3 changes coming to drug pricing

Pounded by both sides of the political aisle, pharmaceutical companies know what it feels like to be whipsawed by opposite ends of the American reimbursement system.

Two weeks after the November election, President Trump announced a new model for federal drug pricing that was supposed to begin in January. Shortly after taking office, though, President Biden halted, if not canceled, many of those changes for at least a year. 

Though some pharma companies saw the Biden blockage as a cause for celebration — a kind of stay of execution — I believe some form of policy change regarding drug pricing is inevitable. Pharma companies should not use the legislative delay as justification to avoid what is sure to come. This breather should be used to take a step back and really consider: Where is the U.S. healthcare system headed for pharmaceutical pricing? What is likely to be done?

The time is right for new thinking. Thanks to the development of Covid-19 vaccines in record time, pharma’s image among consumers — and the political leaders representing them — has earned a well-deserved boost. 

No matter if Democrats or Republicans are running the show in Washington, here are three solid bets for pharma companies to plan for in the changing drug-pricing landscape:

Ending some financial incentives

Current industry practice calls for many physicians to receive 6 percent of the price of a drug being prescribed. This means a doctor who prescribes a $100 drug gets $6, but a $200 drug sends $12 to the physician. Is it wise or affordable public policy for a doctor to have a personal financial incentive to prescribe a more expensive drug? There’s a good bet that the industry will switch to delivering a flat-fee payment, instead of a percentage, for drug prescriptions. 

Request for transparency, even if non-informative

Long-time industry practices have shrouded true pharma prices under a veil of mystery: Just consider the confusion around undisclosed prescription drug rebates when they are combined with middleman pharmacy benefit managers (PBMs), and provider purchasing contracts with non-disclosure clauses. It’s safe to expect regulators to shine a brighter spotlight on the drug pricing process, now that price transparency requirements for hospitals took effect this year and similar rules are coming for health plans in 2022. 

At the same time, there is a push for greater transparency across vertically integrated payers and specialty pharmacy companies. Also, the Department of Defense and Veterans Affairs pharmacy benefit programs are currently under congressional mandate to disclose pricing. 

For the most part, transparency that reduces the patient cost share is welcomed. (though beware rising premiums). However, state-based transparency laws are administratively burdensome, with limited evidence of their impact on consumer choice. Pharma should prepare for an era where more outsiders will demand “transparency” — and ready themselves to define what that really means.

A focus on value

The public debate on value will not slow down and fee-for-value contracts are on the rise among provider, payer, and retail health disruptors. However, the challenge of defining value, to whom, and what point in time remains elusive when it comes to clinical therapies. While the Institute for Clinical and Economic Review (ICER) continues to elevate public discourse on value, this has not had a significant impact on pharmaceutical pricing. Pharma should ensure they are out in front of the debate on “value”.

With Medicare for seniors, Medicaid for the needy, and more than 200 private managed care organizations, medical care in the United States is complex and decentralized. Unlike Europe, the U.S. has no singular decision makers for drug pricing, which means pharma must watch out for new trends and demands from an array of directions. 

Pharma is not an easy business. There just aren’t many other industries that typically require over a decade of R&D, $1.5 billion in research costs, and a tangled web of government approvals just to bring a new product to market. 

Because so many assumptions are built into the economic model of drug development, pharma needs to remain nimble on price reform to ensure recoupment of investment and funding of future innovation. 

The Biden Administration’s pause on implementing new federal drug policies is not a time to be wasted. Pharma should be realistic about where regulation seems to be headed and draw up the plans now to prevent dire surprises. 

Photo: gerenme, Getty Images

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