As lawmakers in Washington grapple with legislation to alter the upward trajectory of prescription drug prices, a key talking point is likely to be found in a recent report from the Congressional Budget Office. Released late last month with little fanfare, the analysis concluded that limiting prices — as envisioned in a controversial House bill known as H.R. 3 — would lead to 59 fewer new drugs over the next three decades.
Starting in 2025, the bill would allow Medicare to negotiate prices for at least 50 brand-name drugs that lack lower-cost generic competition, and make the same price available to private payers, as well. Although the CBO finding dovetails with rallying cries from the pharmaceutical industry and investors about threats to innovation, there is more to the analysis, according to Larry Levitt, executive vice president for health policy at the nonprofit Kaiser Family Foundation. We spoke with him about the nuances and implications. This is an edited version of our conversation.
So this is a pretty dense report, but you believe it’s potentially significant. Why is that?
It’s extremely wonky and technical, but it hits on what is probably the most controversial aspect of the federal government’s bid to gain authority to negotiate drug prices. Pharma has been relentless in putting out ads pointing out that federal negotiation of drug prices could lead to fewer new drugs being available. And that’s exactly what this report analyzes. Government negotiation for drug prices is enormously popular with the public, which wants anything that will help lower what they have to pay for drugs. But the political Achilles’ heel for this issue is the idea that drugs keeping people healthy or saving lives may not be available.
What’s the bottom line here? What is CRO projecting?
They look at a scenario that’s sort of similar to H.R.3, which passed the House, and forecast that this could lead to a 0.5% decrease in the number of drugs coming in the first decade after (the legislation) goes into effect, 5% in the second decade and 8% in the third decade after going into effect. (Editor’s note: 2 fewer drugs in the first decade, 25 in the second decade, and 34 in the third decade). So you can bet that the number of drugs will become a talking point. This is a legitimate issue, but major policies always have trade-offs. While federal negotiations for drug prices would lower prices, it could also lead to fewer new drugs. So it’s not surprising that investors don’t want the government to lower prices if that will lower profits.
But that’s not the whole story, is it?
Right. There are important considerations that the CBO doesn’t or won’t analyze here. They estimate how many drugs won’t come to market if prices are lowered, but don’t try to forecast which ones. That can matter. If we’re talking about me-too drugs, they have lower value. So it may have little effect on incentives and health. But if we’re talking about life-saving drugs, well, that would be a very big deal. And unfortunately, we have no idea how that might play out. There’s no crystal ball.
This is, effectively, a statistical model that tries to look at the magnitude of revenue decreases that drug companies would see if prices come down, and what the relationship is between those revenue declines and the number of drugs that come to market. But it’s not looking at drugs that are in the pipeline and, frankly, it’s impossible to tell what drugs would be in the pipeline 20 or 30 years from now. But maybe some of those won’t be there if pharmaceutical industry profits are lower.
But isn’t it also true — or theoretically, true — that if prices are lower and then more drugs are more affordable, then more patients could use them? And that could improve health and produce more revenue for the drug companies?
Yes, there is this offsetting effect. I believe they do incorporate greater demand in their model from lower prices, but what they don’t do is estimate what effect that would have on the health of American patients. It could save the health care system more money.
So given these shortcomings, why do you think the report will have legs as the legislative debate plays out?
The pharmaceutical industry knows the public is nervous about the possibility of losing access to drugs, so they will make sure to magnify whatever numbers CBO comes up with. Democrats have an increasingly slim margin in Congress and any number (of drugs to be lost) that makes people skittish could help to kill the idea entirely.
But the details will certainly matter. There’s enormous uncertainty and trying to project three decades into the future – how much R&D drug companies might invest and what scientific breakthroughs might emerge – is pretty risky business.
Holy shyt you can't make this up.