Pity the poor pharmaceutical industry. Now even the Trump administration backs price controls to contain the unconscionably high cost of specialty drugs.
They never used the words “price controls” in announcing their plan in late October. But what else should one call a proposal that would peg Medicare’s Part B drug payments to the prices negotiated by foreign buyers of the same products?
It would defy political logic for the Trump administration to give the CMS the authority to negotiate drug prices, which is a Democratic proposal. Instead, HHS Secretary Alex Azar embraced letting foreign healthcare bureaucrats do the negotiating, even as he and the president deride them as free riders.
I am skeptical that anything even remotely resembling HHS’ latest plan to lower spending on Part B drugs will get enacted. As Azar noted at a Brookings Institution forum, the proposal was contained in an advanced notice of proposed rulemaking. That’s inside-the-beltway speak for giving Big Pharma lobbyists much of the next year to defang if not totally derail this pre-election embrace of price controls.
Don’t look for the next Congress to enact this either. Most Democrats, like their Republican colleagues, take tons of pharmaceutical industry cash. Once the heat of the campaign dissipates, a majority in both parties will remain susceptible to their main argument that high prices are necessary to promote innovation.
That’s the big lie, of course. The drug industry spends just one-fifth of its revenue on research and development and a significant portion of that is devoted to coming up with drugs that are no improvement to drugs already on the market. It spends twice as much on marketing and overhead and takes home more in profits than it spends on R&D.
The reality is that innovation doesn’t come from pouring more money into the coffers of the pharmaceutical industry. If that were true, we would have had a cure for cancer two generations ago.
Rather, innovation comes from the advance of medical science, which is slow, arduous and totally dependent on government- and philanthropy-funded basic research. Most medical breakthroughs occur in NIH-funded labs. Those technologies are then transferred free of charge to biotech startups, which in turn sell them late in the development process to Big Pharma companies. In some cases, the inventors make the leap to biotech early enough in the process that the NIH-funded institution doesn’t even get royalties.
And what does it cost to develop the new therapies? A recent study in JAMA Internal Medicine estimated that biotech startups spend a quarter of what the pharmaceutical industry claims it costs to bring a new therapy to market.
Big Pharma won’t be the only industry deploying platoons of lobbyists to emasculate the administration’s proposal. Physicians and hospitals will also challenge the plan since it scraps tying their reimbursement to the price of drugs (the average sales price plus 6% formula).
That’s long overdue since the current formula creates an unhealthy incentive to use pricier drugs when cheaper alternatives are available. After all, 6% of a $10,000-a-month drug is 10 times more lucrative than 6% of a $1,000-a-month drug.
Won’t patients and the public influence the rulemaking process? More and more patients in high-deductible plans with rising co-pays are facing exorbitant out-of-pocket costs when they get seriously ill. They are justifiably upset. But their voices have been muted by drug industry-funded patient-assistance programs, which help pay their deductibles and co-pays. And most patient groups—many of them partially funded by Big Pharma—buy into the argument that innovation will suffer if prices are limited.
Until patients, the public and politicians reject the drug industry’s false claims about the source and cost of innovation, there’s little hope for a solution coming out of Washington.