PhRMA Takes Aim at Medicare Price Negotiation as HHS Digs In

by Peter Johnson

Policies aimed at slowing price growth in the most expensive drug categories could result in slightly fewer drugs coming to market, according to an analysis of the issue prepared by the Congressional Budget Office (CBO).

"A 15 percent to 25 percent reduction in expected returns for drugs in the top quintile of expected returns is associated with a 0.5 percent average annual reduction in the number of new drugs entering the market in the first decade under the policy, increasing to an 8 percent annual average reduction in the third decade," the report says.

What PhRMA says:

• "Even under CBO's conservative assumptions, at least 60 new treatments and cures will be sacrificed if proposals within the budget were to become a reality," said Stephen Ubl, president and CEO of Pharmaceutical Research and Manufacturers of America in a Sept. 8 press conference.
• PhRMA convened the press conference as part of its opposition to H.R. 3, the sweeping drug pricing reform law introduced by House Speaker Nancy Pelosi (D-Calif.). The bill caps Part D out-of-pocket costs, allows Medicare to negotiate drug prices and bans the price of drugs from increasing faster than the annual rate of inflation.
• In particular, the PhRMA leaders took aim at Medicare price negotiation — arguing that Part D plan contracts with PBMs keep prices down.

What industry experts say:

• Regarding the CBO report, "I think the overall picture makes sense. Incentive matters. Revenue reduction affects every link on the drug R&D [research and development] value chain. It is unrealistic to expect the same overall R&D effort when the payoff at the top of the value chain is muted," says Ge Bai, Ph.D., an associate professor at Johns Hopkins University's Carey Business School and Bloomberg School of Public Health.
• Shawn Gremminger, director of health policy at the Purchaser Business Group on Health, says he thinks PhRMA is overstating its case. "They [CBO] believe that there will be less R&D in the future if you have tighter controls on drug spending, and so that will mean fewer drugs. The Democrats' argument is, OK, fine, but it's on the margins — it's a relatively small amount. And I think that's probably accurate — to the extent that there's a decrease in R&D at all," he says.

From RADAR on Drug Benefits