The drug pricing deal in the Build Back Better Act sounded like welcome news to many. As someone who worked for the previous two administrations as they attempted to lower drug prices, I know how difficult making deals like this can be.
Despite these difficulties, it is incumbent on policymakers to thoroughly understand the potential consequences of legislation. The hastily assembled BBB compromise fails in this regard as it contains significant uncertainties and unintended effects that could distort pharmaceutical markets, reduce the development of new drugs, and threaten patients’ access to medicines.
The bill would allow the Secretary of the Department of Health and Human Services to “negotiate” drug prices with manufacturers. But if a deal is not reached in this “negotiation,” manufacturers are forced to pay an excise tax. That doesn’t sound like negotiation to me.
In reality, the bill caps prices for a growing and potentially cumulative number of drugs, placing no floor on the government’s price. The politically appointed HHS Secretary can set as low of a price as they wish — without the traditional regulatory process requiring public comment — and then tax manufacturers that don’t accept it.
Predicting the safety and efficacy of a new drug candidate and its potential return on investment is already very challenging. Adding in the uncertainty of elections and the whims of future political appointees will make that challenge even more difficult, likely reducing investment in research and development and thus the number of new drugs developed for the many diseases that lack effective treatments.
Here’s the proof. A study on the Clinton Administration's Health Security Act, which also proposed allowing Medicare to negotiate prices with drug developers, found that it reduced R&D spending by about 7.7% even though it never became law. That’s a reduction of over nearly $10 billion in today’s dollars, in response to a bill that would have allowed the government to require a 17% rebate on Medicare drugs.
In addition, while the BBB deal includes much-needed provisions to cap seniors’ out-of-pocket costs for medicines and to smooth monthly payments over the benefit year, it does not go far enough to ensure patient access to needed therapies. The legislative language says all “negotiated” drugs must be covered by Medicare Part D, but patients may still have to pay high out-of-pocket costs if their drug is placed on a higher tier formulary or be required to first try less expensive drugs not recommended by their doctor. When patients cannot easily access the medicines they need, it can lead to hospitalizations and other health care costs.
The BBB proposal sends the wrong message to drug developers and distorts pharmaceutical markets in other ways. It shortens the exclusivity period for small-molecule drugs from 13 years to nine years, a move that would reduce rewards for new or expanded indications that often help children, and it incentivizes biologics over small-molecule drugs by giving the more expensive biologics longer time before they are eligible for Medicare “negotiation.”
Incentives for generics could also be distorted because the proposal caps prices for brand drugs. Generics make up 90% of the prescriptions written in the United States and the U.S. enjoys generic prices that, on average, are 16% less than those in other nations. Research has shown that generic prices are higher in other countries due to price regulation of brand therapies. The distortion that will come if the BBB proposal becomes law could increase costs for both seniors and Medicare.
Simple solutions to complex problems are often wrong. The BBB Act is rife with unintended consequences that will hurt both patients and the world’s source of medical innovation. The BBB drug pricing plan threatens the development of new drugs and introduces additional risks and perverse incentives into a complex innovation ecosystem. America’s patients deserve better.
John M. O’Brien, PharmD, MPH, is president and CEO of the National Pharmaceutical Council.