Drug Development Decimation | RealClearPolicy Leave a comment
Price controls—with all of their associated market distortions—are coming soon to a prescription drug near you. And the Biden administration is eager to get started.
The Centers for Medicare and Medicaid Services (CMS) recently released its guidance memo to explain the first phase of what President Biden calls “negotiations” over Medicare drug prices, allowed through the so-called “Inflation Reduction Act” enacted last August.
CMS will determine the “Maximum Fair Price” for certain drugs through a Rube-Goldberg process it lays out in the memo. Companies must sign an “agreement” with the government before the price-control negotiations can begin and must remain silent about the discussions, even if the government offers to pay them $1 for their product that may have cost up to $3 billion to develop. There’s no such gag order for the government negotiators, however.
Companies the government determines raised prices more than the rate of inflation will face a “price-increase penalty,” to be determined. If a company walks away from the negotiating table, the drug will get dropped from Medicare’s formularies serving 60 million seniors.
The law does not provide any substantive means for manufacturers to appeal the selection of negotiation-eligible drugs or the price the government sets for those drugs.
The impact on patients desperately hoping for treatments and cures for rare diseases is perhaps the most tragic consequence as company executives are forced to pull promising drugs from the research table.
The government basically will freeze today’s innovation in place. The process provides no incentives for companies to continue to improve a drug and find new disease applications, the source of the majority of cancer drugs.
The sheer volume of data that will be required for the federal government to determine the “appropriate price” for a drug will require companies to deploy armies of people to gather the data—a huge amount of work that does nothing to create a single new drug.
And there are steep fines—$1 million a day per violation and more—for companies that do not comply with CMS requirements or make errors.
Judicial review of the government’s price decision is not allowed. CMS did not even go through the normal rule-making process of notification and inviting public comment to which it must respond. It simply issued its 91-page memo and declared it “as final, without a comment solicitation.”
This is “one of the most profound changes” for the industry in 40 years in oncology, Peter Thompson, Private Equity Partner at OrbiMed Advisors LLC, said during a recent BIO forum. He said the law already is “directly hampering science.”
It’s “much more of a rate-setting approach and not a negotiation,” echoed Chris Mancill, SVP and Head of Worldwide Value Access and Payment and Health Economics and Outcomes Research at Bristol Myers Squibb Company.
What good will all of this do? The American Action Forum took a deeper dive into the impact of the measure Mr. Biden sold as “substantially reducing drug costs for a wide swath of Medicare beneficiaries.”
- The AAF study finds that fewer than 6 million beneficiaries – less than 10% of enrollees – will benefit at all.
- For those who do benefit, savings are typically modest – 69% of those with any saving will save less than $300.
And for this, the Biden administration appears willing to decimate one of the strongest industry sectors in the U.S. and erode our status as the world leader in pharmaceutical innovation.
The U.S. biopharmaceutical sector directly employs more than 900,000 workers and supports a total of nearly 4.5 million jobs in all 50 states. These are high-paying jobs with everyone from scientists to truck drivers working to create and deploy medicines that will save lives.
Congress is expected to hold hearings on the CMS price-controlling regime and surely can find a way to inject some reason into this process.
Grace-Marie Turner runs the Galen Institute to advance public policy ideas that advance patient-centered health care. @gracemarietweet. She can be reached at galen@galen.org.
