Walking the Drug-Pricing Tightrope: Fostering Innovation While Maintaining Affordability

Panel Participants and Context

• Moderated by Dan Diamond; panelists include Dan Leonard (National Pharmaceutical Council), Seema Verma (CMS Administrator), Matt Iles (AHIP), and Mark McClellan (Duke-Margolis/Former CMS Administrator).
• Discussion centers on the urgency of bipartisan drug pricing legislation, the unsustainability of current cost trends, and the potential consequences of legislative inaction.

Current State of Drug Pricing and Market Trends

• In 2019, the FDA approved the most expensive drug in history, marking a shift toward ultra-high-cost therapies.
• Despite high-profile expensive launches, overall drug spending growth in 2019 was less than 0.5%, the slowest rate in over 25 years.
• Approximately 50 new drugs are in the pipeline with price tags ranging from $500,000 to $2 million each.
• Experts note that the "gross-to-net" price bubble involves up to $160 billion annually flowing between manufacturers, PBMs, and plans, with little reaching the patient.
• Senator Cassidy highlighted that for some products, particularly those lacking competition (generic/biosimilar), manufacturers engage in annual price increases on legacy drugs rather than just new innovations.

Legislative Proposals and Potential Outcomes

• Democrats and Republicans are advancing separate drug pricing packages; failure to pass legislation could result in administrative actions by the administration if the current trajectory is unsustainable.
• By 2026, the U.S. is projected to spend one in every five dollars on health care, a rate deemed unsustainable without intervention.
• The Congressional Budget Office (CBO) estimated that the House Democratic bill could save money but potentially reduce the development of up to 15 drugs over a decade.
• A new Kaiser Family Foundation poll indicates 88% of Americans support federal government negotiation for Medicare drug prices.
• Administrators and industry reps expressed concern that government-set prices could act as a disincentive for R&D, particularly for "tough nuts to crack" diseases like Alzheimer's.

Stakeholder Positions on Government vs. Private Negotiation

• Seema Verma (CMS): Argues for avoiding "big government" solutions that create a one-size-fits-all system; advocates for private sector competition and choice among plans to drive negotiation.
• Matt Iles (AHIP): Views the choice between government and private negotiation as a false dichotomy; notes private plans negotiate effectively where competition exists but struggle with monopoly products.
• Dan Leonard (NPC): Supports the 2003 Part D model of private negotiation but acknowledges it requires updating to address high-cost Part B drugs and the catastrophic coverage gap.
• Consensus: All panelists agree that the current payment system creates perverse incentives, such as the Part B "add-on" payment encouraging higher-priced prescriptions.

Structural Reforms and Payment Models

• CMS is currently moving to address "perverse incentives" by increasing reimbursement for FDA-approved antimicrobials to encourage antibiotic development without inflating prices.
• Panelists highlighted the misalignment of fee-for-service models with modern cures (e.g., gene therapies) that provide lifetime benefits but require payment in a single fiscal year.
• There is growing interest in "value-based arrangements" where payment is tied to real-world outcomes, though concerns exist that these could lead to higher launch prices to offset potential discounts.
• Regulatory barriers are currently preventing value-based contracts, specifically regarding Medicaid "best price" calculations which can be triggered by free drug provisions in outcome-based deals.
• CMS is exploring regulatory changes to facilitate value-based pricing, including modifications to Medicaid Best Price rules.

Specific Areas of Focus and Future Outlook

• Antibiotics: The current system discourages investment in antimicrobials because they are low-cost; policy changes are needed to decouple development funding from low per-dose sales prices.
• Part B vs. Part D: Part B (physician-administered drugs) is identified as the primary driver of high-cost innovation without effective negotiation tools, whereas Part D is viewed as working well but needing catastrophic phase reforms.
• Bipartisanship: Mark McClellan and others identified bipartisanship, patient access protection, and innovation preservation as "litmus tests" for any viable legislation.
• Future Legislation: References were made to a potential "21st Century Cures 2.0" initiative focused on innovative payment systems that align with the lifecycle of new therapies.
• Political Dynamics: Panelists expressed optimism regarding state-level collaboration and identified specific lawmakers (e.g., Rep. Frank Pallone, Rep. Diana DeGette, Sen. Bill Cassidy) as key drivers of potential bipartisan solutions.