Politics. It was a good run.
Culminating with Congressional approval of the Medicare Part D benefit in 2003, the pharmaceutical industry’s political influence was without peer, with the possible exception of the AARP.
Until today, Members of Congress regarded the American drug industry as the embodiment of a national character whose chief traits are creativity and innovation. It also represented jobs.
Due in part to its contribution to American culture and economy, the industry was able to pull off one of history’s most enduring feats of lobbying; a prohibition on price interference from one of its primary sources of revenue, Medicare.
Later, the industry’s legendary power meant Billy Tauzin, a man of considerable political gifts, was able to take President Barack Obama on the ride of a lifetime. The young president agreed to keep drug price controls out of the Affordable Care Act if the drug industry supported the bill.
From there, it was all downhill.
Into a system without price or utilization constraints crept all manner of rent-seekers, like pharmacy benefit managers, insurers and wholesalers, looking for their share of a large and growing pie, conveniently priced as a spread.
The market distortions have been epic and politically damaging. List price on which co-payments are calculated ballooned, providing ready fodder for the cannons in legacy media and on Capitol Hill. The small print reality that net prices, after everyone has eaten as much pie as possible, have not moved all that much is forgotten.
Even worse for the pharmaceutical industry, those rent seekers developed their own political power. PBM drug rebates reduce benefit costs which has allowed insurers to offer at or near zero Medicare Advantage premium plans.
As you enjoy your Sunday coffee, the U.S. Senate is voting to end the prohibition on federal price interference in Medicare drug prices. It seems unlikely that the negotiation program that would follow the end of non-interference is viable or constitutional, but the deed will be done.
As the defense industry learned in the 1980s, working for the government has a price.
Policy. The drug industry’s go-to defense of their unique position in Medicare as a price setter is their essential role in drug innovation.
Certainly, that was true in 2003. It might also have been true in 2010. It may still be true today but to the average American, that innovation and creativity that sustained such political power is now hard to discern.
Should a government contractor like BIIB offer an inferior product with a launch price of $56k? Most people would say no. Should the federal government have paid PFE and MRNA billions for vaccines of such limited durability? Also, a no.
A College of London study suggests all those anti-depressants Americans quaff each year are useless. Thousands die each year searching for meaning at the bottom of a fentanyl bottle.
It is hard to argue, with a contracting life expectancy and a league of comorbidities, that Americans are particularly healthy even after spending more money than any other country on drugs and health services.
Perhaps, the fault, to paraphrase Shakespeare, is in ourselves. A few years ago, I worked with an overweight IT specialist whose passion was Five Guys cheeseburgers (which I also love). He defended his diet, which he claimed ignored his doctor’s advice, by saying he just popped an extra Lipitor after lunch.
He happily survived a heart attack a few months later but it makes one wonder if all that drug innovation might also be a little counterproductive. After today, I suppose we might find out.
Power. Before the pharmaceutical industry stops innovating it is probably going to start wringing out of the channel all the non-productive parts.
Does LLY need a wholesaler taking 2% of list price to distribute its drugs or can AMZN handle the logistics? Will PFE’s heavily marketed drugs like Eliquis be removed from UNH’s formulary because there is no agreement on a rebate? Can drug manufacturers persist in setting limits on 340B contract pharmacies?
The fact is drug list prices have been subsidizing much of the health care industry, especially in the last decade. According to Drug Channels, about $236B is diverted in the form of rebates, discounts and fees.
As luck would have it, the federal budget deficit will be reduced by a similar amount, $280B, by the drug price policies in today’s reconciliation bill. There is a viable path for the industry to continue its innovation – after all that is what they get paid for – while eliminating many of the market distortions.
Could be a rocky ride in the meantime.
Have a great rest of the weekend.
Emily Evans
Managing Director – Health Policy
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