Why Biden Worries Big Pharma

Divided government in Washington threatens much of President-elect Joe Biden’s legislative agenda, but prescription drug pricing is a rare area where he might find common ground with a Republican-controlled Senate.

With federal policymakers under immense pressure to rein in rising drug costs, a desire to control the price of medications crosses party lines. But the pharmaceutical industry fiercely opposes such reforms, arguing that lower prices would stifle innovation. That argument carries more weight at a time when drugmakers are winning plaudits for developing desperately needed COVID-19 treatments and vaccines.

Yet there appears to be bipartisan support for some measures that could curtail growth and dent profits at drugmakers including North Chicago-based AbbVie, Lake Forest-based Horizon Therapeutics, Deerfield-based Baxter International and other pharmaceutical companies. Even now, the outgoing administration is potentially opening the door for more progressive policies under Biden. On Nov. 20, President Donald Trump issued a rule that links certain Medicare drug prices to the lower prices paid in other wealthy countries and regulates the rebates drugmakers pay pharmacy benefit managers.

“The basic fact that Americans pay more for drugs than people in foreign countries makes people upset across the board,” says Craig Garthwaite, a health economist at the Kellogg School of Management at Northwestern University.

Prescription drug costs are rising faster than prices for other medical goods and services, according to a recent GoodRx analysis, which found that drug prices have increased by 33 percent since 2014.

Biden wants to limit drug price increases to the general inflation rate by imposing a tax penalty on drugmakers that don’t abide and preventing them from participating in Medicare. Industry observers say it’s a concept that’s likely to resonate with both Democrats and Republicans. It echoes the bipartisan “Prescription Drug Pricing Reduction Act of 2020” introduced by Sens. Charles Grassley, R-Iowa, and Ron Wyden, D-Oregon

Other aspects of Biden’s plan could be harder to push through, including the drug industry’s doomsday scenario: allowing Medicare to negotiate lower prices with drugmakers. Republican lawmakers aren’t likely to support a change opposed so vehemently by an industry that sends a disproportionate share of its campaign donations to GOP candidates.

Even so, Biden may not need buy-in from Congress to start. Federal law allows him to test new pricing policies through innovative demonstration projects. A recent example is Medicare’s bundled payment model for hip and knee replacements, which aims to reduce Medicare expenditures and improve quality of care. Successful test projects would put even more pressure on Republicans to back drug pricing reforms moving forward.

Sending mixed signals about his intentions, Biden recently tapped former pharma lobbyist Steve Ricchetti—who was one of Biden’s chiefs of staff when he was vice president—to serve as counselor in his administration. The appointment, which drew criticism from progressive group Justice Democrats, implies that Biden might go easy on Big Pharma.

Meanwhile, Ricchetti’s brother Jeff started lobbying for Horizon Therapeutics in August, covering Medicaid drug pricing.

“We are committed to working across party lines to advance research, promote patient access as well as encourage healthcare policies that support innovative breakthrough medicines,” Horizon says in a statement. The company declines to comment on Biden’s plan.

Baxter didn’t respond to a request for comment.

Still, any move to control prices would shake the business model of an industry accustomed to routine price hikes that far exceed the rate of inflation. AbbVie, for example, raised the net price of its blockbuster Humira 16 percent from 2016 to 2018, according to a drug-price watchdog, the Institute for Clinical & Economic Review, or ICER. Bowing to public outrage in 2017, AbbVie joined other big drugmakers in promising to keep annual price increases under 10 percent.

Days before the presidential election, AbbVie CEO Richard Gonzalez told analysts that the company assumes “there will be continued pressure on the industry as it relates to drug pricing.” Gonzalez said AbbVie’s business isn’t reliant on price, but on volume.

“That gives me confidence that we’ll be able to fare reasonably well even if there are changes,” Gonzalez said. “What I would hope the debate ultimately transitions to is copays and out-of-pocket costs for the patients because that is the fundamental issue.”

Rebate reform and limits on copays are considered low-hanging fruit in prescription drug legislation, because the powerful pharmaceutical lobby supports both, ICER spokesman David Whitrap says in an email.

“However, neither of these policies would help lower the underlying price of prescription drugs in the U.S., and they both would likely increase Medicare costs,” Whitrap says.

And while drugmakers might be in favor, the equally powerful health insurance lobby likely would fight proposals to ban the discounts they get from drug manufacturers or to limit their ability to shift costs to consumers. They warn that any such restrictions would lead to premium increases.

A call to improve the supply of cheaper generic drugs is “probably the best thing that could come out of the Biden plan,” Garthwaite says. “We need to pay more attention to whether we have a sufficiently stable and high quality generic market.”

But Biden’s plan to establish an independent review board could be a hard sell since it would likely lead to lower price tags for new drugs that don’t face generic competition. The board would assess the value of new drugs and recommend prices that ultimately would be paid by Medicare and any future public option.

Tying price to value “is something that other countries do and the reason that other countries don’t pay nearly as much as we do for drugs that are available there,” says Stacie Dusetzina, associate professor of health policy at Vanderbilt University Medical Center. “Not all drugs are worth the money.”


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