Drug Affordability and Medical Research Sometimes Clash

Railing against prescription drug prices may be an easy campaign strategy. Actually lowering those prices without stifling medical research is a much more difficult endeavor.

Congress, by and large, is approaching medical innovation and high drug costs as two separate issues. But the two are inextricably linked, and this poses a tough question: What can the federal government do to foster drug affordability and spur new cures at the same time?

“This isn’t good guy vs. bad guy. This is how best to weigh affordability with continued innovation,” said John Rother, president and CEO of the National Coalition on Health Care. “This is a series of policy ideas that have to all fit together. This is one of the most challenging areas in health care right now, intellectually as well as politically.”

Yet most of the solutions presented by lawmakers and presidential candidates of both parties don’t address the scope of the problem or wouldn’t be effective, experts say.

Prescription drug prices have become a top public concern. The Senate Committee on Aging has launched an investigation into four drug companies that bought long-used heart drugs and spiked the prices. On Thursday, the House Oversight Committee holds an investigatory hearing on drug prices, and the witness list includes executives from several of the companies in the spotlight. Martin Shkreli, the notorious former CEO of Turing Pharmaceuticals, is slated to testify.

It is easier politically to focus on drug companies acting like hedge funds than to find ways to make all prescription drugs more affordable. This latter problem was made evident when formerly bipartisan efforts to put forth a comprehensive medical innovation bill in the Senate fell apart partly because Democrats wanted to include drug price provisions. The Health, Education, Labor and Pensions Committee is instead holding three separate executive sessions to vote on smaller, bipartisan medical bills. A bipartisan answer on drug prices remains elusive among committee members.

But the difficulty goes beyond politics. The point of the committee’s initiative is to create a law that will bring new, breakthrough medical cures to the market. Controlling drug prices, if done incorrectly, could seriously threaten that goal.

“The fact is that pricing and innovation are integrally linked. If you think about it from the perspective of an investor who’s contemplating whether or not to invest in technology … they’re going to be projecting out what their returns are,” said Dan Mendelson, CEO of Avalere Health, an independent consulting firm.

“Consumers are right now very focused on this issue. On the campaign trail, what’s happening is the candidates are oversimplifying the answers,” Mendelson said.

There are middle-ground solutions that could be effective in the correct contexts, experts say. But so far neither party has it exactly right.

Democratic presidential candidates have offered a standard menu of policy options to lower drug prices. They include allowing Medicare to negotiate prices, permitting the importation of drugs from Canada, and requiring drug companies to be more transparent about pricing.

Republicans say clearing up the Food and Drug Administration’s backlog of generic drug applications will create competition and drive down prices.

None of these ideas takes into account different ways in which drug prices are set.

“All drugs are not the same, so you talk about a couple important distinctions that are worth making,” said Mark McClellan, director of the Center for Health Policy at Duke University.

There are brand drugs and generic drugs, which are regulated differently. There are self-administered drugs and drugs patients receive in doctor’s offices or hospitals. And then there are different types of drug markets. While some are large enough to incentivize companies to create generics, others are small, and the cost of entry is greater than the profit a company would make. Each scenario presents its own problem, meaning different policy solutions could only be appropriate in certain contexts.

One of the most agreed-on policy solutions isn’t even mentioned by most politicians. Nearly everyone else says shifting toward a value-based payment approach would achieve the balance between affordability and innovation.

The idea mirrors the approach currently being taken by hospitals and providers of tying pricing to value. The Affordable Care Act contained many provisions shifting payment from fee-for-service to value-based care.

“It doesn’t really make sense to have drugs left out in that [value-based] direction for payment reform,” McClellan said.

But otherwise, there is plenty of room for disagreement among experts, industry groups and lawmakers.

“There really is a balancing of priorities. I don’t think there’s any one way to do it or one final way that will ensure that you can preserve both [innovation and affordability] at the same time,” said Rother, who is leading the Campaign for Sustainable Rx Pricing. “But I do think there’s so much fat in the system that it is possible to create a much more efficient way of paying for drugs that can keep total health care costs from bloating.”

Rother’s coalition consists of more than 80 organizations, including lobbying powerhouses such as America’s Health Insurance Plans, AARP, the American Hospital Association and Blue Cross Blue Shield.

Rother said three basic ideas need to be incorporated into drug pricing policy. First, there should be “greater transparency so we have better information about the drug’s effectiveness, about what the basis was for its price, things like that,” he said. Second, there should be efforts to accelerate competition, including speeding up the FDA’s approval of generic drugs. Third, he said, is shifting to value-based payment.

One of Mendelson’s preferred policy ideas is expediting the second generic version of a drug to market as well as the first, which he says can create greater competition. While this idea doesn’t have the same political popularity as, say, allowing Medicare to negotiate drug prices, Mendelson said it would be more effective.

“I am skeptical that Medicare would do a better job than the health plans that are currently responsible for negotiating these prices. What you find is manufacturers are eager to discount when there’s a competitive situation,” he said.

The other politically popular idea, transparency, isn’t a favorite of drugmakers. Holly Campbell, a spokeswoman for the Pharmaceutical Researchers and Manufacturers of America, said requiring greater transparency about pricing would be difficult for companies because it wouldn’t take into account the expensive failures inherent in medical research and development. PhRMA is supportive, however, of shifting towards value-based payment.

Although political pressure is high, the complexity of the problem means any congressional response is probably still in its infant stages.

“I think it’s fair to say for many people in the Congress – for most – they’ve not worked through their views on this,” Rother said. “So they’re encountering it as a problem, they’re acknowledging it as a problem, but they haven’t figured out what to do with it.”