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Drug Price Report Calls for Govt Negotiation, More Generics

Norman Augustine

Norman Augustine, chair of the National Academies’ drug affordability committee, at National Press Club, 30 November 2017 (A. Kotok)

1 December 2017. A panel convened by the National Academies calls for the federal government to use its buying power to negotiate better drug prices for consumers. That recommendation was part of 8 sets of actions in a report, which also generated two dissenting statements, including from industry representatives on the committee. The report was released yesterday at a news conference in Washington, D.C.

The committee of the National Academies of Science, Engineering, and Medicine sought solutions to the problem of rapidly rising prices for prescription drugs, which is a major driver of overall health care costs, now estimated at 18 percent of the U.S. gross domestic product. The panel chaired by Norman Augustine, former chairman of the National Academy of Engineering and CEO of Lockheed Martin Corp., recognized the complex factors making up the issue of drug affordability, including role played by insurance and the need for continued innovation by drug companies.

Nonetheless the rapid and continuing rise in the cost of drugs, says the 189-page report, is not sustainable and becoming out of reach for consumers, which threatens public health, social equity, and economic development. In remarks during the press conference and in a preface to the report, Augustine noted that the “burden of high-priced drugs often falls disproportionately on the most vulnerable elements of the population.” He cited a Kaiser Family Foundation report that shows in 2015 about 1 in 5 Americans did not fill a prescription because of its price, while other individuals rationed the drugs they had.

The panel’s report calls for Congress to authorize consolidation of drug purchasing in the U.S. Department of Health and Human Services, or HHS, for the department to negotiate directly with drug companies as a single entity, using its combined purchasing power to lower prices on prescription drugs. In addition, HHS should refine its methods for determining the value of drugs, and use those value-based approaches in negotiations and establishment of formularies that list the drugs covered for specified diseases and conditions.

The committee highlights generics and biosimilars as a key factor in promoting more choices and competition in the marketplace, calling for new laws and more regulatory oversight to encourage more availability of these alternatives to branded drugs. The recommendations urge the Justice Department and Federal Trade Commission to put a halt to “pay for delay” practices, where makers of branded drugs pay generics producers to slow the introduction of their competing products, as well as more scrutiny of mergers and acquisitions that may limit the availability of generics or biosimilars. In addition, the panel endorsed establishing reciprocal arrangements with regulatory authorities in other developed regions to encourage more generics and biosimilars, as well as reduce barriers to entry of generics and biosimilars from overseas.

Other recommendations from the panel focus on consumer-related matters. One set of proposals calls for an end to tax deductions to drug companies for direct-to-consumer advertising of prescription drugs, and encourages instead codes of conduct to foster more awareness of disease prevention and management. The committee also recommends ending patient coupon programs unless no competing drugs are on the market.

A separate set of proposals is designed to change health insurance practices to reduce the cost of prescription drugs for patients covered by Medicare. These recommendations call for rewriting cost-sharing formulas — to include, for example, costs and clinical effectiveness of specific drugs — and placing a cap on annual out-of-pocket costs paid by Medicare Part D (drug benefit) enrollees.

Other recommendations cover financial transparency, including costs and rebates, in the pharmaceutical supply chain, reforming insurance rules to reward prescribing practices emphasizing value to consumers, and restricting financial incentives for developing orphan drugs to the program’s original intent, development of new therapeutics for rare diseases. In comments at the news conference, panel members noted that the trend toward precision medicine could make it possible to call drugs prescribed to address particular genetic variations “orphan drugs,” even if they were originally developed to treat much larger populations.

Consensus, but not unanimous

In response to a question from Science & Enterprise, panel member Michelle Mello, a law professor at Stanford University, said that many drug companies are taking steps to bring down their research and production costs, particularly the high costs of clinical trials. She added however, that producing new medicines is inherently risky, with 9 out of 10 new drugs in development not surviving to the market. She also pointed out that early work on new products is often undertaken by smaller companies, focusing on one new drug at a time, with these small enterprises highly dependent on private venture capital.

While the committee’s recommendations represent a consensus of its members, the findings were not unanimous. Two members of the panel, both from industry — Michael Rosenblatt, former chief medical officer at Merck, and Henri Termeer, former CEO of Genzyme Corp, — offered a dissenting option. Rosenblatt and Termeer say many the report’s recommendations would have unintended consequences damaging both to the health of patients and the industry.

Their alternative recommendations include more financial transparency throughout the supply chain, particularly for pharmacy benefit managers, third-party administrators of prescription drug plans for insurance providers, and to level the playing field for drug prices among developed countries, where patients in the U.S. are asked to pay higher prices. However, Rosenblatt and Termeer, came out against the panel’s proposals for government-wide negotiations and importation of drugs from overseas.

Seven other members of the panel also offered a minority opinion. While they endorsed the panel’s overall recommendations, they believe the proposals were not aggressive enough and called for more systemic changes to create a more comprehensive, patient-centric system. Their recommendations call for steps to ensure greater transparency, better value assessments, and exploration of direct government funding and purchasing of drugs, where needed to correct distortions in investment and deployment.

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