By Peter Kolchinsky & Keith Murphy
October 7, 2021 at 5:00 am ET
Congress has a rare opportunity to ensure that Americans can afford their prescription drugs and simultaneously shore up the framework necessary for biotech companies to invent better medicines.
To do so, it must reject government price-setting for new drugs. Even when framed as negotiation, that policy would reduce investment in new treatments drastically. Congress must also reject the bad-faith efforts of the insurance and pharmaceutical lobbies to bolster an unsustainable and often unfair status quo.
Instead, legislators should rally around the Reduced Costs and Continued Cures Act, proposed by Reps. Scott Peters (D-Calif.) and Kurt Schrader (D-Ore.), which lowers costs and supports innovation. The congressmen’s bold and independent-minded decisions to buck their own party leaders as well as industry interests should be applauded. It has enabled them to propose practical, achievable solutions worthy of bipartisan support.
The RCCCA won’t satisfy the most progressive legislators — nor will it appeal to Big Pharma and health insurers, who may bristle at calling out and correcting their industries’ worst behaviors. But the act could break the health reform logjam and embodies the kind of grand compromise Americans need.
The RCCCA saves patients money, holds drug and insurance companies accountable for anti-competitive practices, increases transparency and promotes competition. It recognizes that the biopharmaceutical industry should serve patients, which is to say all of us eventually, by inventing new medicines instead of trying to profit from old ones. It trades off protecting market-based rewards for novel drugs with ensuring old ones become inexpensive public goods.
Capping out-of-pocket costs
The RCCCA reduces costs for seniors by capping out-of-pocket payments for medicines each year and smoothing out those payments via monthly installments. The bill’s out-of-pocket caps for most Medicare beneficiaries are more generous than the progressive alternative. It ensures seniors’ out-of-pockets are based on negotiated “net prices” that insurers pay, not inflated “list prices” that include margins and fees captured by middlemen.
Research has shown that an out-of-pocket increase of only $10 per prescription results in a 33 percent increase in mortality. And as out-of-pocket costs rise, higher-risk patients, whose health often limits their income, are the most likely to suffer. We’d go further than an out-of-pocket cap: Why have any copayment for essential medicines like insulin? Creating any financial disincentive to needed medications is like a fire department that demands cash up front before dousing a house fire.
The RCCCA prevents companies from raising Medicare drug prices above inflation and requires them to justify high launch prices. It allows Medicare to control prices of older drugs that should be inexpensive generics but – because of scientific complexity, “pay for delay” or other market failures – remain expensive even after their initial patents expire.
Peters and Schrader’s emphasis on competition and generics reaffirms the spirit of the successful Hatch-Waxman legislation that ushered in the era of inexpensive generic drugs nearly 40 years ago.
Thanks to Hatch-Waxman, roughly 90 percent of prescriptions in the United States today are for generics that were once expensive brands. In the future, thanks to Peters and Schrader, we could continue to benefit from and save on even better medicines, including cutting-edge gene therapies that can’t “go generic” like simpler drugs. This expanding generic drug armamentarium costs us little — yet it reduces our reliance on expensive hospitals and long-term care facilities, which never go generic.
What the bill doesn’t do
Unlike Democratic leaders’ preferred bill, the RCCCA does not dictate the prices of new drugs. Instead it preserves the market-based research and development framework that drives progress and ensures the United States remains the leader in biopharma innovation.
In 2019, life sciences R&D in San Diego County alone generated $41.3 billion in economic activity and over $1 billion in funding for the National Institutes of Health, as well as supporting 175,350 total jobs and directly employing 68,063 people. The RCCCA does not decimate this productivity.
Critics may argue that Peters and Schrader aren’t taking enough away from Big Pharma, ignoring that price controls on new medicines would unintentionally defund most R&D, including “small biotech.” Insurers may complain that premiums would rise if out-of-pockets were affordable, as if access to appropriate care weren’t the exact purpose of health insurance. Drug companies that may extract more profit from gaming old drugs may also protest.
We should ignore them and support a lasting restoration of the social contract between insurance, the drug industry and the American people they serve.
Peter Kolchinsky is a founder and managing partner at RA Capital Management and author of “The Great American Drug Deal.”
Keith Murphy is founder and CEO of Viscient Biosciences, a San Diego-area biotechnology company.
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