Editor's Note: This is a complimentary research note published by Healthcare Policy analyst Emily Evans. CLICK HERE to get COVID-19 analysis and alerts from our research team and access our related webcasts.
"I ain't as good as I once was, but I'm as good once as I ever was."
- Toby Keith
One of the more surprising things about the last four years has been the way in which the formerly immutable policy positions of the respective political parties have merged into agreement, or perhaps more accurately, disagreement in name only.
As Rep. Clay Higgens (R-03LA) put it on Thursday (adopt Cajun accent here), "The arguments from both sides of the aisle are quite similar."
We ended the 2014-2016 term with Republicans generally supportive of the pharmaceutical industry as a way to protect research and innovation. Democrats, as they have for years, favored eliminating the non-interference clause to permit direct negotiation between the federal government on behalf of Medicare and drug manufacturers. Although, we should recognize the Hilary Clinton was not likely to go quite that far.
Then comes Donald J. Trump.
An unwelcome surprise at J.P. Morgan 2017 was the new president's declaration that the drug industry was "getting away with murder" and promised to change the way the federal government pays for drugs to lower prices.
Not what one would expect from the party of Orrin Hatch.
The last four years have been marked by efforts to reform the system in fits and starts: executive orders and Senate hearings and passage of the House messaging bill, H.R. 3; all making incremental but often inperceptible progress toward...something. In the background, throughout has been the powerful - but not as much as it once was and less than it thinks it is - drug industry.
Last week's hearings at the House Committee on Oversight and Reform are not going to move the legislative needle anytime soon but they do provide a helpful status report on the current political environment on drug prices and reform policies going into the election. Some conclusions:
- Anti-globalism has finally made its way to the pharmaceutical industry as members questioned inversions, drug prices overseas and lack of equity for U.S. consumers
- Protecting research and innovation is important but not as much as access and price
- Federal policy limits competition
- EVERYBODY hates Pharmacy Benefit Managers
Of course, there were the usual demands for negotiation between Medicare and drug makers and the uncomfortable moment when Rep. Katie Porter pulled out her whiteboard and examined executive compensation. Outside of more extreme measures, there seems to be bi-partisan agreement for reform, that, in an era without President Trump in the White House, may have yielded legislation by now.
Instead, a logjam persists between PhaRMA, whose dislike for the president is no secret, and the federal government. A November victory for Joe Biden may be what is necessary to break through but given his longstanding support of the pharmaceutical industry and his debate repudiation of the extreme left flank of his party, expect the changes to favor PhaRMA more than not.
The likely losers are Pharmacy Benefit Managers (CVS, UNH, CI) and with them, Medicare Advantage plans whose benefit costs are underwritten by rebates. GDRX, whose business model exploits all the things that are wrong with American drug prices, gets caught in the crossfire.
Another oddity of the drug price logjam has been the high visibility into solutions. The Senate and the House have had extensive hearings from all manner of interested parties. The White House, CMS and HHS have spent hundreds of hours on rulemaking and comment. Every think tank in town has weighed in.
The lack of progress can be credited almost solely to the uncomfortable choices that must be made - not Washington's strong suit. Deepening the quagmire is the outsized role Medicare's drug benefit plays in distorting market forces, a result of both its ancient benefit design and the high age-related consumption of pharmaceuticals.
The policy tradeoffs are these:
- Eliminating or reducing rebates v. Medicare Advantage premiums. The Trump White House's proposal to require point of sale rebates foundered on the shoals of Medicare Advantage premiums and the competing policy interests within the administration. On the one hand, CMS policy, which calls for the expansion of Medicare Advantage enrollment, demands lowest possible premiums. On the other hand, passing rebates along to beneficiaries or otherwise limiting their size and scope, may produce meaningful cost savings to beneficiaries. The first policy priority enhances the expansion of Medicare Advantage enrollment while the second may reduce costs for Medicare Part D beneficiaries.
- Drug price setting v. research and innovation. The last place on the planet where drug prices are established almost exclusively by industry is the U.S. As a result America has become the R & D lab for the world. Research conducted in the U.S., often through the generosity of the National Institutes of Health, benefits people around the world who in turn bear little of the associated costs due to varying forms of government intervention. Hence, President Trump's Executive Order calls for linking certain non-competitive Part B and D drugs to OECD prices. As the U.S. remains the world's most important market for pharmaceuticals, the result will be either upward pressure on prices in OECD markets, downward pressure on prices in US markets, limitations, absent changes to patent and exclusivity rules, on research and development or some combination of the three. The new anti-globalization attitude that is creeping into American's consciousness will most certainly factor in as well.
- Patent protection v. competition. The protection patents offer forms the basis for most investment decision in research by limiting competition in the near and intermediate terms and allowing recovery of research investment as well as stranded costs associated with failed projects. Use of patents that border on abuse, such as changes to dispensing mode, as demonstrated by the likes of MYL are an obvious target of policy makers. Unfortunately, opening up patent law for revisions has thus far created more complications than solutions to the problem. Somewhat counterintuitively, a move to extend patent protections as a way to discourage abusive and unpopular protections, seems to be emerging as a possibility. It remains to be seen if the general readership press will give a fair hearing to the merits which could scuttle the whole idea. Another way to balance the policy tradeoffs could be similar to the Trump White House approach which focuses price intervention on drugs with limited competition, like Humira and Enbrel. making all the effort to extend IP much less attractive.
Under any circumstance, these policy tradeoffs are difficult. Their impact on the vote-rich and easily engaged Medicare-eligible populations makes the landscape fraught with political landmines.
As my old boss used to say, "if it were easy, everyone would be doing it."
The magic of the pharmaceutical lobby has always been the way in which is has been an equal opportunity friend to both sides of the aisle.
It was this long standing policy of avoiding partisan affiliation that allowed Billy Tauzin, a Republican and then CEO of PhaRMA to cut a deal early with the Obama administration over the ACA, taking drug prices off the table, where they have remained since.
In Trumpworld, things are very different.
After months of negotiating a trade-off between drug price relief and the role of pharmacy benefit managers, negotiations between the lobby and the White House broke down a few weeks ago causing President Trump to sign the MFN Executive Order and announce $200 gift cards for Medicare part D beneficiaries, two components of a deal the industry opposed.
The drug lobby is now making little pretense about their preference for a president. Donations from pharmaceutical executives to Joe Biden outpace those to Donald Trump 4:1.
The hope appears to be that the MFN Executive Order, which is going to be translated into rules in the next two months will be entirely rolled back by a newly-elected President Biden.
It isn't the best bet. However, as a longstanding friend of PhaRMA, Biden is not likely to refuse any modification to the MFN rule but rather to use it as leverage to craft a new agreement, one that is sure to include the drug industry's most important issue: rebates.
If President Trump is re-elected it may be the first time ever PhaRMA's phone calls to the White House don't get returned. The negotiating dynamic will be forever changed and that cannot be good news for the pharmaceutical industry.