MedCity Influencers, Opinion

Innovation, not price controls, will ensure patients’ ongoing access to life-saving medicines

To reduce drug prices, we should focus on the complex drug channel arrangements that stand between manufacturers and patients and not as much on price controls.

As we transition to a new presidential administration in 2021, the high and rising costs of U.S. drug prices will remain a topic of intense concern, both for everyday Americans — the majority of whom report making financial sacrifices in order to afford their medications — and for lawmakers on either side of the aisle.

With the Biden administration now setting the agenda, we can expect some changes in the regulatory landscape. But the focus on drug prices will likely remain the same. And likely so will the attempts to lower drug prices via external price controls.

I suggest an alternate approach.

Instead of introducing more obstacles that could slow innovation, we should focus on the complex drug channel arrangements that stand between manufacturers and patients. These intermediaries, such as wholesalers, pharmacy benefits managers and third-party administrators, have been taking an increasingly large cut for themselves while failing to add an equivalent amount of value to the system. This toll-taking is encouraged by a byzantine and opaque system of drug discount programs that obscures the flow of funds and the true costs of drugs.

There is plenty of extra cash in the system. It’s simply going to middlemen and toll-takers who didn’t invent the drugs they distribute, and aren’t planning to reinvest their revenues into inventing new ones. This is the area of the industry that is least efficient and most ripe for innovation.

Fortunately, such inefficiency is a problem that can be solved.

In some sectors of the industry, free-market innovators are already solving it. Look at companies like CoverMyMeds, which helps patients get their prescribed medicines sooner by connecting doctors, pharmacies and payers to speed up the prior authorization process. Or Surescripts, which made e-prescribing an easy, efficient, everyday thing.

Both of these companies are multi-sided platforms, a technologically adept way to add value and efficiency. By directly connecting manufacturers, payers, providers and patients, and enabling engagement between them, platforms also tend to bring transparency to the system. When everyone is connected to the center, it’s harder to hide.

Over the past decade, spurred by the understanding that the way we currently approach healthcare isn’t working, venture capital has been flowing into healthcare startups at unprecedented rates. In 2019, U.S. healthcare start-ups raised a record-breaking $10+ billion in venture funding. Innovative companies that use technology to bring greater transparency to the industry were some of the biggest winners.

The bottom line is that, in a free market, technology can and will replace the toll-takers by finding ways to provide the same value at a fraction of the cost. And in the long run, these free-market solutions will reduce the costs for patients while ensuring that U.S. drug discovery and development remain competitive and the new drug pipeline stays active.

But that is not the direction in which the bipartisan consensus has been moving. Instead, the Trump administration recently chose to move toward external pricing controls. On Nov. 20, the Centers for Medicare & Medicaid Services announced a new payment model using the Most Favored Nation (MFN) Model, under which Medicare will pay no more for a list of 50 high-price drugs than their lowest price in comparable countries.

Likewise, the incoming Biden administration has signaled its intent to extend that approach. His platform includes plans to lower drug costs by limiting launch prices for drugs without competition and capping price increases at the rate of inflation.

Such an approach overlooks the exorbitant costs of discovering and developing promising new medicines, shepherding them through many phases of testing, gaining FDA approval, and finally, bringing the drug to market. This undertaking is challenging enough for an emerging manufacturer as it is, without the prospect of a cap on potential revenue. In my own work in the industry, I’ve seen early-stage pharmaceutical companies spend hundreds of millions in an attempt to bring a promising drug therapy to market, but encounter obstacles with FDA approval in the weeks before launch, forcing them to shut down innovation pipelines and lay off entire teams. While drug costs are high, so are the costs — and the risks — of innovation and investment.

No doubt, there are some drug manufacturers that have placed an excessive emphasis on profits, potentially at the expense of patient access. These instances are emotionally compelling, but they don’t demonstrate the state of the industry as a whole. It would be a mistake to impose a blanket strategy of price controls based on the egregious behavior of a few actors.

In 2020, we watched as pharmaceutical companies around the world raced toward a vaccine for Covid-19, pouring every available resource  — which albeit included phenomenal financial support by the federal government —into an unprecedented push for innovation that is bound to save lives. So far, that incredible effort appears to be proving successful, for the good of us all.

We don’t know what 2021 holds. We do know that the next pandemic could strike at any time, and that with an aging population and the effects of climate change, the health challenges of the future will be considerable. Lawmakers should ensure that the drug manufacturers who drive discovery and tackle these challenges will be fully equipped to handle them all.

Photo: Devrimb, Getty Images,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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Jeremy Docken

Jeremy Docken is the founder and CEO of Kalderos.


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