Deep Dive Episode 313 - Medicare's New Drug Price Mandate: Healthcare & Innovation Implications

On January 17, the Biden-Harris Administration added 15 new drugs, including Ozempic, to the list of drugs covered by the Medicare Drug Price Negotiation Program of the Inflation Reduction Act (IRA). Now there are a total of 25 drugs that are covered by the IRA’s requirement that the Department of Health and Human Services (HHS) pays only a “fair price” for selected drugs covered by Medicare Part D. The new prices are set to take effect on January 1, 2027. What implications does this have for patients and for drug research and development?
Join the discussion on the 'fair price' mandate and its impact on pharmaceutical innovation.
Featuring:
Lisa Ouellette, Deane F. Johnson Professor of Law at Stanford Law School
Dan Troy, Managing Director at the Berkeley Research Group
Brad Watts, Senior Vice President at the Global Innovation Policy Center, U.S. Chamber of Commerce
[Moderator] Adam Mossoff, Professor of Law at Antonin Scalia Law School, George Mason University

Episode Transcript

Speaker 1 (00:00):
Regulation after regulation.

Speaker 2 (00:02):
There are all padated regulations that need to be.

Speaker 3 (00:04):
Changed one hundred and eighty five thousand pages.

Speaker 4 (00:08):
Now public accountability and transparency. There will be no public supports.

Speaker 5 (00:13):
It's really the best we can do.

Speaker 6 (00:14):
There's a regulation that doesn't make any sense.

Speaker 7 (00:16):
Why do you keep you.

Speaker 6 (00:17):
Know who wrote the regulatory laws you must comply with.

Speaker 2 (00:20):
Welcome to the Regulatory Transparency Project's fourth Branch podcast series.
All expressions of opinion are those of the speaker.

Speaker 4 (00:33):
Good afternoon, and welcome to today's Regulatory Transparency Project. What
are titled Medicare's new Drug Price Mandate, Healthcare and Innovation implications.
You are so glad that you are able to join
us today. My name is Sarah Clark. I am the
assistant director of the Federalist Society's Regulatory Transparency Project. As

(00:55):
a reminder, all opinions are expressed of those of the
speakers the Federalist Society. We are honored to be joined
by a fantastic panel of legal experts. In order to
get right to discussion, I will leave individual introductions to
our moderator. After the panel discussion, there will be a
short period designated for audience questions. We ask you to

(01:19):
submit them via Zoom's Q and a feature not the chat,
and that the questions are pertinent to the topic at hand.
Our moderator today is Adam Mossov, who is a professor
of law at the Antonin Scalia Law School at George
Mason University. He has published extensively on wy patents, copyrights,

(01:39):
and other intellectual property rights have been and should be
legally secure to innovators and creators as property rights. His
scholarship has been relied on by the United States Supreme Court,
by lower federal courts, and by US federal agencies. He
has been invited to testify numerous times before the US

(02:01):
Sunday and the House of Representatives on intellectual property legislation.
You can find out more about today's moderator and panelists
of fedsoft dot org. Full bio intros can also be
found by clicking on the resources tab on the Zoom
call screen. With that and we'll hand things off to
Professor Massa to get us started. Professor Massa, thank you

(02:25):
for joining us today.

Speaker 3 (02:27):
Right well, thank you, Sarah. It's a real pleasure to
be here, and as Sarah indicated, we are just blessed
to have a fantastic panel of a very thoughtful, scholarly
and highly respected panelists to talk about this incredibly important
issue at the intersection of kind of patent law, healthcare policy,

(02:47):
and innovation policy. More broadly, so, the topic of our
discussion today is, of course, the Medicare's new drug price mandate.
This mandate was implemented in the Inflation Reduction Act, so
a bill for which former Director Andre Youank who has
said is one of the most significant pieces of patent

(03:08):
legislation the Congress is probably enacted in the last several
decades of which the word patent is never found once
in the entire And why did he say that, Well,
because the Inflation Reduction Act contains a provision that mandates
that a quote maximum fair price end quote shall only
be paid by the Center for Medicare and Medicaid Services.

(03:31):
It goes by the acronym CMS in the Department of
Health and Human Services, from a list of the top
one hundred highest cost or highest priced drugs that Medicare
pays for. So effectively, the CMS, the Center for Medicare

(03:53):
and Medical Medicaid Services, will be composing effectively the price
controls by dictating the price that drug UH companies can
charge for their drugs as opposed to what was originally
has and has been up until now negotiation between Medicare
and Medicaid UH the inflation reduction refers to this as
a negotiation, but it is. But you know, one could

(04:15):
argue whether this is a negotiation of the sort of
which one engages in in in the marketplace, or if
this is a negotiation of the type of which one UH,
of which was described in The Godfather, where an offer
is made of which cannot be the which cannot be
turned down and UH and to emphasize this point, you

(04:36):
know that you know it is a that you know,
it's not a traditional negotiation in that sense and which
described in the in the in the in the legislation,
even though they use that term. So when CMS offers
this price to the drug companies, they have three options.
They can't accept it whatever that price may be as

(04:57):
determined by CMS. The law does not tell CMS how
it's to determine this price, so it's left free to
make the decision as to what it thinks is a
fair price. As the law is the term that the
law uses. The drug company can say no, we don't
want to pay that price. Then the law imposes an
excise tax on the on the drug company of on

(05:21):
the total revenues received from that drug. The law states
that it applies to sales, and so it's not limited
just the excise tax to sales to Medicare. It's just
all says sales, and that would be construed as all
sales because there's no limitation on it in the statute,
and that excise tax can can range up to as

(05:44):
much as one thousand, nine hundred percent of the total
revenues received from the drug. So that makes it very
clear that this is an offer that the drug company
can't refuse. When CMS makes their offer, the third option
is is that they can say no and remove all
their drugs from Medicare and Medicaid. Now that's a problematic

(06:07):
for lots of reasons, and one of the in which
we'll beginning into. But one of those reasons is that
approximately forty percent of all drugs now purchased in the
United States and healthcare are purchased through CMS, and so
you would be effectively, you know, being removed from almost
one half of the of the drug market as a
drug company. Excuse me, so as you can see this

(06:32):
is a very significant piece of legislation that imposes effectively
great regulations as lawyers call them, or price controls as
normally would be called, on the prices that can be
charged by drug innovators for their new drugs. They're slowly
adding more drugs. So the first there were first ten

(06:53):
drugs were added in twenty twenty six, shortly before the
Bide administration concluded its term in January. Per the statute,
it added another fifteen drugs to the list. And they
will and they will add successfully more and more drugs
for the next two years up until by the point
of twenty twenty nine there will be at least fifty
five drugs that will fall within the scope of a

(07:14):
maximum fair price mandate, and arguably more will be added
in the ensuing years. There are significant there's significant amount
of litigation over this law. Now there are probably about
eleven pending cases and various courts around the country making
a slew of statutory and constitutional arguments statutory under the

(07:37):
Administrative Procedures Act and on constitutional claims from takings to
excessive fines to do process and things of this sort.
So I wanted to give the overview before so that
our panelists didn't have to worry about kind of laying
some groundwork so they can just jump in and provide
their insights as the scholars and thought leaders that they are.

(07:59):
And I want uh and so I want now to
turn it over to them, and they're going to run
it from here on. So you're gonna barely hear me
as you as you shouldn't want to hear any more
from me, And I am a firm believer, and you
want to hear more from them and not from me.
So I appreciated that Sarah gave all my accolades and everything,
but I'm just going to give name, rank and serial number,
and if you want to find out more about them,

(08:20):
embrace this awesome online service we have Google them use
chat GPT, although be careful they might it might be hallucinating,
but but you know, you can finally find all of
their many many accolades and professional achievements that they have
that they rightly have earned in their in their in
their excellent careers. So in order of just kind of

(08:42):
kicking off our discussion, we won't, we have Lisa Willette
from who is the Dean F. Johnson Professor of lot
Stanford Law School. And then following her will be Brad Watts,
who is Senior Vice President at the Global Innovation Policy
Center at the US Chamber of Commerce. And the last,
but certain not least, then we'll have Dan Troy, who's
managing director at the Birth Birthday Research Group. So let's

(09:06):
let's let's get in. So let's have some fun now
for the next fifteen minutes. So so, Lisa, so, what
are some of the legal and economic issues underlying the
adoption of the most of the maximum fair price provision
in the IRA for the drugs that are being purchased
by CMS.

Speaker 7 (09:25):
Sure, so, thank thanks for inviting me to chat about this.
I've spent more time thinking about the economic issues than
the legal issues. So on. On the legal issues, I'll
just say that to my knowledge, every district court and
the want to tell at court that have reached the
merits so far have rejected the challenges, and I'll tell
the program. I'm sure we'll chat more about that later.
But to me, the more interesting questions are the questions

(09:45):
of innovation economics and the merits of this new program
from a policy perspective. Uh, and my thoughts on it
are more nuanced than just like pro or anti and
I think if you little kind of step back to
first principles from kind of innovation economics one oh one, Like,
I think the goal of drug pricing policy from an
innovation perspective shouldn't be low prices per se. I think

(10:08):
the goal should be to design policies such that society,
including public and private investments, invests in innovation up to
the point where the marginal costs equals the expected marginal
social benefit of those investments in terms of saving lives
and improving health. And given the current innovation ecosystem like,
one of the most important policies affecting this calculus is

(10:29):
the expost reward that a firm gets for bringing a
new drug to market. And these incentives matter. Even though
the evidence based on patents generally is surprisingly weak, there
is good evidence that increasing the returns to patented pharmaceutical
products increases R and D effort on things that are
more profitable. And the expost reward that firms expect that

(10:50):
depends on factors, including the length of as exclusivity period
and the price that can receive during that period. And
so that's why the design of medicare price negotiation matters
for innovation. So I think we have an innovation policy
problem when the reward for producing a new drug is
misaligned from the value that drug provides compared to existing

(11:11):
products and the currently with errors in both directions, like
there are sometimes when the reward is too high, causing
firms to invest in things that extend exclusivity and profits
with little demonstrated added value for patients. And there are
also areas where the reward is too low compared to
social value, meaning that we as a society are missing
out on drugs and vaccines that would likely otherwise exist.

(11:34):
And that latter problem they're like too low problem. I
think that is harder to measure. It gets less attention.
But there is some good ectorical evidence of that, including
a study documenting under investment and treatments for the early
stage cancer due to their long clinical trials and short
exclusivity periods. And I think we should care about that
if we want to be improving lives and improving access

(11:55):
to medicines, that we want those medicines to exist in
the first place, So medicare drug negotiation. This is one
of many recent efforts to deal with the too high problem.
Since before this, Medicare had very little ability to oppose
any kind of market discipline on prices. I don't think
with great evidence yet on how well it's doing that.
I think it is good from my perspective that both

(12:16):
the statute and cms's guidance require consideration of a drugs
comparative effectiveness when setting these prices, which will hopefully limit
the effect to which CMS error is too far toward
reducing prices of drugs that do have evidence of added value.
This program doesn't do much to deal with the too
low problem, which has gotten less policy attention. I've argued

(12:39):
in separate work that government payers like Medicare should in
some cases be authorized to offer much higher reimbursements than
they currently do for highly effective drugs and vaccines in
areas where prices are currently too low to spur developments,
and in wish that this problem, the potentially life stating
medications that we're missing out on due to design of

(13:00):
the current system, got as much attention as the issues
related to the prices of medicines that already exist. I
think I'll stop there for my initial thoughts and but
happy to jump back in with more.

Speaker 3 (13:11):
Yeah, that was great. Thank you, Thank you for that.
Overview was fantastic, fantastic and and and uh continuing kind
of our overview opening comments, So, Brad, what are you
know some of the kind of the can you give
kind of the high level you know, legal and policy
issues and concerns with the with the maximum fair price mandate?

Speaker 5 (13:31):
Yeah?

Speaker 1 (13:31):
Absolutely, I mean, first I want to start out by saying,
you know, I I agree with you know, Lisa's the
second half of what Lisa was saying about the two
low problem, right.

Speaker 5 (13:41):
I think many of the innovated companies I.

Speaker 1 (13:43):
Get to work with would probably share that assessment that
there are some fundamental dynamics at play that that do
make it difficult to invest in some of these early
stage treatments, some of these orphan diseases. And that is
a real problem, right. And there are I think a
ton of different people on the hill and then policy

(14:03):
you know, positions thinking about that issue. But I do
think it's a critical one, right because there are a
lot of patient needs that are being at because fundamentally, right,
the company can't recoup what they're spending on R and
D for trying to treat.

Speaker 5 (14:16):
This disease state.

Speaker 1 (14:17):
And so I'm actually really glad you brought that up,
because I do think it's an important consideration that often
gets lost in this broader debate around innovation, price controls,
patent terms, et cetera. You know, in terms of the
policy issues at play, you know, as you noted Adam
there at the start of the call, there's ten, I
think lawsuits that are currently ongoing against the IRA at

(14:39):
various stages. Some are still at the district court, some
are on appeal, some are I think appealing questions fundamentalist standing.
So there's all sorts of different stages of the litigation.
You know, broadly, if I had to categorize where the
lawsuits stand, and I think you noted this as well
out and it's probably three buckets one or just kind

(15:00):
of challenges around implementation, So I think administrative procedure issues.
You know, is CMS going about this kind of in
a black box? You know, the statute itself is pretty
vague and ambiguous as to how CMS should go through
this whole process. CMS and some of their guidance has
been pretty vague and ambiguous and candidly less than transparent

(15:20):
around how they're doing some of these things. So a
number of challenges are focused on that piece. Some challenges
are focused on the constitutionality of the issue, particularly when
you start talking about price. I know one company that
is challenging the IRA, you know, has made the point
in their litigation that if you apply these penalties to
the extreme, it would be our entire global revenue in

(15:42):
a single year. You know, So you essentially have a
really big issue with a takings problem, you know, when
you're talking about confiscating a company's entire global revenue or
not agreeing to a negotiated price.

Speaker 5 (15:55):
And then the third.

Speaker 1 (15:56):
Bucket I mean, and this is I think in conjunction
with the other two argument. It's almost every single I
think piece of litigation is making the innovation argument. Right,
what are the long term impacts this policy is going
to have on the proper system?

Speaker 7 (16:09):
You know?

Speaker 1 (16:09):
Again, these are all various stages of play. I can't
imagine if these lawsuits are going away in time soon.
But obviously policy making doesn't happen in a vacuum, right,
There are plenty of efforts underway to look at this
broader statutory scheme and what the right policies are is
for innovation, separating from any ot on litigation. Hopefully that's

(16:31):
a good high level summary.

Speaker 5 (16:33):
Yeah, it's excellent, thank you.

Speaker 3 (16:34):
And then and then Dan uh coming in to kind
of complete our overall framing is kind of so what
are the economics of drug R and D and what
does this kind of tell us about the potential economic
facts of the maximum fair price mandate in the i RA.

Speaker 6 (16:52):
Okay, so I should just give a couple of disclaimers.
One is, I'm not an economist. I testify in pharmaceutical
as an expert witness, and my views are my own,
not just not the views of the Federal society. One
legal point and then a few economic points. The legal
point that I'm not sure we've hit home adequately, although

(17:14):
I agree with everything that's been said so far, is
that the statute itself does not provide a right of
appeal for anything. There is no right of judicial review
about the drugs that are selected, the process that is used,
or of the prices themselves. Now that I think is
pretty unusual in rate setting or price controls, because normally
there's kind of some some do process taking fundament which

(17:37):
enables you to say that these rates are just and reasonable.
For example, in the Federal Energy regulatory commission context. Normally
you have some right to go and have someone else
determined whether or not CMS, which is in this case
the judge, jury, and executioner, the beneficiary and the deciderer
that there can be some independent check and there is

(18:00):
no check here, and I think that that's what puts
this in a very different constitutional box. But I'm not
going to talk about the constitutional issues. You know, we
throw around, and I totally agree with on both the
too high and the too low, but it's just it's
worth putting in perspective that when we talk about drug
prices in America, nine percent of our total health care

(18:21):
spend is on medicines, okay, and ninety percent of all
prescriptions are generic drugs, and of course no generic drug
willuld exist if not for brand name drugs. So if
we want new drugs like the brand new Gilead two
times a year shot which prevents people from getting HIV,

(18:45):
and as someone who worked on Broadway in the late
eighties and saw what a devastating disease that was, the
fact that it is now preventable and treatable is a miracle,
and we should you know, when we think about pharma company,
we should think about, you know, the unbelievable good that
has been done just in that arena, or a cure

(19:07):
for HEPC ostensibly considered an expensive treatment when it was
initially priced at eighty four thousand dollars, but it saves
people from a liver transplant, which is more than ten
times that, never mind the incredible misery associated with that.
So if we want new drugs like those, we want
cancer treatments, and yes there's certainly treatments that there aren't

(19:32):
adequate incentives for, then we need to offer a competitive return.
And I say this as having been the general counsel
of glaxosmith Clein, having been in the room when the
board and the senior executive team decided how much money
we were going to spend on R and D. Okay,
And the bottom line is, if there's not going to
be an adequate return the investors, the people who own

(19:55):
the company, the board, we'll say, either give us the
money back in dividend or give it back to us
to a share buyback. But don't spend the money on
R and D unless you're going to get an adequate return. Now,
the famous Tufts numbers that a new drug costs two
point six billion dollars on average. In twenty seventeen, there

(20:15):
was an article in Forbes that said that for entities
that produce more than six drugs over ten years, which
is to say, basically big pharma, the median cost of
bringing a medicine to market is six billion dollars. Now,
that does include normally the risks of failures, but more
than nine and ton ten drug candidates fail, and if

(20:35):
you're not going to you know, compensate people for the failures,
then the entire business model doesn't work. So so now
let's talk about what the returns are. Deloitte puts out
a report every year on the internal rate of return,
and you know, some people think that they're these super
competitive returns and farmers making so much money. Well, in

(20:58):
twenty twenty three, the internal rate of return earn was
four point three percent, not exactly a windfall. In twenty
twenty four went up a bit to five point nine percent,
in twenty twenty two was one point two percent. These
are not the kinds of returns that you know, enable
governments to come along and say we're just gonna you know,

(21:20):
dictate exactly what price we're going to pay for your
drug and that it will have then no effect on innovation.
We already know that the there's a what's called a
pill penalty in the Medicare sham negotiation bill. I won't
call it a negotiations. There's a gun to the head.

(21:41):
The pill penalty is if you for a small molecule,
you get nine years of exclusivity. For a biologic you
get thirteen years. And biologics actually are you know, they're great, great, great,
great innovations, but on balance, I'd rather take a pill
than a shot, right or have an infusion. And yet
many companies have talked about the fact that they are
just stopping their programs for small molecule drugs because nine

(22:04):
years is really not necessarily enough for them to make
back their investment. And we already know that this is
skewing in set investment. And there have been estimates by
people like Thomas Phillipson and others that estimate that the
number of drugs that will not be developed because of
the dreat that this new Medicare program is well over

(22:27):
one hundred. Now you know, it's the dog that didn't bark.
We don't know what medicines we don't get well if
you're a patient and you're waiting for a cure, then
you are very well aware of the medicines that are
not going to be developed. Last point, last point is
there there was a study done that showed that in
the it was in the the EU markets, and it's

(22:50):
found the consequences of a ten percent drop in medicines
in UH in price, a ten percent drop in medicine
prices in ice controlled EU markets where of course they
do price control, and yes, America subsidizes the rest of
the world. We could talk about that, there's no doubt
about it. But it led to a fourteen percent less

(23:12):
venture capital funding, a nine percent decrease in biotech startup
funding relative to the US, seven percent fewer biotech patents
see at least getting the word patents in here, and
an eight percent increase in the delay in access to medicines.
And so you know, we are literally killing the goose
that has you know, that is that is that is

(23:34):
laying the golden eggs. That is not to say that
the pharmaceutical industry is perfect. It's far from perfect. There
are lots of you know, places where you know, we're
probably overpaying for certain innovations and underpaying for other things.
But it's a driver of our health and as a
driver of our wealth as a society, the biopharmaceutical sector

(23:59):
should be the most esteemed and not the least esteemed.
And this policy is absolutely catastrophic.

Speaker 1 (24:08):
Can I just add two? I mean, if that's okay,
then I mean, thank you. Those are all really helpful stats.
I've seen a lot of them, some I have not heard,
so that it's really justus educational for me too. But
the only thing else flag is you know, this is
not all anecdotal, right, Plenty of companies have said publicly
that they were either reducing R and D spending into
certain disease states or abandoning certain medicines that we're in

(24:31):
development entirely somewhat of a document that tracks all of that.
So I just point out that, you know, I think
Lisa's point earlier is right. I mean, we're only three
years into the program, so we probably don't have a
ton of data yet, but we are seeing plenty of
innovative companies already signaling to the market. This is where

(24:51):
we no longer find a value based investment, you know,
given our winded at R and D dollars and yeah,
I think what may call t difficult rights again, and
you brought it home to the patient perspective. If you're
a patient hearing that, not only is that demoralizing, but
you then ask yourself where is that potential.

Speaker 7 (25:10):
Fear coming from. I agree with with all. I mean,
I think there's a lot we all agree on, and
I think we agree that innovation matters and that the
IRA will affect innovation. I think given the empirical uncertainties here,
there are different estimates on just how much, and the
estimates are usually in terms of just like trying to
estimate the number of drugs, although ultimately it's not like

(25:30):
counting the number of drugs isn't really the relevant metric,
Like what it matters which drugs we're going to be
losing out on and how much value they would have.
And I think that we don't have the data like
if this is implemented in a way that it's really
the drugs that have the least added value for patients
that are negotiated down like where there's the biggest wedge
between private and social value, then that's less of a

(25:52):
policy problem from a social wealth or respective. I mean,
it can be devastating for the pharmaceuical companies they used
to be getting those profits. But from a like social perspective,
that's less of a problem than if this causes a
loss of innovation the things that have the biggest out
of value for patients. Right.

Speaker 6 (26:10):
But you're right, but we wouldn't as I mean, there's
no reason to think that the only drugs that are
being targeted are the ones that you described in that
first category as the ones that are providing the least
marginal benefit.

Speaker 7 (26:23):
Right.

Speaker 6 (26:24):
I mean that's because that's not the criteria that CMS
is applying. They're just looking at, you know, how big
is the medicare spend, which by the way, means it's
an often prescribed drug, which probably means it's more valuable
rather than less valuable. That's an oversliplification. You know, there
may be other medicines in there that's that's not true
of But you know, what we're doing is going after

(26:46):
the most successful medicines, which yes, obviously make the most
money in some senses, but also are presumably the ones
that are having you know, the biggest impact at least
in one way or another.

Speaker 7 (26:58):
I'll just but just to say, like we do at
least in the statute of their guidance, they CMS is
required to consider the drugs comparative effectiveness compared to other
products when they're setting the price, and I don't think
we have great evidence on how well they're doing that.
I mean, I do agree with I think this was
Brad's point that it would be useful there were more

(27:19):
transparency and what CMS is doing and what factors they
will consider to select drugs and set prices, which is
important for influencing development. But like the more that they
can do to being considered that added social like added
value in terms of extending lives and improving health compared
to the existing standard of care, then the better. From

(27:40):
an innovation policy perspective.

Speaker 5 (27:42):
Is just kind of the other.

Speaker 6 (27:43):
Thing I think we can all agree on is that
there's there's a provision which says if you go after
the second indication, right then then then all of a sudden,
the drug if it's an orphan drug and there's a
second indication that it's into the program and other than
that it's not in the program, and that is a
clear disincentive for investment. Right, Why would I spend a

(28:04):
penny on looking for a second indication and a second
use of that medicine if A it can be used
off label anyway, and B the minute I do that
research and get a second indication, it gets swept up
in the price controls, whereas before that it's exempt for
the price controls.

Speaker 1 (28:22):
Kind of three points I'll make. And first, I mean,
I think everyone I've seen, even groups that may aggressively
push for price controls, seem to agree the lack of
transparency and understanding of how this process works is an issue.
Right to your point, at least some more broadway about
innovation policy. It's hard to even sometimes have this debate

(28:42):
because a lot of this is just in a black box.
We really don't know how a lot of these decisions
are being made to different metrics, And so I think
all of us, no matter where we stand on these issues,
could benefit right from just more transparency as to how
the program actually operates. The second point in Fan correct
me I'm wrong, but I believe at least for the

(29:02):
first round of medicines that were selected for negotiation, it
was price wasn't even a major factor in terms of
what the price was when the medicine was selected. It
seemed like they just went down the list and picked
the ten most popular medicine.

Speaker 6 (29:16):
In medica the spend.

Speaker 1 (29:18):
It was the spend not correct, I mean, which to
me also strikes me as just again whether you're agree
with the policy or not fundamentally a odds with the
purpose of the statute. But then, third, and finally, this
is more of a bigger philosophical point of me as
we talk about value based medicine. I mean, I guess
the question I have is who determines the value right,
Because if you're a patient waiting for a medicine, it

(29:38):
may only be marginally effective for the vast majority of
the population, But if it's affective for you, I think
you would say that has a lot of value. And
so to me, this comes back into is just a
personal opinion philosophically to kind of a first principle, do
we want the government deciding what is of value to
society as a whole from a medical perspective? And that
just gives me a bit of qualm. But you know,

(29:59):
I just point all three of those out.

Speaker 6 (30:01):
Further, I think Leasa's article that addresses that a bit.

Speaker 7 (30:05):
Yeah, I mean, I think we do to the extent
we as a society and decided we are like that
people should have access to these, like if we are
going to require coverage and and like it, with all
the potential problems and conservas that have been raised about
Medicare price negotiations, that we should recognize that it's not

(30:25):
like the prior system was great there and nor is
it I think fair to really describe the prior system
as like a functioning market, because there was very little
ability for Medicare payers to control prices in any way.
I mean through Medicare Part D, which we've mostly been
talking about, but also like Medicare Part B and Medicaid

(30:48):
the way they link government prices to private sector prices,
Like there's evidence about that distorting private markets in unhealthy ways,
and so there's like a lot of ways that the
government has already intervened in this market. It but like,
since we're in a world where I think like widely
held social value of providing medicines for Americans who need

(31:13):
them through programs like Medicaid, Like if we're going to
be right than I think you need the government also
making some assessment of what is it that we're providing
and is it like actually worthwhile and not just providing
anything that anyone one wants, even if there's no evidence
that it is actually useful. And there's like lots of

(31:33):
organizations that I mean, like in my the article you're
referring to, the Valuing Medical Innovation, I went through the
process that iicer this nonprofit organization uses to assess medicines values,
and I had some like critiques of some of the
things they do, but I think it is a legitimate

(31:53):
and thoughtful effort to try to figure out what the
value is for for patients. That I mean, it requires
some difficult ethical judgments about how to value different kinds
of health gains and then also how to quantify, like
how once you've converted a medicine to some metric like

(32:16):
qualities or e B l igs or any of those
metrics that are used for health technology assessment, you then
have to put a dollar value on that, which is
a different ethical judgment.

Speaker 3 (32:26):
But what's the title of your article again, I want
to make sure people can.

Speaker 7 (32:30):
Sure it's Valuing Medical Innovation co offered with Daniel Hammel.

Speaker 3 (32:34):
If people google Lisa will let Valuing Medical Innovation and
Type of Initials SSRN, you will find a downloadable pdf
for it open access. This is, by the way, it's
a fantastic discussion and I have to say it particularly
warms I heart to hear the discussion about transparency and
the need for transparency because this has been hosted for

(32:56):
officially by the Regulatory Transparency Project at the Federalists. So, uh,
it is a near and dear concern, uh that we
think that both sides of the Aisle can agree on
that there always should be transparency and how our government
functions at all levels, and a lot of really great
issues have been raised. I just want to remind the

(33:17):
audience if you have any questions, we'll we'll be very
happy to take them, so you feel free to post
them into the into the into the question box and
and then I'll read them to the audience. I'll read
them to the panelists, So feel free to do that
now if you wish. And then' and I'm just gonna
turn it back to our panelist. I'm just gonna throw
out another another question or two and then uh and

(33:37):
leave it to them to continue their great discussion.

Speaker 4 (33:39):
Uh.

Speaker 3 (33:40):
Which so you know there you uh Dan talked about
you know the fact that there's an international context to
this that you know that other countries are imposing price
controls and that and that, and in fact, President Trump
has actually suppliciedly said other countries are free riding off
of our off of our off of our system and
and uh and but also you know, Lisa and and

(34:04):
and Dan and Brad have also talked about how the
you know, the systems complex, and there's a lot of
other uh things that play in the system. It may
not be working perfectly, but you know, if there's a
lot of impact on it. I know that there's discussions
about the role of program benefit managers, these kind of
midstream people. There's some legislation has been prosed talking about them.
So you know, to the extent that there are concerns

(34:28):
about prices or in the desire within the context of
having something like Medicare and medicaid to lower drug prices
for particular communities within the United States. So what other
policy tools do we have potentially or what are the
things that we should our system account for in considering
these types of issues or concerns for patients in our

(34:48):
healthcare system. And I kind of just throw that out
to the panel to suggest that maybe we uh, but
you know, we started with Lisa, and maybe we should
just continue with Lisa, uh, you know, kicking that off.

Speaker 7 (35:01):
Sure, I mean, there there's like lots of policy proposals
out there. I mean, most of the polity discussion has been
focused on the drug pricing issue and finding ways to
reduce drug prices out of the concern that those are
too high, and so in addition to Medicare drug price negotiation,
there's been discussion about like using the government's marchin rights

(35:24):
on patents that were developed with federal funding. As a
the government has a right to effectively issue compulsory licenses
on those in certain contexts, and so some people have
suggested using that. I've done some metirical work saying that, like,
I don't understand why this has got so much policy

(35:46):
attention from either side, because it would affect so few
actual drugs, because there's so few drugs that like only
have patents with federal funding. There's been discussion about using
a separate statute. It's twenty with the fourteen ide aids
that under which the government, like patent infringement by or

(36:06):
for the federal government can only be remedied by a
suit in the court of Federal Claims for damages, and
so some scholars and commentators have suggested the government use
that basically issue compulsory licenses. I have generic production of
high cost pharmaceuticals with remedy in the court of federal claims,

(36:26):
and that doesn't depend on whether the patents are have
federal funding or not. So like that approach could be used.
I don't think it's actually gotten much policy traction, but
there's a lot of scholarships on that. There's also scholarships
about the government playing a larger role in drug production itself,
like as a like directly procuring drugs, which the government

(36:52):
doesn't in some context, and I mean we saw that
in like in the COVID context, the government was kind
of directly buying and the drugs, which but I think
is also useful as an illustration of Sorry, this is
a side here, but I think an important one. But
like in these debates, when we talk about prices, people

(37:13):
use the word price in two different ways that I
think could use a lot of the debates, and there's
really two prices that are relevant. There's the price that's
received by the pharmaceutical manufacturer and there's the price that
paid by the patient. And those don't have to be
the same thing. So like COVID vaccines, the vaccine manufacturers
got paid a lot of money for those vaccines, but
the vaccines were free to all Americans who wanted them.

(37:36):
And so I think it's important in these policy discussions
that we recognize those can be delinked, and I think
should be because I think there's a strong normative case
for providing broad access to medicines and also providing a
strong reward to incentivize the most valuable innovation.

Speaker 1 (37:51):
I would just jump down on that last point. I
agree with you S one hundred percent, so awesome. The
debate about like this price versus the patient pays is
totally absent in some of these policy discussions and regards
to where you land on the policy issue. I do
think it distorts the debate around what the right policy
is because the reality is very few patients right pay

(38:15):
this price. That doesn't necessarily mean that they have their
own struggles getting access because of insurance or whatever else,
But the point being, I think when we lose sight
of that distinction, it conflates a lot of issues and
makes it much more difficult to point with precise policy
and what the writing through is.

Speaker 5 (38:32):
So I just really glad you brought that up. Very
good point.

Speaker 6 (38:35):
So I agree with that, but I think again, let's
remember ninety percent of all prescriptions written in the United
States are for generic drugs, and generic drugs are on
average about eighty five percent less expensive than brand name drugs.
Own by the way, generic drugs are less expensive in
the United States than they are in the EU and

(38:56):
in the UK. A couple of out the points. You know,
I totally agree with you, Lisa, about the need to
do cost benefit analyses if government is going to get
involved in things. But we had when I was at FDA,
there was a really interesting statistic that came up. We
surveyed patients on their risk people well, we surveyed people
on their risk tolerance who are not patients. The risk

(39:19):
talents was like one in one hundred thousand. It was really,
you know, very low risk tolerance. Then we surveyed patients
people who are sick, and the risk tolerance went up radically.
I mean it was like one in a hundred. Okay, fine,
if it will help me, then I'm willing to take
the risks. And so, you know, as we do cost

(39:40):
benefit analyzes, we we should also take into account the
way in which these medicines address the needs of people
who really do need them. To other quick points. You know,
I'm glad you raised the issue about. You know, there
is this misconcer about the margin rights and how few

(40:00):
drugs they apply to, because there's this misconception that NIH,
which evolved veneration for NIH, but that NAH somehow contributes
to all of the medicines that there are. That's just
not the case. I mean, the leading twenty companies in
spend on R and D in twenty twenty three, according
to this Deloitte report, was one hundred and forty five

(40:21):
billion dollars. That's three to five times the total NIH budget.
And not everything that NIH spends is on is on
is on medicines, very linimate is it on medicines. It's
really on basic science. And even when the NIH, you
know a few times that they've actually made, you know,
discovered a medicine, they have to hand it off to

(40:43):
a farmer company because it's the farmer companies that know
how to get drugs through the FDA process. NIH has
no idea how to do that. You know. We saw that,
you know when when one of the big mistakes that
was made in cod It was to try and have
the CDC do the tests rather than have the private
market do the tests that did not work out well

(41:05):
and had frankly catastrophic circumstances or consequences. The last point
I'll just make is, you know, I don't want to
get into deep into the issue of PBMs, but BRG
to study recently which showed that fifty percent of the
drug spend goes to the pharmaceutical manufacturers and the other
fifty percent goes to other players. So the people who

(41:27):
are actually discovering new medicines, making those medicines, manufacturing them safely,
and getting them to patients are only getting fifty cents
on the dollar of what we spend on medicines in
this country.

Speaker 1 (41:41):
I'll just jump in and say on the generic piece two,
I mean, you know, welcome the other panelists and kind
of what you've heard, but I mean, I do notice
increasingly a lot of the generics are also concerned about
various price controls and what that does in terms of
market distortion for their products. You know, as we all know, right,
generics opera vary in margin like restaurant level margins. You know,

(42:05):
so anything further distorts the market away from generics is
obviously very problematic for them. And so not only do
we have the potential impact right on R and D
for brandeds, but you know, the downstream.

Speaker 5 (42:16):
In fact you're kind of targeting that data.

Speaker 1 (42:19):
Is, you know, what happens if we had problems for
generic marketplace? That also the extrap leads out to the
broader innovation earth, broader medical ecosystem.

Speaker 6 (42:29):
Madam, you asked about the what what public policy tools,
and a few were mentioned, But the most important public
policy tool is one that we used to sort of
use a little bit, but we've never really used and
I don't think we're going to use in this is
instead of actually forcing American companies to you know, pay
the price controlled prices that are paid abroad, which will

(42:53):
not allow for a reward to innovation, what we really
should be doing in our trade talks is requiring other
countries to pay a reasonable return instead of only a
marginal cost return to you know, for medicines. Now that's
kind of you know, I've recognized that's kind of you know,

(43:13):
very chimerical and fantastical and you know, wishful thinking. But
you know, you can try and drive you know, American
prices down, but then there isn't going to be any
reward for innovation, and won't we won't have new innovative medicines.
Or you could say to the UK or I'm sitting
right now where people don't have the same access to drugs,
well maybe you should pay a little more now. Again,

(43:36):
I don't think that's going to be the highest priority
of any administration in their in their trade talks, but
that's really what we need if we're going to try
and address the problem of everybody free riding on American innovation.
That said, just I'll use one drug. One example, cancer drugs. Cancer.

(43:56):
The death rate from cancer fell in the United States
thirty three percent for nineteen ninety one to twenty twenty three.
In the UK it's fallen only nineteen percent. If God forbid,
we should anybody should have cancer. But if you have cancer,
you want to be in the United States because we
have more medicines here available than anywhere else. Ninety four
percent of one hundred and twenty four new medicines launched

(44:18):
globally between twenty twelve and twenty twenty one are available
in the United States versus forty nine percent in OECD countries.
This is where you have access to many different therapies
in many different choices.

Speaker 3 (44:31):
Yeah, that data is consistent with other data that I've
seen too about how to this day, So and the
others could correct me if I'm wrong, But well, more
than half of all new drugs are still invented in
the United States.

Speaker 6 (44:45):
Actually, eighty percent of the biopharmaceutical pipeline is here in
the United States. That didn't used to be true until
countries like Germany again killed their own golden goose by
it imposing price controls.

Speaker 3 (44:58):
Now, I mean, Lisa raises are, it has raised a
really interesting point about the lack of data on you know,
on the impact of price controls. But this kind of
creates kind of, you know, a catch twenty two in
a certain sense, like if you and so like we
can't make a decision about whether we, you know, we
should have price controls or not unless we see the

(45:18):
negative impact of price controls. So we we not the
price controls. We get the negative impact, but then we've
but then we've created, you know, we've undermined and killed
the system through the price controls that are now showing
us the negative impact, right, So we.

Speaker 6 (45:31):
Know what price controls do. I mean, again, I'm not
the economist. I mean, look at the Soviet the old
Soviet Union. We know what price controls do? They drive scarcity?

Speaker 1 (45:39):
I mean, but okay, I was gonna say, Adams, that
point to me, we do have examples, right.

Speaker 5 (45:45):
Of what other countries have done. Pact talked about some
of that data.

Speaker 1 (45:50):
But for me also the bigger concern, right is it's
also you have to look out on a fifteen or
twenty year time horizon. What does this do to the
R and D infrastructure in this country? Right, Because as
we all know, you can't build that back overnight. So
if you enact policies right that undermine that it's not
just the short term five, six, seven, ten year cycle

(46:12):
of whatever medicine is in development, it's also twenty or
twenty five years down the road. What does your innovation
ecosystem look like? You know, are we still the place
where eighty percent of medicines you know, are developed twenty
five years from now? We keep imposing various forms of
price controls, and so I think that's also in the
policy discussion. Something that's also lost is we can't even

(46:35):
if we let's say we impose further price controls fifteen
years from now, we realize it's a policy to take
and wipe them all away overnight. You can't rebuild that
infrastructure overnight, right, There's longer term investments that have to
be then made. So I just think as part of
the policy discussion, we have to keep that in mind
as well. It's not a dichotomist you know, black or white,

(46:57):
do X do? Why you can reverse works the time?

Speaker 3 (47:02):
At least I've invoked you, so I don't need, I
don't need, sorry to put you on the spot. But
maybe uh yeah, you know, since this framing which is
which is the I think the kind of dominant you know,
classic framing for how we kind of assess patent policy,
innovation policy. Right as we need the data, we need
to see what will happen, but then it kind of
puts us in this chicken and egg problem of well,

(47:24):
then when we adopt systems that might weaken or eliminate,
then we get the data, but the then then it
might be too late. So so is I maybe you
can just it's the classic metaphor question, I guess by
the professor. So of course the professor is asking the
other professor the foundational you know, first principles type question.

Speaker 7 (47:45):
Yeah, I mean I don't think it's as bad as bad.
I mean, we we don't have all the data, we
don't know everything. We we do know that incentives matter,
and so like to the extent we can, like CMS
can issue guidance on exactly how it's going to be
implementing this program and make clear clearer what the role

(48:08):
of comparative effectiveness is. Like, I think that is useful.
And it's not like they're suddenly saying every drug like
on the day of launch is subject to like generic pricing.
I mean that so yes, it does have a large

(48:29):
impact on certain high spend drugs, but it is a
small number of drugs that get at it every year.
And I don't think that this is such a radical
change that is going to completely destroy the US pharmaceutical sector.

Speaker 6 (48:52):
So you make, you know, and there is an interesting
point that people forget, you know, people you wusk people
in the street, how many drugs do we have a year?
Be very few people will know the real numbers, which
is the high I think maybe once we touched fifty,
but it's these days sort of in the forties, but
a lot of them are kind of forrare disease or
orphan drugs. Even as recently as bios I was, you know,

(49:13):
I left the year after biox when FDA had kind
of lost its scientific self confidence and was getting battered.
The approvals were in the twenties. So it's not like
we're getting a lot of new drugs per year, right
And so you know, even a few medicines who we
don't that we don't have do I think do make
a big impact. And you know, the less study al

(49:33):
site adam is Ran did something comparing new prescription drug
availability and launched timing in the United States versus other countries. Okay,
so we do we actually have we not a it's
not a randomized clinical trial, but we have systems where
they have price controls and systems where they don't. Okay.
So if two hundred and eighty seven drugs launched between

(49:54):
two thousand and eight, eighteen and twenty twenty two, seventy
four percent of them are available in the United States,
and they are generally available at least a year faster
than everyone else. Forty eight percent of those drugs are
available only the United States. Fifty two percent of those
drugs are in Germany, forty three percent here in the UK,
and twenty eight percent in Canada. Now in many systems,

(50:17):
I mean, I've had many conversations with people in the UK.
Here in the UK was like, yeah, okay, I guess
I'm getting you know, I'm not going to get new drugs.
I'm seventy years old. I'm not going to get a
new replacement. I accept that as part of my belief
in the NHS. I don't normally find that attitude among
American patients.

Speaker 7 (50:35):
But this also is up moving US toward UK style
drug pricing. And I mean, like, I think that the
US should be more like other countries in having the government.
Given that we have public provision and coverage of drugs,
I think there should be like more public paying attention
to whether we're getting value for those drugs. But I

(50:55):
also think that the value that many other countries place
on health gains is vastly too low, and that even
in the US, the value that I sert placed on
health places on health gains is vastly too low compared
to how we generally think about the value of health
gains and life extensions in other cost benefit analysis context

(51:16):
with other federal agencies, and the effect of this. I mean,
like interestingly, when I talk about this with kind of
people on each side of this debate, I think there's
an ambiguous effect which potentially has some potential for political compromise,
and that like some farm of people I talk to
like the idea that they could get much more than
they're currently getting for some drugs, and that I think
that like Medicare should be authorized to reimburse based on

(51:36):
demonstrated evidence of value and like truly valuing health gains
the way we do in other regulatory contexts. Some patient
advocates I've talked to think that like this would obviously
lower overall costs because basically all the new drugs have
very little evidence of value, and so like if you're
truly having value based pricing, then like any of the

(52:00):
drugs that we're currently getting don't have that evidence, And
so I think there's like empirical uncertainty on that I
have not spent a lot of time like trying to
understand the empirics of the assessments of what that value is.
But I think there are questions about whether how many
of those new drugs we're getting are actually causing significant
health then that's compared to the existing standard of care,

(52:23):
which again is the point that we don't just need
to be counting drugs. We need to be thinking about
how good those drugs are and making it more profitable
and I think vastly more profitable to do things that
really are the most beneficial for patients.

Speaker 5 (52:36):
Right.

Speaker 6 (52:36):
So, I mean I can speak from very practical experience,
having been in the industry, been in the room when
people make these decisions. If we knew in advance, Okay,
here's the system by which you know, if I make
investments and I show that there's value in this medicine,
and then I will get rewarded for it, then you know,

(52:58):
each medicine is at tend to fifteen year investment, as
Brad said. But then I can make decisions and say, okay,
I'm gonna I want to maximize my profits. That's why
I'm in business, That's why investors give me money. I
also want to help patients, which is why I'm in
the industry. But you know, if I can make more
money by making a drug that has more comparative effectiveness

(53:18):
than fine, but ironically, you know the icers of the
world than nice and whatever. They make judgments based on
comparative effectiveness data that if you actually did that study
and tried to communicate about that to your patients, FDA
would almost certainly say you cannot communicate that because the

(53:41):
study isn't adequate. The standards that FDA imposes for making
any kind of comparative efficacy statement, they're basically impossible to meet.

Speaker 3 (53:51):
I think this is a fantastic discussion. I mean, we
probably could have a three hour weather on these issues.
Unfortunately we only have an hour, and so some of
the we did get two questions primarily related to the
international arbitrage issue and the kind of the classic international
public choice problem that we talked about of other countries

(54:11):
free loading off of the United States and and how
this is happening. I think the these this was addressed
in both directly and indirectly by comments by Barrad and
Dan and Lisa throughout our discussion, and so I just
want to kind of bring us to a conclusion and
kind of give our each of our panelists kind of
an opportunity to kind of give a few kind of
closing remarks. Again, thank you for the fantastic exchange, and

(54:35):
we'll go in reverse order. Uh So, so we'll kick
We'll start off with you, Brad, So just a couple
like one, one or two minute remarks and then and
then we'll uh, we'll bring we'll bring it home for
the audience.

Speaker 5 (54:47):
I'll try to keep it for forty five seconds. Ours.

Speaker 1 (54:49):
Thanks to the ped for hosting this, Thanks to Lisa
and Dan for being on the panel with me. Look,
I think you said it best, Adam, right, these issues
are really complex, and they're really big real world implications
about getting policies around pharmaceutical innovation right or home. I
think what you saw here right is just how complex

(55:10):
those issues can be in a microcosm.

Speaker 3 (55:14):
You know.

Speaker 1 (55:14):
I think as we think ahead two not only future policies,
but where we want to be as a country in
twenty to twenty five years, it's important to get it
right because we don't want to be an innovation desert,
but we do want to be a place right where
people get the types of cures and treatments to that
a quality of life. And so, you know, I welcome
the chance to have this discussion today, and I hope

(55:36):
we do more of it in the future. Because I
think informed policy making is the best in this area
and not kind of cliches that differently in the political.

Speaker 3 (55:46):
Slogans thank you, yeah, and.

Speaker 6 (55:51):
So thank you to everybody for participating. And at least
I'm scanned your article, but I look forward to learning
from you and reading it even more deeply. I think
we we know what doesn't work. We can look at
other countries where it's a monopsony where the government is
the only buyer, and where patients are not actually literally

(56:12):
allowed to learn about medicines because there's no direct to
consumer advertising and there's no communication to patients. And we
know that those systems have problems, you know, are far
less than ideal. Now our system is not far from
ideal as well, but we are, you know, the ones
who are driving innovation and making modern miracles, like I

(56:35):
said with respect to this new Gilead drug or curing hepsi.
And I'm just very afraid that, you know, people are
not taking into account what you be a very important
thing you said at the beginning, Lisa, which is incentives matter.
People seem to believe that you know, that they can
just force drug companies to, you know, make medicines and
they'll keep doing it no matter what you know the

(56:56):
incentives are, and that's just not going to work.

Speaker 7 (57:00):
And then Lisa, Yeah, I generally agree with all of that.
It's been a great discussion. I'll just add on the
international point that I agree we pay more than other countries,
and in that sense, other countries are free riding us,
although I don't think that's a good reason to cause
us to stop investing. And like the the amount that
we are paying should be based on considering what makes

(57:22):
sense for American patients, and we shouldn't pay more just
or or pay less just the sense of, like, we
don't want to pay more than our economic peers. And
I think generally, like whatever the next steps of pharma
policy or form are, I hope that policymakers remember that
things like encouraging generic entry aren't important goals in and
of themselves, like means the end of saving lives and

(57:43):
improving health through having the right structure of incentives and access,
and that this overall goal should be kept front and center.

Speaker 3 (57:50):
Excellent, Well, I mean we often talk about the aspirational
ideal of having evidence based conversations and to promote evidence
based policy making by our officials, and I really want
to thank all three of our panelists for exemplifying this
ideal in fact and this what I think was a
really robust and uh and and very substantive discussion. So

(58:12):
thank you to all of you, and uh, thank you,
and I'll turn it back to the Federal Society at
sarah to uh to uh to close it out.

Speaker 4 (58:23):
Thank you so much Professor Masso for moderating, and thank
you for everyone on our panel for joining us and
for sharing your insights today. Thank you also to our
audience for tuning in and for your questions. For more
content like this from the Recuatory Transparency Project here at
the farder List Society, please visit us at right project

(58:43):
dot org.

Speaker 5 (58:44):
Thank you on behalf of.

Speaker 2 (58:46):
The Federal Society's Regulatory Transparency Project. Thanks for tuning in
to the Fourth Branch podcast to catch every new episode
when it's released. You can subscribe on Apple Podcasts, Google Play,
and speaker lates from our TP. Please visit our website
at reg Project dot org. That's r e G Project
dot org.

Speaker 7 (59:13):
This has been a FEDSOC audio production