5 ways Biden’s SOTU could advance biotech affordability and innovation
By: Peter Rubin
When President Biden takes the podium on Thursday to deliver his third State of the Union address, he will undoubtedly highlight his administration’s policies regarding prescription drug prices – most notably the Medicare price setting provisions of the Inflation Reduction Act (IRA) – and he will likely take aim at biotech companies as the driver of high costs.
High out-of-pocket costs are a huge problem, and the American public has been very clear that fixing this is a top priority. In February, KFF released a survey of registered voters and found that their top healthcare priority was lowering out-of-pocket costs. But unfortunately, some of the specific measures enacted in the IRA and advanced by the administration will have the opposite effect, stifling innovation and driving up future costs for everyone with no guarantee that savings from government price controls will actually be passed on to Americans.
If President Biden is serious about helping Americans get the medicines they need at low or no out-of-pocket costs — and spurring the innovation that will deliver the next generation of cures and drive down costs in the future — here are five policies he should include in his address on Thursday.
1. Act urgently to fix the nine-year small molecule penalty.
The IRA instituted government price-setting on prescription drugs by means of empowering Medicare to negotiate the prices that it will pay manufacturers, but the law set different timelines for different categories of drugs. The government can begin setting prices for large molecule biologic drugs after 13 years, but it only has to wait nine years before setting prices on small molecule medicines. Both of these timelines are a reduction from the current baseline of roughly 14 years of patent-protected market exclusivity. However, the nine-year window for small molecule drugs is so narrow that we have already seen a significant decrease in investment in early-stage small molecule research. Investors and innovators representing 665 drug candidates in development and $320 billion in assets under management highlighted this problem in a letter to the Congressional Budget Office earlier this year.
There is a solution. A bipartisan bill has been introduced in the House to fix the IRA’s small molecule “pill penalty” and standardize the price-setting timeline for large and small molecule drugs at 13 years. This would remove the disincentive for investment and reopen the door to the development of new small molecule-based treatments which are crucial for treating diseases like cancer and Alzheimer’s.
2. Recognize the true value of medicines to patients & society.
CMS says it plans to incorporate conventional cost-effectiveness (CEA) values when setting drug prices in Medicare. When our government relies on any kind of math to decide which drugs are worth making available to patients, such math should be comprehensive and take what society values into account. This should include recognizing the value that medicines bring to caregivers by helping patients get better, as well as recognizing that medicines go generic and become inexpensive over time, whereas the cost of hospitals and nursing homes only climbs. Conventional CEA ignores significant elements of value and should not be the basis for how America assesses biomedical innovation.
A more comprehensive approach to this kind of calculation is called Generalized Cost-Effectiveness Analysis (GCEA), which reveals that successful medicines, even seemingly high-priced ones, have generated far more value for society as a whole than society has paid for them. This should inspire all of us to appreciate the value the US derives from biotechnology and take pride that this industry is rooted in the US.
3. Require cost reductions to be passed to consumers via PBM reforms.
A crucial element of the biotech social contract is that drug prices should not stay high for too long. The rhetoric around government price-setting of prescription drugs focuses heavily on the potential benefit to consumers, but the IRA doesn’t actually require Medicare – or private insurers – to pass on price reductions to patients via ensuring low copays and coinsurance requirements for drugs in the lowest formulary tiers. As a result, the law allows Medicare to dictate to drug companies the price that it is willing to pay despite no guarantee that patients will see meaningfully lower out-of-pocket costs as a result. The same is true for price-setting done by state-level prescription drug affordability boards or even private employers that use pharmacy benefit managers (PBMs) to negotiate with manufacturers. Currently, just 30 cents of every dollar spent on drugs goes to the manufacturer, while 41 cents goes to the PBM, 17 cents to the pharmacy, and 12 cents to the wholesaler. In a very real way, we are heading toward a future in which Americans still struggle to afford the medications prescribed by their doctors, even as the innovators and manufacturers who produce those medications are paid less for their work.
We’ve already seen a version of this problem in action. As the Wall Street Journal and others reported last year, PBMs like CVS and Cigna have charged consumers more than 20 times more than manufacturers charge for certain generic drugs. Without reform, there is no reason to think that PBMs won’t continue to charge high prices for price-controlled drugs, just like generics. The Biden administration and Congress should prevent this by enacting policies requiring Medicare plans and PBMs to pass savings from price-setting directly to consumers and make sure price-controlled drugs are available in the lowest copay formulary tier.
Patients shouldn’t have to pay for appropriately prescribed medicines out of pocket on top of their premiums. There’s no need to impose a financial litmus test on a patient with cancer to make sure they have skin in the game before giving them chemotherapy. No one fakes cancer to get free chemo. But if patients are going to pay any amount out of pocket for a medicine, it should be based on the lesser of a modest flat copayment or else modest cost-sharing based on the drug’s NET price, as negotiated by the PBM.
And if there are generic options of the same drug, then it should be mandatory for plans to cover those and make them available to patients. It should be clear that PBMs are doing something VERY wrong and creating a liability for society if they actually choose, on behalf of both patients and plans, to cover a higher net price version of the same drug when a lower net price version is available. There is no positive social value from allowing that practice to continue.
4. Extend out-of-pocket caps on drug costs beyond Medicare to include Affordable Care Act Marketplace health plans.
Thanks to the IRA, out-of-pocket costs for Medicare Part D participants will be subject to a $2,000 cap in 2025. For patients who have conditions that require even moderately expensive medications, this will be a significant benefit – and it will go a long way toward ensuring that they can afford the treatments prescribed by their doctors. One analysis from KFF found that more than one million seniors will see savings and tens of millions more will be reassured knowing they will not be bankrupted by high copays charged by their insurers.
There is no reason for this cap to extend exclusively to Part D beneficiaries. Seniors in Part B along with millions of Americans of all ages, particularly near-retirees, are facing rising out-of-pocket costs that limit their ability to obtain the medications they need. Insurers that impose high prices and cost-sharing on patients claim they’re attempting to deter overutilization, ignoring the fact that recreational abuse of cancer drugs, for example, is not something that happens in the real world. Instead, this cost burden makes patients defer care that they need, take on medical debt, or make painful cuts in other areas of their lives, further compounding public frustration. The Biden administration could take a bold step forward in fighting high out-of-pocket costs head-on by extending out-of-pocket caps to protect the 21 million participants in the healthcare exchanges created under the Affordable Care Act.
Again, no one fakes cancer to try to get free chemo. There won’t be any over-utilization from lowering out-of-pocket costs for cancer drugs, insulin, and many other medicines that patients would never wish to take if they didn’t have to. Patients already paid for them out of premiums and don’t need any more skin in the game than they already do. High out of pocket costs merely discourage people from getting appropriate care. That’s cruel and renders a plan’s claims to offer “health insurance” a deception.
5. Treat biotech as a national defense priority.
A vibrant biomedical ecosystem is essential to America’s long-term national security. As we saw firsthand in 2020, we don’t know when the next pandemic will strike, and the ability to develop, manufacture, and distribute vaccines and treatments will be vital to ensuring that we can effectively respond to threats. Even without a sudden, catastrophic global outbreak, America’s biotechnology sector enables us to stay one step ahead of the rest of the world, researching and developing new treatments for deadly diseases that claim lives and undermine national productivity every day.
Innovation must be fairly rewarded by a robust and consistent patent system. Our geopolitical rivals in China and elsewhere recognize the importance of biotechnology and are making investments accordingly. We can’t blame China for winning if the U.S. fully implements policies that harm innovation. The Biden administration has recognized the importance of biotech in the past, but to make sure America retains our strategic advantage, the President should double down and recommit to strengthening biotech as a priority in national defense.
Whether or not President Biden or Sen. Britt’s Republican response endorses any of the above policies on Thursday, No Patient Left Behind will continue our work to educate and engage leaders at all levels of government, stakeholders, and patients (which is to say all of us) on these and other critically important issues. You can help us make a difference. Our recent letter that called for updates to the Congressional Budget Office’s modeling was cited at a Congressional hearing, leading director Phillip Swagel to tell the committee, “We are going to implement some of what is in the letter.”
To be part of efforts like this and help policymakers understand how to foster biotech innovation and investment, please reach out to our team and sign up here to be an NPLB First Responder.