my prediction by six months. $250k is still my number,” Draper told CNBC via email.

Bitcoin would need to rally nearly 1,400% from its current price of around $17,000 for Draper’s prediction to come true. The cryptocurrency has plunged over 60% since the start of the year.

Digital currencies are in the doldrums as tighter monetary policy from the Fed and a chain reaction of bankruptcies at major industry firms including Terra, Celsius and FTX have put intense pressure on prices.

FTX’s demise has also worsened an already severe liquidity crisis in the industry. Crypto exchange Gemini and lender Genesis are among the firms said to be impacted by the fallout from FTX’s insolvency.

Last week, veteran investor Mark Mobius told CNBC that bitcoin could crash to $10,000 next year, a more than 40% plunge from current prices. The co-founder of Mobius Capital Partners correctly called the drop to $20,000 this year.

Nevertheless, Draper is convinced that bitcoin, the world’s largest cryptocurrency, is set to rise in the new year.

“I expect a flight to quality and decentralized crypto like bitcoin, and for some of the weaker coins to become relics,” he told CNBC.

What is DeFi, and could it upend finance as we know it?

Draper, the founder of Draper Associates, is one of Silicon Valley’s best-known investors. He made successful bets on tech companies including Tesla, Skype and Baidu.

In 2014, Draper purchased 29,656 bitcoins confiscated by U.S. Marshals from the Silk Road dark web marketplace for $18.7 million. That year, he predicted the price of bitcoin would go to $10,000 in three years. Bitcoin went on to climb close to $20,000 in 2017.

Some of Draper’s other bets have soured, however. He invested in Theranos, a health startup that falsely claimed it was able to detect diseases with a few drops of blood. Elizabeth Holmes, Theranos’ founder, has been sentenced to 11 years in prison for fraud.

‘The dam is about to break’

Draper’s rationale for bitcoin’s breakout next year is that there remains a massive untapped demographic for bitcoin: women.

“My assumption is that, since women control 80% of retail spending and only 1 in 7 bitcoin wallets are currently held by women, the dam is about to break,” Draper said.

Crypto has long had a gender disparity problem. According to a survey conducted for CNBC and Acorns by Momentive, twice as many men as women invest in digital assets (16% of men vs. 7% of women).

“Retailers will save roughly 2% on every purchase made in bitcoin vs dollars,” Draper added. “Once retailers realize that that 2% can double their profits, bitcoin will be ubiquitous.”

Payment middlemen such as Visa and Mastercard currently charge fees as high as 2% each time credit cardholders use their card to pay for something. Bitcoin offers a way for people to bypass the middlemen.

However, using the digital coin for everyday spending is tough, since its price is very volatile and the coin is not widely accepted as currency.

“When people can buy their food, clothing and shelter all in bitcoin, they will have no use for centralized banking fiat dollars,” Draper said.

“Management of fiat is centralized and erratic. When a politician decides to spend $10 trillion, your dollars become worth about 82 cents. Then the Fed needs to raise rates to make up for the spend, and those arbitrary centralized decisions create an inconsistent economy,” he added. Fiat currencies derive their worth from their issuing government, unlike cryptocurrencies.

Meanwhile, the next so-called bitcoin halving — which cuts the bitcoin rewards to bitcoin miners — in 2024 will also boost the cryptocurrency, according to Draper, as it chokes the supply over time. The total number of bitcoins that will ever be mined is capped at 21 million.



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George Clooney, Gladys Knight among Kennedy Center honorees

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Secretary of State Antony Blinken, second from left, and his wife, Evan Ryan, left, join 2022 Kennedy Center Honorees, front row from left, Amy Grant, Gladys Knight, George Clooney, Tania León, and Kennedy Center President Deborah Rutter, back row from left, Kennedy Center Chairman David Rubenstein, along with fellow 2022 Honorees Adam Clayton, Larry Mullen Jr., The Edge, and Bono for a group photo at the State Department following the Kennedy Center Honors gala dinner, Saturday, Dec. 3, 2022, in Washington.

Kevin Wolf | AP Photo

Performers such as Gladys Knight or the Irish band U2 usually would be headlining a concert for thousands but at Sunday’s Kennedy Center Honors the tables will be turned as they and other artists will be the ones feted for their lifetime of artistic contributions.

Actor, director, producer and human rights activist George Clooney, groundbreaking composer and conductor Tania León, and contemporary Christian singer Amy Grant will join Knight and the entire crew of U2 in being honored by the John F. Kennedy Center for the Performing Arts.

The organization honors a select group of people every year for their artistic influences on American culture. President Joe Biden, Vice President Kamala Harris and their respective spouses are slated to attend.

The 61-year-old Clooney — the actor among this year’s musically leaning group of honorees — has television credits going back into the late 1970s but became a household name with the role of Doug Ross on the television show “ER.” conductor Tania León, and

From there he starred in movies such as “Three Kings,” “Ocean’s Eleven” (and “Twelve” and “Thirteen”), “O Brother, Where Art Thou?” and his most recent film, “Ticket to Paradise.” He also has extensive directing and producing credits including “Good Night, and Good Luck.” He and his wife, humanitarian rights lawyer Amal Clooney, created the Clooney Foundation for Justice, and he’s produced telethons to raise money for various causes.

“To be mentioned in the same breath with the rest of these incredible artists is an honor. This is a genuinely exciting surprise for the whole Clooney family,” said Clooney in a statement on the Center’s website.

Knight, 78, said in a statement that she was “humbled beyond words” at receiving the Kennedy honor. The Georgia-born Knight began singing gospel music at the age of 4 and went on to a career that has spanned decades.

Knight and family members started a band that would later be known as Gladys Knight & The Pips and produced their first album in 1960 when Knight was just 16. Since then she’s recorded dozens of albums with such classic hits as “I Heard It Through the Grapevine” and “Midnight Train to Georgia.” Along the way she’s acted in television shows and movies. When Knight and the band were inducted into the Rock & Roll Hall of Fame, Mariah Carey described Knight as “a textbook you learn from.”

Sometimes the Kennedy Center honors not just individuals but groups; “Sesame Street” once got the nod.

This year it’s the band U2. The group’s strong connection to America goes back decades. They performed in Washington during their first trip to America in 1980. In a statement the band — made up of Bono, The Edge, Adam Clayton and Larry Mullen Jr. — said they originally came to America with big dreams “fueled in part by the commonly held belief at home that America smiles on Ireland.”

“And it turned out to be true, yet again,” read the statement. “It has been a four-decade love affair with the country and its people, its artists, and culture.”

U2 has sold 170 million albums and been honored with 22 Grammys. The band’s epic singles include “I Still Haven’t Found What I’m Looking For,” “Pride (In the Name of Love)” and “Sunday Bloody Sunday.” Lead singer Bono has also become known for his philanthropic work to eradicate poverty and to raise awareness about AIDS.

Christian music performed Amy Grant said in an interview with The Associated Press that she’d never even been to the Kennedy Center Honors even though her husband, country musician Vince Gill, has performed during previous ceremonies. Grammy winner Grant is well known for crossover pop hits like “Baby, Baby,” “Every Heartbeat” and “That’s What Love is For.” She’s sold more than 30 million albums, including her 1991 record “Heart in Motion,” which introduced her to a larger pop audience.

Composer and conductor León said during an interview when the honorees were announced that she wasn’t expecting “anything spectacular” when the Kennedy Center initially reached out to her. After all, she’s worked with the Kennedy Center numerous times over the years going back to 1980, when she was commissioned to compose music for a play.

But the 79-year-old Pulitzer Prize winner said she was stunned to learn that this time the ceremony was going to be for her.

León left Cuba as a refugee in 1967 and eventually settled in New York City. She’s a founding member of the Dance Theatre of Harlem and instituted the Brooklyn Philharmonic Community Concert Series.



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