CEA Drug Pricing

White House Council builds a case for pharma pricing reform

Most proposed solutions are already in the works

During his State of the Union address in January, President Trump highlighted his desire to reduce the price of drugs in the US: “One of my greatest priorities is to reduce the price of prescription drugs. … Prices will come down.” The speech skidded over how this will be accomplished but now, with a report from the Council of Economic Advisers (CEA), some hints at possible approaches are being made.

If nothing else, the report, “Reforming Biopharmaceutical Pricing at Home and Abroad,” is a useful compilation of where current regulatory and reimbursement policies can be questioned, but shies away from outright recommendations, using language like “reforms could be considered” and policy options that “might be” valuable. Two areas where there is some specificity: because 20% of US drug spending is taken in a profit by the pharma distribution system, “Policies to decrease concentration in the PBM market and other segments of the supply chain (i.e., wholesalers and pharmacies) can increase competition.” Secondly, FDA could change the criteria for the various accelerated approval pathways so that competing drugs can also benefit. “Breakthrough Therapy designation [one of the pathways] may no longer be available for new but similar drugs because they cannot demonstrate significant clinical improvement over the initial Breakthrough Therapy drug. Moreover, Accelerated Approval and Fast Track are only available to fill ‘an unmet medical need,’ which has already been met by the initial drug.”

In multiple places, the report cites the unfairness of countries outside the US lowering drug prices by mandate, thus throwing the cost of developing new drugs, and generating sufficient revenue for drug makers, onto US payers. CEA analysis indicates that while the US represents 34% of the collective GDP of the countries in the Organization for Economic Cooperation and Development (OECD), the US is the source of 71 to 78% of the profits earned from branded drugs. “Simply put, other nations are free-riding, or taking unfair advantage of the United States’ progress” in drug development. A solution is merely hinted at: “enhanced trade policy or policies that tie public reimbursements in the United States to prices paid by foreign governments that free-ride or other methods.”

The CEA report notes that many of the areas in which federal policy gets in the way of rational drug pricing and spending are already being addressed by proposed or actual new approaches. These include tightening the inclusion criteria of 340b hospitals (which can enjoy significant reductions in drug prices, but without a requirement to pass those savings on to indigent patients), or cost-plus reimbursements under Medicare Part B (where doctors have an incentive to prescribe higher-priced drugs over lower-priced ones). The progress FDA Commissioner Scott Gottlieb has achieved in accelerating the drug preview process (for both branded drugs and generics) is also noted.
And, since they are mentioned nowhere in the report, the pharma industry might avoid dealing with two other policies frequently offered to address high US drug prices: allowing for re-importation of drugs from abroad; or allowing CMS to negotiate drug prices for Medicare or Medicaid.