Four Policy Solutions That Would Bring Fairness to Drug Pricing

Pramod John

Other than the grip that the pharmaceutical industry has on Congress and our state legislatures primarily through their lobbying and control of regulatory bodies, pragmatic fixes to the US drug cost crisis are not that elusive. Here are four straightforward policy solutions that would bring fairness to US drug pricing and parity with other industrialized countries.

  • Mandate that Medicare, Medicaid and Commercial payers in the US are not obligated to pay a price higher than the average of the top 10 OECD countries.

Problem fixed: Targeting of Americans for unfair price inflation

Why: Currently the US has the only unregulated market for drug pricing in the world. In addition, we have created legislation that effectively requires purchasers (commercial, public) to pay for these drugs without a mechanism to push back on pricing (saying ‘no’). Referencing against international pricing would force international competition without requiring any changes to the current policies of all of the other countries of the world and we would play by the same rules rather than creating ones that disadvantage only Americans. This should also be an easy bi-partisan position as we wouldn’t need to impose any governmental price controls, allowing the ‘market’ to set fair prices. Of course, this would give drug companies the option of raising prices internationally, sell to Americans for the same prices or watch their sales drop precipitously if they decide not to play ball as any excess could be balance billed, which will effectively be non-collectible. This isn’t economically unprecedented. On the contrary, most American companies charge more for goods sold outside of the US, not less. Just ask Apple or GM about their international pricing.

  • Remove the safe harbor regulations under the Federal health care program anti-kickback statute (“AKS”) (42 U.S.C. § 1320a-7b(b)).

Problem fixed: Market dysfunction due to intermediaries preventing supplier competition.

Why: In one fell swoop it would kill rebates which are the most significant mechanism preventing free market function and the continued existence of unnecessary intermediaries such as the PBM industry. It would open up pharma competition allowing smaller drug companies to compete against the incumbents. This would also lower barriers to entry and improve the efficiency of research dollars to be targeted to more effective methods rather than the arcane ones that today are subsidized by the large profit margins of the incumbent pharma monopolies. Furthermore, organizations like Amazon and Walmart could increase supply chain efficiencies by effectively reducing the number of hops between a manufacturer and consumer to just one.

  • Require that all commercial drug discovery efforts that are direct or derivative results from any US taxpayer funded research be jointly owned by the American people and that licensing be offered to any company that desires to manufacture the drug. Also require that any brand drug that is routinely paid for by the American people will not be litigated when competitors enter the market after the exclusivity period.

Problem fixed: Americans being forced, without their consent, to pay for drug discovery that benefits commercial interests.

Why: It is a well-known fact that most drug discovery has been funded either through direct investments by the American people (NIH, NCI etc) or indirectly through a disproportionate share of profits financed by higher prices. Why should the American people be forced to not only have to pay for the research but then cede the rights to market and sell the drug to commercial entities? If we either pay for the research or are forced to pay inflated drug prices to ‘subsidize the cost of research’ then we should own a proportional share of the intellectual property.

One of the most significant barriers used to prevent competition to generics entry into the market today is the threat of litigation by incumbents. One of the best and most recent examples of this is AbbVie’s threat of litigation against the manufacturers who have already received FDA approval for biosimilars to Humira. All of them have ‘settled’ with AbbVie to delay US market entry in exchange of avoiding litigation. At almost $20B a year for Humira alone, AbbVie can afford to out litigate any new entrant in the market irrespective of size. Our patent system was never designed to deal with ‘virtual’ goods like drugs. The system needs to be reformed, allowing only true innovation to be patentable vs. incremental extensions that are designed to prevent competition. The irony of the situation is that these biosimilars are available in the rest of the world, just not in the United States.

  • We would have objective standards on determining a fair price for a drug and a full warranty if that outcome is not achieved.

Problem fixed: National spend should be focused on what has the most national ‘value’ rather than value being tied to concepts that cannot be valued (life?), rather public policy should be focused on the greatest amount of good achieved for the largest number of people.

Why: Often, the current discussion focuses on the wrong questions. Take for example a ‘cure’ for a life-threatening disease. Should the price of the treatment compare to the value of a ‘life?’ If so, what is the value of a life? Priceless, right? But isn’t the value of all life ‘priceless’ whether the threat to it is a disease or a stray bullet? When drug companies suggest that pricing in America (they don’t use this strategy in other countries) should be based on concepts such as the value of a life, this leads to absurd conversations of the merits of therapies costing millions of dollars being legitimate. If we were to use that logic consistently, then we should have been willing to pay billions for smallpox vaccines and trillions for penicillin which have saved more lives than any other drug ever developed. Value in the context of public policy should be measured by improvements to overall life expectancy and quality of life tempered by opportunity costs of all potential avenues to improve them, including healthcare. Generally, what we (and every other country) are willing to pay for a therapy should be tied to the cost of developing and manufacturing the therapy rather than comparisons to infinite concepts such as the value of a life. In addition, we should only pay if the drug provides the agreed upon outcome to the patient who receives it. Drug manufacturers should be required to provide warranties and full refunds in the case the drug does not meet the required endpoint for each patient. This would throw a lot of ‘cold water’ on ‘me-too’ therapies and ones that don’t significantly improve the quality and length of life.

Pramod John is Founder and CEO of VIVIO Health, which works with organizational health care purchasers to reduce specialty drug spend while achieving better outcomes for their members.