Making Drugs Affordable for All

I am running late on posting for tomorrow. This piece by Merrill Goozner of GoozNews is one half of his piece on pharmaceuticals. The article is entitled “A plan to make drugs affordable for all.” The link is GoozNews above. You can read the entire article, scroll down to “Trust Bust,” or just click on the link to get there. The entire article is a good read. Or just start on the part I put up below . . .

There are no neat graphs or charts this time. Just a bottle labeled Biosimilars to catch your eye. Word Press says this is 1400 words and an eight-minute read. Unless your birth happened during this time, you will still be as old as you were when you started this read. Best . . .

Trust bust the drug industry; generics for all . . .

All drugs should be generic, even the ones that are new to market. Doctors should be able to prescribe what is best for their patients without regard to cost. Their decisions should be based on medical science, not television advertising, gift-giving by drug industry sales representatives to prescribing practitioners, or their patients’ ability to pay.

In 2020, I authored an article for Democracy: A Journal of Ideas that outlined a plan that would provide no-cost insulin to every diabetic. It called for creating a national purchasing pool for all insurance plans (a one-drug FairRx), which could use its monopsonist (single-buyer) purchasing power to obtain lower-priced insulin. It would make the drug available to prescription-filling pharmacies at no cost. As I noted at the time:

The pool authority would still have to buy the insulin, of course. Nothing is free. But by eliminating markups in the distribution chain and lowering the price it paid for insulin, the pool authority would be able to substantially lower the total payments patients and payers shell out.

In recent years, a number of companies have stepped forward to offer partial strategies to provide access to low-cost generics for more patients. CivicaRx, a non-profit consortium that includes insurers, hospital systems and a few charities, focuses on providing low-cost generic insulin and drugs in shortage to hospitals. It recently opened a manufacturing facility in Petersburg, VA.

In 2022, Dallas Maverick owner Mark Cuban launched Cost Plus Drug Company, which provides consumers with a mail-order source for generics. Cost Plus purchases generics directly from manufacturers to eliminate the PBM middleman. It charges patients or their insurers the cost of the drug plus a 15% markup, a $5 pharmacy service fee, and a $5 shipping fee.

Over the same period, a bipartisan group of legislators pursuing low-cost drug strategies has focused on ending the patent thickets that delay market entry of generic drugs. Drug companies create patent thickets by filing dozens of insignificant “follow-on” patents to extend the original patent life of a drug and burden potential generic makers with expensive and time-consuming litigation before they can bring a generic to market. A bill introduced last year by Senators Peter Welch (D-VT), Mike Braun (R-IN) and Amy Klobuchar (D-MN) would prevent patent holders from suing generic manufacturers based on such patent thickets.

None of these efforts go far enough, however. Making all drugs generic would require breaking up the pharmaceutical industry, which is currently vertically integrated up to the point of sale to distributors and pharmacies.

Given the industry’s use of patent monopolies and patent thickets to extract exorbitant profits, the Justice Department’s antitrust division could file suit to separate the firms’ drug manufacturing divisions, which average just 15% to 25% of total costs, from their research and development arms (about 18% of costs) and marketing-administrative arms (about 40% of costs). Pharmaceutical industry profits average about 20% of total revenue, which is among the highest in U.S. industry.

After the break-up, the newly independent manufacturing arms would become part of the industry sub-sector that produces generic and biosimilar drugs as well as small batches of experimental drugs needed for pre-approval clinical trials. The R&D-oriented drug industry would be required to license all new and existing on-patent drugs to any generic manufacturer that wants to produce them.

FairRx, in turn, would buy drugs from generic manufacturers on a cost-plus basis, similar to the way the Pentagon buys military equipment. (In the military’s case, the government also pays for the R&D, which generates the world’s most technologically sophisticated war weapons.) Voila. Generic drugs for all.

Wouldn’t this immediately dry up drug industry investment in R&D? Wouldn’t requiring drug companies to license their patented medicines to any and all generic firms bring private sector investment in drug development R&D to a crashing halt?

A better way to fund innovation

The solution to that problem lies in creating a separate fund to pay innovators and their innovations, financed by a second per-beneficiary flat fee on every health insurance plan. The fee would be adjusted each year based on how much health care value new and still-on-patent medications were bringing to patients.

The drug firms would still file for and retain rights to the original patent or patents on their latest drugs. The innovation fund would pay them a licensing fee for as long as those patents were valid. The size of the fee would be based on the assessed increased medical value of the new or improved drugs.

The science behind assessing medical and economic value of pharmaceutical innovation has made significant advances in recent decades. The National Institute for Health and Clinical Effectiveness in the United Kingdom (NICE) pioneered in using cost-effectiveness research to recommend ceilings on what the British National Health Service should pay for drugs. Studies by the Boston-based ICER, whose analysis of overpriced weight-loss drugs I cited earlier, are already being used by drug plans and PBMs when negotiating prices with drug firms.

Both NICE and ICER quantify the medical benefits shown during a newly-approved drug’s clinical trials. They then recommend a maximum reasonable price based on the added “quality-adjusted life years” (QALYs) from use of the drug. A 2020 study comparing prices set by both organizations on cancer drugs found ICER used per-QALY values of $100,000 to $150,000 for its ceiling on value. While this was well below the prices drug companies were charging in the U.S., it was still three times higher than NICE.

ICER uses an open process for making its determinations. All stakeholders, including drug developers, can comment on its draft reports and present their findings. If the innovation fund used ICER or adopted an ICER-like process for its determinations, it would still come up with significant savings over current drug prices.

Since the new drugs would get more widespread usage almost immediately, the innovation fund could adjust its licensing fees up or down based on utilization and actual outcomes. FairRx would know who was taking each drug. If given access to patients’ overall records, the government-run PBM could study the real world outcomes from drug use and not rely solely on estimates generated from the ideal settings of a pre-approval clinical trials.

The creation of a national PBM willing and able to learn from real world patient outcomes would reverse the industry’s current R&D incentive structure. Drug companies’ R&D labs would be incentivized to focus on innovations that generated the most health improvement. They would see less benefit from developing new patents whose main purpose was extending the monopoly status of already existing drugs.

An innovation fund could establish extra rewards in areas lacking sufficient private investment, such as antibiotics for drug-resistant infections and rare diseases. It could also invest directly in government- or non-profit development projects.

Project Warp Speed, initiated during the first Trump administration’s last year to rapidly develop COVID-19 vaccines, is the most recent medical breakthrough substantially funded by publicly-funded researchers, a pattern I discussed in my 2004 book, “The $800 Million Pill.” The government could even establish a public research enterprise like the one recently proposed by a group of legal scholars that could research and develop new drugs in targeted areas and then license them at no cost to generic manufacturers.

To sum up: The medical benefits of moving to a national PBM with centralized payments for innovation through a R&D reward fund would be enormous. There would no longer be financial roadblocks to utilization, thus maximizing medical gain from every new drug’s approval. Step therapy and prior authorization would disappear.

Drug company R&D departments would be incentivized to pursue new drugs that provided the most medical gain, not minor variations of old drugs with little clinical significance. Although new drugs competing for market share in a class of drugs that already exists (me-too drugs) wouldn’t disappear, their uptake and therefore rewards would depend on coming up with legitimate improvements like reduced side effects or improved efficacy, not on advertising and drug company marketing tactics.

None of what I’ve proposed here stands a chance of passing Congress in the current political environment. But the recent election demonstrated that the American electorate is open to new ideas that offer simple solutions to complex problems.

“Make all drugs generic.”

Publicly fund innovation. It even fits on a billboard, button or bumper sticker.