More than a dozen speakers held forth on May 5 at the Leonard Davis Institute of Health Economics (LDI) conference,  “A Prescription for the Future of Drug Pricing.” And while there was a spirited debate over the role of Pharmacy Benefit Managers and other issues, there was wide agreement that drug pricing is poised to enter a new era in the U.S.

“Our goal for this conference was to shine a light on policies to address drug pricing. Our speakers ably met that challenge, tackling the financial complexities of the pharmaceutical market, the potential impact of impending regulatory changes, and the politics behind this moment,” said Rachel M. Werner, MD, PhD, LDI Executive Director.

The Inflation Reduction Act (IRA) will enable the government to negotiate Medicare drug prices for the first time. Some experts said the act’s new consumer-friendly features for the Part D program – including a $2,000 annual cap for beneficiaries’ out-of-pocket costs – could have a larger impact than the government’s ability to negotiate drug prices.

“We’re likely to see consumers as the winner in the end,” said James McSpadden, MDiv, MA, Senior Policy Advisor at the AARP Public Policy Institute.

Critics, however, said the measure could put a crimp on innovation, and lead to fewer traditional small molecule drugs, which would have only nine years of patent protection compared to 13 years for biologics.

“I feel like we’re really close to hitting an artery,” said John O’Brien, PharmD, MPH, CEO of The National Pharmaceutical Council. “What is this going to do to innovation and development? The IRA will cause people to move away from developing small molecule drugs. It’s also going to have a deleterious effect on cancer care.”  

Other speakers said that there remains sufficient financial reward to keep innovation strong. The new drug price regulations put the U.S. more in line with European nations where drugs cost 1/3rd to 1/4th of what they cost in the states. Pharma firms are international and are used to regulation.

But the new system should be transparent and uncomplicated.

“The first thing about drug pricing reform: keep it simple,” said James Robinson, PhD, MPH, Director of the Center for Health Technology at the University of California, Berkeley.

Still, it’s likely that the bill will get massively tested in the courts before its novel provisions take effect.

“The industry is going to fight this with everything they have,” said Stacie Dusetzina, PhD, Professor of Health Policy and Cancer Research at the Vanderbilt University School of Medicine.   

Another concern is the short time that the government has to implement the new law. In his keynote address, Mark McClellan, MD, PhD who oversaw Part D’s implementation as CMS Administrator and is the founding Director of the Duke-Margolis Center for Health Policy, pointed to current CMS Deputy Administrator Meena Seshamani, MD, PhD a fellow panelist in the audience, and said “Please be sure to give her your sympathy. They have like six months from now to implement this [new drug] program. We had two years between when the Medicare Modernization Act passed and when drug coverage was supposed to be up and running.”

The debate was lively. Here are 10 takeaways from the day.

Inflation Reduction Act: Seismic Change for the U.S. Drug Market, if it Stays Intact

• Despite the media attention paid to the IRA’s negotiation provisions, the benefit expansions represent the biggest change since the Part D program was created two decades ago. Those Part D changes will also have the biggest impact on health equity. – McClellan
• Beneficiaries will pay zero once they hit a $2,000 limit. Part D plans will likely use more prior authorization (advance approval) and other tools to manage drug use, and premiums are likely to rise. There might not be huge effects on net prices and spending on branded drugs, even in Medicare. The bigger effects may actually be on the similar drugs and not the one that is price-negotiated. – McClellan
• The IRA is a fundamental shift in how we pay for prescription drugs because it pairs cost savings with meaningful reform on price. But it is not a silver bullet. The obvious thing that the IRA missed is that there’s no direct application of these provisions outside of Medicare. Our research shows that people just before retirement age are even more concerned than those over 65 about affording drugs. – McSpadden

Alternative Payment Models Might Fill Gaps Left by the IRA

• The IRA may not be able to solve the high cost for emerging curative therapies. But innovative payment models could help. For example, subscription models–paying one flat fee to cover drugs for a population–are being tried. But subscriptions are not pricing mechanisms. They advance a public health mission. The intention is to get a fair price that the manufacturer will accept, and that serves a public health mission to get people screened and treated. – Rena Conti, PhD, Associate Professor of Markets, Public Policy and Law at Boston University
• The first Oncology Care Model, which offered practices modest incentives without real penalties, led to a 1% cost savings for all care, including drugs. A new version is in the works. Meanwhile, the Enhancing Oncology Model, which starts this summer, will focus on sicker patients receiving targeted therapies and improving equity. It is mandatory, two-sided risk so there’s much more money at stake here. – Nancy Keating, MD, MPH, Professor of Health Care Policy and Medicine at the Harvard Medical School
• Spark’s gene therapy drug Luxturna treats a rare form of blindness affecting a small number of patients. The firm proposed a novel pricing mechanism that would give a rebate if patients failed to show the gain of function within a certain period. – Jeff Marrazzo, MBA, MPA, Co-Founder and former CEO of Spark Therapeutics, Inc.

Experts Debate the Role of PBMs

• There are three large PBMs. However, there are also PBMs differentiated by whether they serve a national market, mid-market, or non-traditional market, which introduces some heterogeneity and pricing variation. – Lawton Robert Burns, PhD, MBA, James Joo-Jin Kim Professor, Professor of Healthcare Management, and Professor of Management at The Wharton School
• As intermediaries, PBMs negotiate with both manufacturers and insurers to bring down prices and expand access to purchasers for manufacturers. It is an imperfect business model, and more transparency would help the market. However, PBMs do bring efficiencies and capabilities to an industry that requires a lot of technical expertise. – Barak Richman, PhD, JD, Professor of Law and Business Administration at Duke University
• Transparency that advances informed decision-making is important. However, the wrong kinds of transparency would lead to higher drug prices. “The entire point of a PBM is to drive down drug costs.” – Angela Banks, MBA, MA, Vice President of Policy for the Pharmaceutical Care Management Association

A Closing Point on the IRA

• Health care is political and the IRA has been politicized. “This law is trying to address the high cost of drugs and if we can’t tell a single good story about how this law has affected that, that is not success.” – Adaeze Eneckwechi, PhD, MPP, Operating Partner at Welsh, Carson, Anderson & Stowe.

---

Authors

---