Despite Floating Prescription Drug Price-Fixing, Feds Are Pursuing Better Ideas

Despite Floating Prescription Drug Price-Fixing, Feds Are Pursuing Better Ideas

A recent flurry of activity hints the Trump administration may be moving from a foolhardy populist platform to economically sound market-based reforms.
Margot Cleveland
By

A recent flurry of activity hints the Trump administration may be moving from a populist platform of lowering prescription drug costs by “cutting better deals” and importing drugs from Canada to economically sound market-based reforms. Health and Human Services Secretary Tom Price, Trump’s pick to lead the administration’s efforts to lower drug prices, has met over the last two weeks with several prominent pro-market reformers and pharmaceutical representatives. Soundbites coming out of those meetings suggest a promising rightward move.

First, as Politico’s Prescription Pulse reported, on May 5 Price held his third meeting on drug pricing, hearing from a variety of players. Of import was the presence of the Manhattan Institute, a free-market think tank that has spoken out against anti-pharmaceutical rhetoric, price controls, and excessive regulations, instead supporting market-based reforms.

The Trail of Meetings Continues

A few days after, Price, Vice President Mike Pence, National Institutes of Health Director Francis Collins, and Acting Commissioner of the Food and Drug Administration Stephen Ostroff met in the White House with Stanford University’s president and the CEOs of the Mayo Clinic and Johns Hopkins. CEOs from four biotech companies, including Vertex Pharmaceuticals, also attended.

As reported in ScienceMag.org, Collins noted the meeting provided an opportunity for experts to explain to administration officials “the whole ecosystem” on which biomedical innovation depends. But according to Collins, while “[p]articipants did not discuss the proposed $5.8 billion NIH budget cut in 2018—it was one of several ‘elephants in the room,’ including drug pricing…”

While participants cordoned off the topic of drug pricing, Collins’ comments following the gathering indicate the meet and greet’s goal extended far beyond the current battle over NIH’s budget. Vertex, which markets two pricey (but first-in-class) drugs to treat the underlying cause of cystic fibrosis, surely took the opportunity to “distinguish new medicines that are priced at a premium because they represent genuine innovation and risk-taking, and drugs that are priced high simply because investors are manipulating regulatory failures.”

Then on Friday came yet another detail suggesting the Trump administration is more open to free-market reforms for drug pricing problems than its previous rhetoric suggests. As reported by Inside Health Policy, Price met to discuss drug pricing proposals with representatives from the Pharmaceutical Research and Manufacturers of America, the Association for Accessible Medicines, and the Biotechnology Innovation Organization.

One policy they discussed concerned value-based pricing—a system where pricing fluctuates based on the use and effectiveness of treatment. A transition to value-based pricing would represent a huge movement towards a market-based model designed to lower drug prices. That this market-based reform is garnering Price’s time and attention—and the support of the Big Three industry advocates—bodes well for the seriousness of the Trump administration’s upcoming proposal to address the cost of prescription drugs.

Meanwhile, Back in Congress

While the executive branch appears to be slowly sidling rightward, Republicans in Congress appear ready to move forward with market-based reforms designed to lower the price of pharmaceuticals. On this front, first came Sen. Lamar Alexander’s confirmation last week that the Senate Committee on Health, Education, Labor and Pensions he chairs would soon hold a hearing on drug spending.

Usually such an announcement would not merit any particular notice. But Alexander’s announcement letter included several nods to conservatives, indicating the Republican-led committee would use the hearing to counter false narratives the Left has peddled to push their policies to address the drug pricing problem. Alexander is wise to do so given that a recent Kaiser Family Foundation study found widespread public support for price-fixing—something that would kill innovation and investment. Countering misinformation is a necessary first step in moving forward more controversial market-based reforms.

Further positive news came last Tuesday when the Senate voted 57-42 to confirm Scott Gottlieb as the commissioner of the Food and Drug Administration. While that was expected, that Republicans held firm despite the Lefts’ partisan attacks against the former American Enterprise Institute scholar provides hope conservatives will maintain a united front in tackling drug pricing legislation.

The official vote also highlights a potential movement from the populist sphere to the free-market right. After all, when Trump nominated Gottlieb, Gottlieb was a known quantity: he had written more than 300 articles on FDA and pharmaceutical policy and unwaveringly supports market-based reforms. In fact, Gottlieb had criticized Trump’s populist appeal to importing drugs from Canada.

Promising Movement on a Bill to Accelerate Generic Drugs

A final promising tidbit came from the Senate Committee on Health two days later when it voted 22-2 to move the Drug Fee Reauthorization Act to the Senate floor. Of significance? It included an amendment designed to increase competition by accelerating the approval of generic drugs.

Among other things, the amendment, introduced by Sen. Susan Collins (R-Maine), would establish a 240-day priority review period for generic drugs that lack adequate competition. The amendment would also provide an accelerated-review process for generic drugs: applicants may request an expedited review and meetings with the FDA, as well as receiving timely advice and communications from the FDA to ensure data collected is sufficient to support approval.

These features would increase competition, something Gottlieb has explained is necessary to lower drug prices: “One FDA study estimated that consumers pay 94% of the branded drug’s price for a generic if there is only one generic entrant. But the price falls to about 40% if there are four competitors, and 20% when there are eight.”

But, as Gottlieb noted in another article, the FDA has a huge backlog of generic-drug applications and “[o]n average, it takes about 50 months for the FDA to approve a single generic application.” If passed by Congress, the Fees Act would provide Gottlieb’s FDA with the impetus necessary to address this backlog—a first step in addressing the high cost of prescription drugs.

Another huge driver behind the price of drugs stems from the government’s failure to properly regulate what Gottlieb calls “complex generics.” Complex generics, broadly defined, are drugs “for which it’s particularly hard to establish therapeutic equivalence,” because of their “mode of action” or the “delivery mechanism.” The Epi-Pen provides a perennial example. It’s a simple, very old drug (epinephrine) delivered via a complex mechanism. Drugs delivered with inhalers or controlled-release patches also fit this category.

Unfortunately, as Gottlieb has stressed, “the generic drug law, which was crafted more than 30 years ago, didn’t contemplate these ‘complex’ drugs, and so it doesn’t provide for an efficient and predictable path for enabling generic entrants…” The result: “It can be especially hard to develop generic alternatives.” And without competition, prices remain high.

Now What We Need Is Less Speculation and More Action

However, with the passage of the Twenty-first Century Cures Act in December 2016, the FDA, under Gottlieb’s lead, now has more flexibility to consider alternative study designs and evidence of safety and efficacy. This flexibility should address some of the challenges wrought by the nature of complex generics.

The amendment added last week to the pending Drug Fee Reauthorization Act would provide the FDA additional tools to review generics for complex drugs by directing the agency to, “in the case of a complex product, including drug-device combinations, involving senior managers and experienced review staff, as appropriate, in a collaborative, cross-disciplinary review.” This reform, if approved by the full Congress, will be an additional market-based attack on high drug prices.

The upcoming weeks will be telling. While Gottlieb will surely push pro-competitive policies at the FDA, how aggressively and how soon are unknown. The fate of the Drug Fee Reauthorization Act is also unclear; although Alexander succeeded in keeping the more controversial amendments at bay to ensure passage before the August recess, just yesterday news broke that the Trump administration wants to renegotiate the user fees contained in the bill. Whether this recent development will up-end the legislation is unclear.

Also unknown is whether the market-based reforms being floated behind closed doors will be translated into an economically sound proposal to address the cost of prescription drugs. For the sake of patients—both today’s and tomorrow’s—I hope so.

Disclosures: As the mother of a young son with cystic fibrosis, Cleveland has a vested interest in the continued development of drugs to treat and eventually cure this disease. Her family’s 401(k) and retirement savings include diverse holdings, including mutual funds in both the health care and pharmaceutical sectors; it also includes immaterial investments in several individual biotech stock, including Vertex.

Margot Cleveland is a senior contributor to The Federalist. Cleveland is a lawyer and a graduate of the Notre Dame Law School as well as a former full-time faculty member and current adjunct professor for the college of business at the University of Notre Dame.

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