At the moment, Congress is busy:
· They need to construct and pass the $3.5 trillion reconciliation package and give final approval to the bipartisan infrastructure bill.
· The reconciliation package is where action on drug pricing will likely take place; the infrastructure bill is important because it delays the Trump administration’s rebate rule by three years and also includes the Refund Act—a new requirement for drug companies to refund Medicare for leftover medicine when vials contain more of a physician-administered drug than a patient needs. This impacts manufacturers that produce single-vial doses.
The Biden administration is also kicking into high gear:
· Following the President’s Executive Order on “lowering prescription drug prices” earlier this summer, the Department of Health and Human Services (HHS) unveiled last week a long-awaited plan to lower prescription drug prices.
• The proposal includes a number of aggressive policies but largely tread over ideas that Democrats have pushed for years including direct Medicare negotiations, limit on yearly price increases, drug importation from Canada and out-of-pocket caps.
· None of these proposals are binding; however, they align with what majority of Democrats in Congress want and will serve as fuel for the reconciliation bill.
Industry is worried about the reconciliation package; Democrats will decide how far they can go on drug pricing without losing votes.
As explained back in April, the industry is eyeing the reconciliation package skeptically. The proposed package outline is the largest overhaul of the social safety net programs in decades. Some blockbuster items include: expanding Medicare to encompass dental and vision benefits; paid family and medical leave; and increasing the ACA premium subsidies. All of these will cost significant amounts of money.
Two provisions in the reconciliation package that are most likely to get adopted to pay for the expanded social safety net programs above are:
· Allowing Medicare to directly negotiate prices
· Pegging what Medicare pays for drugs to what drug companies offer to other government programs, such as Veteran Affairs (a concept known as “domestic reference pricing”). International reference pricing was on the table early in the year, but it did not gain momentum due to widespread criticism.
The industry recognizes how important the Medicare direct negotiation provision is and has launched a full-scale strategy to strip it out of the final bill. Yesterday, a long list of industry leaders and investors released a lengthy letter arguing against allowing government to set prices and calling out faulty value assessment models that do not accurate depict the value of a medicine. The letter states: “To be clear, we are concerned about the high and rising out-of-pocket costs that have made our medicines increasingly unaffordable to many patients. We, too, call for a solution to affordability. We don’t invent drugs to have them placed out of the reach of people who need them.”
Some CEOs have adopted what may be referred to as hyperbole. At an event last week, Eli Lilly’s CEO, Dave Ricks, said, “It’s (allowing Medicare to set prices) going to wipe off the face of the earth some pharmaceutical companies that are household names.” Others, such as Merck’s Ken Frazier, have adopted a more modest tone, but they’re still raising the alarm and saying these measures will lead to reduced R&D investment.
Here’s the bottom line:
· Expect a huge fight and intense lobbying of moderates such as Sen. Manchin (D-WV) and Sinema (D-AZ) to hold the line on pricing mandates. But, as explained above, these are key to Democrats’ plans to enact massive expansion of the social safety net programs.
· Expect the administration to lean in heavily on key, wavering Democrats to deliver on the President’s pledge to lower drug pricing. The administration is also making an argument that taking tangible steps on drug pricing will help bolster the Democrats’ chances in the 2022 midterm elections.
What this means for life sciences companies
The stakes are high, and this debate is coming at a critical moment. For the first time in a decade, the life sciences industry was enjoying renewed reputation—but the honeymoon has ended. The positive halo from successfully developing COVID-19 vaccines has been blunted by perceptions of inappropriate pricing and industry-friendly regulatory frameworks. The scrutiny resulting from Biogen’s Aduhelm approval is one example.
Here are several steps that manufacturers and developers should consider:
· Communicate your product’s value proposition. There is a need to justify the value of any new and existing therapies to a host of stakeholders. This should also include updated messaging on R&D and innovation.
· Prepare proactive solutions. It is not enough to just be against proposals or to simply place the blame on other healthcare actors such as insurance companies. The industry needs to clearly communicate viable solutions that both address affordability concerns while protecting and promoting innovation. This is vital, because 80% of Americans believe the cost of prescription drugs is too high, and more importantly 30% forgo taking medication because of costs. Being solutions-oriented is imperative.
· Take a stance—without reverting to hyperbole. Executives should develop a POV on hot-button topics, such as government pricing mandates, Medicare direct negotiations, and value assessment frameworks—without making over-the-top claims that suggest they will cease to exist if these proposals are adopted. Most of these companies successfully operate in places like Europe, Asia and Canada where they effectively navigate government-mandated prices and remain profitable. Instead, the focus should be on why these policies may not work in the United States and how things like insurance design need to be addressed to tackle affordability concerns.
Don’t hesitate to reach out to the Syneos Reputation & Risk Management (RRM) team.
