Drug Price Regulation Trade-offs: Real or Imagined?

The debate around drug pricing in the United States has been going on for decades, but there’s been a renewed push recently through several legislative efforts. Proponents suggest that regulating drug prices will not affect biopharmaceutical innovation or patient access to medicines. Opponents suggest that regulating drug prices will have lasting effects on innovation that will ultimately harm patients. 

The National Pharmaceutical Council (NPC) hosted a panel at an AcademyHealth meeting this week to explore the potential risks and unintended consequences of drug price regulation. “The goal is not to try to come up with the answer or engage in a heated debate about who’s right or who’s wrong, but to recognize the spirit of AcademyHealth’s National Health Policy Conference as an opportunity to share information that we can all use to inform better policy, regardless of our perspective on these issues,” said NPC President and CEO John M. O’Brien, who served as the panel moderator. 

Despite their different views, the panelists agreed on one thing: The biopharmaceutical ecosystem is incredibly complex, so policymakers should carefully consider the potential impacts of drug pricing proposals.  

Key Elements to Consider in Policy Proposals 

1. The role of the supply chain in rising health care spending 

The underlying narrative around drug spending is that manufacturers are raising prices on existing products or introducing new expensive products to increase their revenue, but the data tell a different story, NPC Vice President of Research Michael Ciarametaro said. Net prices — the cost of medicines after discounts and rebates have been paid — have been on a downward trend, while there’s an increasing share of dollars going to other actors in the drug supply chain. 

“In 2020, for the first time, the dollars going to the manufacturer were less than the dollars going to other entities in the supply chain” in the form of commercial rebates, discounts, and hospital markups, Ciarametaro said.  

Getting a better handle on health care spending requires increased transparency in the supply chain, he said. “If we really want to have a value-based health care system, then we truly need to understand how our money is being spent, and right now we don’t have that visibility,” he concluded. 

2. The impact of benefit design on patient affordability 

Every time Americans are surveyed about health care, drug prices are a top concern. But the U.S. health insurance system is designed so that patients pay a higher percentage out of pocket for drugs compared to hospital and physician services. “It’s not surprising when asked what they are concerned about that they are concerned about the piece of the pie that they have to pay the most,” said John Brooks, partner at South Capitol.  

Would cutting drug prices across the board increase patient affordability? An NPC-Xcenda survey of payers suggests it’s unlikely. The survey found that if government price regulation lowered total drug costs by 15%, there would be no significant impact on patient copay and coinsurance amounts. Reforming health benefit design would be a better approach to truly address affordability concerns for patients, Ciarametaro said. 

3. Inclusion of patient priorities 

“The myth that patient advocacy organizations want innovation at any cost is just that, a myth,” said Donna Cryer, founder, president and CEO of the Global Liver Institute. However, she added, “There is no such thing as access to a drug that doesn’t exist. We have to be very mindful of the role we can play in cultivating the health of the research ecosystem.” 

Patient advocates want to ensure the success of the companies working on treatments in their disease space, but those companies’ drug prices must reflect patient-defined value, Cryer said. “What is a price that finds the sweet spot between short-term affordability and long-term sustainability in an attractive therapeutic area?” she asked. 

Just as companies are now working with patient advocates in clinical research and the drug development process, they should consider patient input in the pricing and payment process as well, Cryer said.  

4. The diversity of companies in the biopharmaceutical ecosystem 

Dr. Fred Ledley of Bentley University presented research that explores the relationship between biopharmaceutical company revenue and their investment in research and development (R&D). While studies of large biopharmaceutical companies show higher revenue is linked to higher R&D spending, he argued this is not always the case for smaller companies, which represent a growing share of the R&D pipeline.   

Smaller companies are largely dependent on equity investments and partnerships with large pharmaceutical companies. If the traditional assumptions about revenue to R&D spending do not hold true for smaller companies, he argues that their R&D spending would not decrease in response to a reduction in drug prices. “Why do we think little companies won’t stop innovating? They have no choice,” he said. “The average company has one drug. They either keep working on it or they go bankrupt.” 

However, Ciarametaro said more work is needed to understand how drug pricing regulation would impact the ability of smaller companies to both raise investment funds and license their therapies to larger companies. 

5. The factors driving drug development decisions  

Several studies have examined whether drug pricing regulation may impact the number of new drugs coming to market, including a Congressional Budget Office report that estimated Medicare price controls would reduce the number of new drugs by 10%.  

However, none of the studies look at what this potential reduction in new drugs may mean for patients. “Drug price regulation not only will impact the number of drugs, but it’s also likely to impact the nature and type of innovation coming to the market,” Ciarametaro said.  

We don’t know which therapeutic areas are most likely to be affected, Brooks said, or how those innovation losses may compound over time. 

A Holistic View of Health Care Spending 

Achieving better patient health outcomes while controlling health care spending requires looking at all the parts of the health care system, the panelists concluded. “In order to get substantive and lasting reforms, it’s really important to understand how these pieces all work together and not just run with one piece,” Brooks said.