This episode is audio from the Drug Price Negotiations panel from the Engelberg Center's Hatch-Waxman at 40 and Beyond Symposium. It was recorded on September 27, 2024.
Richard Epstein, NYU School of Law
Erika Lietzan, University of Missouri School of Law
Lisa Larrimore Ouellette, Stanford Law School
Steve Pearson, Institute for Clinical and Economic Review (ICER)
Rachel Sachs, Washington University in St. Louis School of Law
Daniel Hemel, NYU School of Law (moderator)
Announcer 0:00
Welcome to engelberg center live a collection of audio from events held by the engelberg center on innovation Law and Policy at NYU Law. This episode is audio from the drug price negotiations panel from the engelberg Center's hatch Waxman at 40 and beyond symposium. It was recorded on September 27 2024
Daniel Hemel 0:27
Good morning. I'm Daniel Hemel. I teach here at NYU. I'll be moderating this panel, and that's about all I have to say about drug price negotiations, but I will introduce our guests. So our topic today is drug price negotiations under the inflation reduction act at almost three rather than the hatch Waxman act at 40, though living with a three year old who thinks that she should direct 40 year olds, the difference between three and 40 might not be so significant. I'll introduce our panelists in the order that they'll talk, and then they will speak for five minutes. I will aggressively cut them off at seven minutes if they haven't stopped, and then we'll have a wide ranging discussion. So first up is Rachel sacks. She's a professor of law at Washington University in St Louis. She's also the Howard J and Katherine W Abel Visiting Professor of Law at Harvard Law School. She recently served in the Biden Harris administration as Senior Advisor at the Department of Health and Human Services Office of General Counsel Centers for Medicaid and Medicare and Medicaid Services Division. Next up will be Steve Pearson, the one person on this panel with with an MD, hopefully you will not have to use that on the panel, except the expertise that you get from it. He's the founder of the Institute for Clinical and Economic Review, an independent nonprofit organization that evaluates evidence on the value of medical tests, treatments and delivery service innovations. He was the president of the Institute until January 2024 he's now a special advisor. He is also a lecturer in the Department of population medicine at Harvard Medical School. He said many other roles, including Special Advisor for technology and coverage policy at the Centers for Medicare and Medicaid services during the George W Bush administration. After that, will be Erica litzen. She's the William H Pittman Professor of Law and the Timothy J Hines Professor of Law at University of Missouri. She previously was a partner at Covington and Burling in Washington, DC. She's a public member of the Administrative Conference of the United States. She's an elected member of the American Law Institute, and she's a former member of the Board of Directors of the Food and Drug Law Institute. Then we'll hear from Lisa Ouellette, who's the Dean F Johnson professor of law at Stanford Law School and a senior fellow at the Stanford Institute for Economic and Policy Research. She's co author of an open access case book Patent Law, Cases, problems and materials that you should all be using if you teach patent law. And she has a PhD in physics from Cornell University. And then lastly, we'll hear from Richard Epstein, who's the Lawrence a Tisch professor of law at NYU and director of the classical liberal institute here, he was previously the James Parker Hall Distinguished Service Professor of Law at the University of Chicago Law School, making him one of nine former University of Chicago Law School faculty members who is currently on the NYU Law Faculty. He's also the Peter and Kristen Bedford senior fellow at the Hoover Institute. And he's, as we just learned from our former colleague, Brian Leiter, one of the 10 most cited law professors in the United States today. So with that, I'll hand it over to Rachel to begin. Thank
Rachel Sachs 3:43
you, Daniel for that introduction, and thank you to the organizers for what a wonderful conference this has been so far. So as Daniel noted, I did spend a year working in the federal government on Medicare, drug pricing reform, implementation. I do just want to clarify, I'm fully back in academia. Any views I may express are, of course, my own, and do not necessarily represent the views of the government. So my goal in the next few minutes is really to put the system of Medicare drug pricing negotiation as envisioned by the inflation Reduction Act or IRA in the context of the hatch Waxman Act and the last 40 years of drug pricing reform, drug pricing competition. And so here's my main claim, the hatch Waxman act and these other related pieces of legislation we've been talking about, like the BP CIA, they envision market competition from generics, from biosimilars, as the ideal way to drive down prices over time, to introduce competition. And despite what it may seem on the surface, the IRA, I will argue, is very much a part of that tradition of competition. So returning to the passage of the hatch Waxman act yesterday, we heard about how the bargain of the law envisioned that branded manufacturers would have some patent or exclusivity protected time on the market to. Coop their investment. But at some point, at a certain point, it's important to introduce competition with the eventual idea of bringing prices down, making drugs more affordable for patients, the law operationalized that through the creation of the simplified path to market for generic drugs, with the idea that they compete with the brand and also with each other over time. The bpcia, as we've heard, it's got a similar structure, although it hasn't worked quite as well to lower the prices of biosimilars or increase their uptake the drug price negotiation. Part of the IRA exists within this tradition of competition and is not wholly outside it. The Ira still fundamentally prizes the role of competition within the market as the first, maybe the primary strategy to lower prices. And only if that competition does not materialize does the IRA turn to a program of drug price negotiation. Here's a couple of examples. This is what I mean. So first, first, and perhaps most importantly, the IRA only allows a drug to be selected for negotiation after it has been approved for many years and where the drug in question has no biosimilar or generic competition negotiated prices don't take effect for nine years from approval for small molecule drugs and 13 years from approval for biological price products. So in a similar way to hatch Waxman the bpcia, there's some period of time where products are not eligible for the negotiation program, once a drug has been approved or has been on the market for some period of time, and we can and will debate what's the right amount of time, right a drug that doesn't have a generic or biosimilar competitor may then become eligible for the program. The Ira actually even goes farther than this in the case of biosimilar. So the law has a special rule that delays the selection and negotiation of a biologic if there's a high likelihood that a biosimilar will come to market in the next two years for the biologic drug. We don't even have to have actual biosimilar competition for the law to delay selecting a drug for negotiation on that basis. Now there are limits to this. So the IRA also specifies that the biosimilar delay rule, it can't be invoked where the biologic has been approved for more than 16 years without biosimilar competition. It sort of sets this upper limit on the use of potential competition to delay the negotiation program. But it does have this additional feature for biosimilars, a special solicitude for them. If a drug is selected for the negotiation program, it gets out of the program when competition comes onto the market, when a generic or biosimilar is approved and marketed. So the IRA has its baseline the same premise as the hatch Waxman act. It says competition is the best strategy to lower drug prices over time. But at that point, it departs right it recognizes that hatch Waxman, bpcia, these previous compromises have not always worked to create such competition. It hasn't always materialized, and in some circumstances, the government might want to come to the table and negotiate about the prices of the drugs it purchased, purchases in its capacity as an insurer, as a participant in the market for preventing drugs. Now there's a range of potential follow on consequences from these observations. In the interest of time, I'll name just two very briefly. So first, along with professors Artie Rai and Nicholson Price, who are also here at this conference, we have argued that some biologic manufacturers may find it in their interest to allow biosimilars to enter the market earlier than they otherwise would have to avoid selection for the negotiation program, in part due to the relative weakness of biosimilar uptake, tho far second, another potential consequence is that the IRA then puts additional focus or additional legal pressure on the need to create effective competition. Right? It shines a light on the ways in which the hatch Waxman Act, the BP CIA have left open these opportunities that we've heard about yesterday, right for manufacturers, in some cases, to extend monopoly periods or to limit sort of biosimilar uptake in the ways that we've discussed as well. And so it's not enough to ensure that these generics are approved, these Biosimilars are approved. Those products must be covered by insurers, they must be prescribed by physicians, they must be substituted at the pharmacy counter. And since the passage of the hatch Waxman act, there's been great progress on this front relating to generic coverage and substitution. But yesterday, we heard about all the work that remains to be done in the biosimilar area. Steve, all right.
Steve Pearson 9:37
Thank you. And for me, as a non lawyer, it is a real privilege to be here and to really hear different perspectives on a law that happened, obviously, 40 years ago, but which, as Rachel pointed out, continues to really frame the mindset of people in Washington and around the world, around the meaning of competition, its benefits, et cetera. So I'm. To talk a little bit more about the nuts and bolts of the negotiation process. I'm an evidence guy. What ICER does is to help produce reviews of emerging drugs, to try to, in an independent way, inform stakeholders in our health care system without any kind of dictate, to hopefully help the market use this information in a positive way. I do want to give a tiny bit of historical context though to this whole issue of the IRA and drug price negotiation. If you go back to the beginning, beginning of Medicare, that was 1965 and the deal on the table was government won't mess with what doctors do or hospitals do. We won't set prices. We'll just pay you what you usually get paid. You will tell us how much that is, and we will pay it. About 20 years later, they said that's not working for us. Hospitals are our biggest budget item. They're out of control. They get paid more the longer people stay in the hospital. That's not a good incentive. We're going to set up a payment structure, and they created diagnosis relation groups, DRGs, so hospitals were now, in a sense, price regulated. 10 years later, they looked at doctors and said, What are you doing? You are doing too many surgeries, too many tests, too many everything, because we're paying you for everything you do according to what you want to get paid. So we're going to change that. 1992 they came up with a physician fee schedule that has been argued about for many years, but basically, you can see that 20 years after the initiation of the law, the payer said, got to change things. 10 years later, changed some more, and now we're about 20 years out from when Part D was created and drugs were now covered by Medicare. So the voice that's always kind of hovering above us, in some ways, are the actuaries, and they are the ones who, about 20 years later, say, Houston, we have a problem, and we need to figure out what we're going to do. And despite the belief that competition can solve the cost problem, it doesn't. So that's my historical context. I want to talk briefly about aspects of how the negotiation has happened already, although we don't know a lot of the nuts and bolts, but there are legal ramifications. So imagine you're in pharma shoes coming into this idea. And by the way, negotiations usually mean I'll trade you this. If you give me a little bit more of that, we can bring in some other unintended thing, and we can somehow make a nice package. This is a weird negotiation, and obviously people will fight over whether it is one or not, but there's one thing on the table, the price of the drug. CMS can't do much of anything else. The industry can't do much of anything else to kind of soften any negotiation. So it's all about that one price. Now let's assume you're in pharma shoes. The law says the Secretary shall look at about 10 different elements of information federal support for the research and development, the cost of production. What you know the cost is overseas or different payers. It's therapeutic value, very ill defined. So you're in farm issues, and you're supposed to submit a dossier to CMS to guide this negotiation. I think what you want is a cookbook you want. What are you going to do with the information I give you? Is it six times the therapeutic value plus one half of what the federal government contributed, minus unmet need from patients? And you know, what is that? What is the equation? Because I need to figure out how to give you the information to get me to what I want. Now let's assume you're in CMS shoes. The main thing you want is not to get sued, even though that will happen, but your lawyers are going to be telling you all the ways that you will get sued and how to minimize that risk, and there are always two. I've worked in CMS for one year, so I know everything about CMS, and it was 20 years ago. So it's even better. My knowledge is just right. My seven minutes is coming. I know lots of good ideas go to die when they move to the legal counsel office at CMS. And lots of people go, Okay, well, what will they say? And sometimes it even stops things from getting out of the cradle. People say, What will they say? They won't like it. But here's what they almost always say, you have two ways you're going to get sued. One is if you're inconsistent with a clear process that's defined in statute or that you have created through common law, basically. The other is if you're arbitrary and you're somehow all over the map and you It's you don't have a clear justification for what you're coming up with or what you're deciding. There are always those two risks, and I can tell you from experience that CMS has almost always err on the side of leaving it vague. I. Yes, don't leave breadcrumbs so that people can say you didn't add correctly or you didn't format correctly. Say, in a sense, we looked at all the information that we were given. We talked to everybody involved. We thought about it really hard, and the pill should cost $9.85 and that's all they'll say. I would like to argue that for transparency on multiple points, from patients perspective, doctors perspectives, and yes, payers and the pharmaceutical industries, we should try to encourage CMS to be a little bit more like a cookbook, to give some consistency, at least around priorities, prioritizing some of these different factors, and in coming up with some way to approach this. However, my last comment is that CMS could view this as all an exercise in playing nice, but what we really want is a generic price. Playing nice means I want to tell you that your drug is high value for patients. It does great things for them. It may even be a little bit better than the other guy, but this whole law, as Rachel said, is kind of a backstop to the fact that we don't have generic competition. And I just want to get a generic price. And what do I think that should be about? What percent discount? And so there are these two tensions in the air around the way that CMS is going about this, and they do have to put out a public document by March 1 next year that will describe their rationale for their first set of prices. So there's a lot of job owning around what they will put into that document. But I think there are important legal aspects to it. I think there are important policy aspects to it. Because if we are, for instance, and I am very serious about the idea of rewarding value in the market, they need a bit of a cookbook to tell the US public what they mean by therapeutic value, how they're counting that, and God forbid, if it's a little bit better. How do we scale the price? What is our equation for that? How do we do that in a consistent, transparent way, so that we get the right incentives upstream and we can help patients access these drugs going forward? Thanks. And
Daniel Hemel 17:17
for the other panelists, you get an extra minute of time, if you get a laugh, and an extra 30 seconds, if you have a rhyme that can compete with plain ice but a generic price. So with that, we'll jump over Lisa to Erica and then back to Lisa.
Erika Lietzan 17:33
That's a lot of pressure. I got my laugh. What about
Rachel Sachs 17:39
booze? But I don't know about about coming
Erika Lietzan 17:41
up with a rhyme on the fly here, I have to say, I'm gratified to hear the call for transparency. I not the topic of what I was going to say, but I find myself in very strong agreement with you about that. I want to talk about the like I would say the likely impact, or the likely effect on innovation patterns. But what I really want to talk about is the timing provisions in the IRA, which worry me a little bit, they don't seem to me, to work really well. So I want to start with small molecule drugs, and I want you to imagine a new chemical entity that's been approved. The rule under the IRA is going to be if it doesn't have a marketed generic seven years later, CMS can place it in the pricing program, all right, seven years it can place every product that the innovator makes with that active moiety and into the pricing program, and then the new negotiated prices, and I'll just call them the new government prices. I'll leave it to Richard to talk about negotiated or not. That's going to kick in around year nine. But we all we're all familiar with the hatch Waxman scheme, and we know that it couldn't have a market is generic at seven years, right? Not if it listed any patents, if it listed a single patent and a generic company filed a paragraph for certification challenging that patent, and the innovator decided to enforce its patent by bringing suit. Then the statute prohibits FDA from approving the generic until seven and a half years after the new chemical entity was approved. And I just I find that sort of baffling as a structure, because it suggests to me that the drafters wanted the brand companies not to enforce those patents. I don't not to sue on the paragraph four notices, which maybe that was their intent. But that doesn't, to me, square with the hatch Waxman framework. Okay, so to me, there it. There's sort of two scenarios. Areas possible in that situation. One, there is a generic drug on the market by year seven because the innovator didn't sue on the paragraph for notice or so. Number one, there's a generic on the market by year seven, and presumably subsequent applicants, other generics, shortly afterwards, six months what have you? Option two, there are government prices, negotiated prices at year nine. So I think about that, and I think that is going to fundamentally rewrite innovation incentives in this country, right? Because we're talking about the price lowering kicking in at seven or nine, and the the US pharmaceutical industry, what I would say is the US pharmaceutical industry is sort of thought to be the poster child for patent incentives work okay, even people who are concerned about patent tickets or additional patents, I think pretty much everyone understands that this is an area where The empirical evidence suggests patents do work to incentivize and the sort of the back story of that is the incentive to do the to discover the molecule, to develop the drug, is the promise of the period of exclusive marketing after approval that the Patent makes possible. But the reason that period of exclusive marketing made possible by the patent works is that it allows the patent owner to charge super competitive prices. The exclusivity in itself is not the valuable thing, it's the resulting price environment. So hearkening back to some of the discussion yesterday, and some of the empirical literature that I know a lot of people in the room are familiar with, we know that right now, new molecular entities enjoy 1112, 13 years, you know, depending on whose study you're looking at, but let's just say 11 to 13 years. The way I would say it is the innovation levels that we have been enjoying recently. Are the innovation levels we get when the innovators have that 11 to 13 years. And what we're talking about now is an experiment where that pricing benefit from exclusivity is truncated either at nine or at seven, and that's, I mean, it's a policy choice that that policy makers made. But what is the result? That's the question, and there have been different people doing differing studies on what the impact is going to be. You have one study by an economist at the University of Chicago saying we're looking at 135 fewer new drug approvals by 2039 I know there are other studies by other entities. I can see Aaron nodding here. There are other studies by others having fewer but even CBO, with their much, much lower number, said, Nope, there are going to be fewer drugs. So whatever the number is, it's fewer. And, you know, and maybe that's the policy choice that that people are comfortable with. I'm personally not thrilled about it. So one of the things I have seen is reports that more than half of the larger research companies have decided to shift away from the small molecule drugs because of this, because it's not going to be 12 or 13, because it's going to be not so so that's sort of the first part. I think the issue is not just for the innovators. I think that it is rewriting an important incentive for the generic industry as well. If you think about the fact that CMS will set the price at year seven to kick in year nine, then the first filer, the first generic filer, who challenges the brand company's patents, is probably going to come in, come to market when the brand product is under price controls, right? And if you think back to the generic companies making their decisions which products to go after which, so distracting when you do that. Okay, I know I love you too, but I just I lost my train of thought there. Don't take the time away from
Daniel Hemel 24:59
me. You got two laughs, you've got an extra two minutes. Okay, excellent. All right.
Erika Lietzan 25:07
All right. So if you're a generic company and your business model is preparing Andes in order to challenge the patents on the best selling brand drugs because of the prospect of 180 day exclusivity, you know that duopoly period, they won't know at year four, when you come in with your first filer and with a paragraph four, you don't know where CMS is going to set the price, right? We have, we have one set of precedents which are not, they're moderate, right? But the stat, the statute, has a cap, it doesn't have a bottom, and you don't know. And if you are a business and you're trying to make a business plan, there's a lot of uncertainty now about the actual value of that duopoly, all right? And so, again, I guess what I would say is just for small molecules. And I'll take 30 seconds on bio biologics, for a second. It's, it's partly, what is this going to do to innovation? And partly, is this going to change behaviors when things are filed, what things look like in ways that we haven't anticipated yet? That's, that's really the thing that I would ask everyone to think about, which is, you know, if you think hatch Waxman triggered 40 years of Whoa, we didn't expect that. I think we're looking at the same thing in the next five to 10 years with the IRA. And to me, that means maybe we should stop and just wait and see how what people do, what companies do. I have a lot to say about biologics, which I will not be able to do until we do more back and forth and Q and A, but I want to point out the timing issue with biologics just for a second. So the seven year, nine year thing becomes 11 years with biologics. All right, so if an innovative biologic doesn't have a marketed biosimilar at year 11, then CMS can drop it into the pricing program. But of course, as you know, there's statutory exclusivity until 12 years, so it's literally impossible for there to be a biosimilar at year 11. That means at least presumptively putting aside this special delay provision that that Rachel mentioned, every biologic is sort of presumptively going to be put into the program, unless there is a biosimilar company that can come forward and get the special delay. One of the concerns, and I have quite a few concerns with just the mechanics of the special delay, but one of the big issues is that they can only get that if they have an application pending. So they have to make the investment decision. And you know that these take a lot longer than generic drugs. We're talking six years, eight years of work, they have to make that decision and all of the investment without knowing whether they're going to get that pause planning at least contingently for the possibility that when they come to market, the primary product that they are trying to compete within the market is under a price control. And so that is going to change what biosimilar companies do. And I don't have crystal ball, I don't know, but it seems to me it's very different from the business environment that they are have been trying to grapple with the last 10 years. And so I think again, and I have more to say when there's open discussion about this, I think, I think there's a whole lot of unknowns about how this is really going to play out. I don't think we know
Richard Epstein 28:46
badly.
Daniel Hemel 28:47
Lisa
Lisa Larrimore Ouellette 28:48
great, so like Eric, I want to think about the effect on innovation, but I want to start by kind of stepping back and thinking about what what we're trying to accomplish here, and kind of what this means for how we should be thinking about Medicare price reform going forward. So if you go back to like innovation policy 101, like a policymakers are trying to design the set of incentives and institutions that are affecting innovation. The goal should be to design them such that society, including all the public and private investment, invests in innovation up to the point where the marginal cost equals the expected marginal benefit of those investments in terms of saving lives and improving health. And given the current innovation ecosystem, one of the most important policies affecting this calculus is the Ex Post reward that a firm can expect when it brings a new innovation to market. So that this reward depends on a number of factors, including the length of the exclusivity period it can expect and the price that it can receive during that exclusivity period. And that's why the design of Medicare price. Matt. Is for innovation, because Medicare is a large part of the market that's setting this reward that firms can expect. So we have an innovation policy problem when there is a misalignment, when the reward for producing a new drug is not well aligned with the evidence based social value of that innovation in terms of like what value that drug can provide compared to the existing standard of care, and currently, there are some areas where this there's a misalignment, where the reward is too high, causing firms to invest efforts and things like extending exclusivity and profits with little demonstrated added value for patient's health. And I think a lot of the things that we discussed at the conference yesterday arguably fall into this category, like many of the instances of product hopping we were discussing, there are also some areas where the current reward for innovation is too low compared to social value, and that's also a problem, because that means that we are likely missing out on drugs and vaccines that would otherwise exist. And I think this problem is harder to measure, I guess, less attention. I think one good example of empirical work on this is the British Rowan and Williams study that was mentioned yesterday on underinvestment in treatments for early stage cancers due to their long clinical trials and thus shorter exclusivity periods. I think that vaccines outside the covid context are another good example of an area where rewards are currently too low and we're not seeing vaccines that might otherwise exist under a more rational innovation policy set, so Medicare drug price negotiation under the IRA. I think this is one of many recent attempts to deal with the too high problem and and the statute and CMSs guidance they require consideration of a drugs comparative efficacy when setting what the price is, and hopefully that will limit the degree to which CMS is inadvertently negotiating down the price of a drug that has a strong evidence of added value. So if they're doing that, I think that helps respond to Erica's concern about, like, which drugs we're missing out on. I mean, if it's the ones where currently the reward is too high that we want first be investing their efforts elsewhere, then that's good from an innovation policy perspective. But the current structure, it doesn't do anything with the too low problem, which has generally, I think, gotten less attention from a policy perspective. And as I've argued in an article with Daniel, which is another one of these free articles available in your CLE materials, there are some cases where we think that government payers, like Medicare should be authorized to offer much higher reimbursements for highly effective drugs and vaccines in areas where prices are currently too low to spur development. So in that sense, the IRA is really only a small tweak that doesn't address some of the worst pathologies of the current US pharma pricing system, but I still think it's useful for establishing a precedent for alternative approaches to the current system, which I think is broken in a lot of ways. I mean, the ways that the different parts of Medicare and Medicaid set prices, there are lots of ways that's not well aligned with the actual added value of those drugs for patients. And by having a precedent for the government playing a more active role in setting that price, then perhaps that they step toward a more rational system. So two quick final thoughts on this. First, in addition to optimizing incentives for innovation, I think policymakers also need to improve access to those innovations, including by reducing out of pocket costs. And I wish that instead of the word price when we talk about Medicare price negotiation and pharmaceutical prices all the time, but I wish we had clear terminology for distinguishing between the price that is received by manufacturers and the price that is paid by patients, because these often get conflated in these discussions, and there are two different things. And Daniel and I have written a lot about how incentives and access are two separate and separable policy choices. And second, I realize that reforming Medicare and Medicaid pricing to be more explicitly based on demonstrated value is not very politically feasible or likely, but I think it's worth noting that there is potentially some room for attracting different stakeholders to this approach, like some. Some pharma people that I have talked with about this idea, they like the idea that they could potentially get much more than they are currently getting for some drugs, and including due to arguments Daniel and I make about why ICER is currently undervaluing health gains compared to how federal agencies typically do and some patient activists that I've talked with say that they would love this proposal because it would obviously lower health costs, because there are, like, basically all the new drugs that we currently have have very little rigorous, demonstrated added value for patients compared to the existing standard of care. And so if that's your metric, then that's going to lower prices overall. And perhaps that ambiguity is a good thing for like reaching compromise here. But if the goal is to have policy where the reward is linked to social value, then policymakers should be having that front and center when they're thinking about Medicare pricing going forward, because like the many of the things we've been talking about, like having generic competition or data transparency, like they're not goals in and of themselves. They're all means to the ultimate end here, which is saving lives, improving health. And I think that overall goal should be kept front and center as we're thinking about how to adjust these institutions to structure incentives going forward.
Daniel Hemel 36:26
Thanks, Richard,
Richard Epstein 36:29
yeah, I regard this entire exercise as one of the great disasters of modern medical innovation, and let me try to explain. I've actually written several briefs on this, and I will continue to fight it with every bone in my body. The first point is, when looking at listening to Rachel, I regard myself as an autopsy Alice in Wonderland world. How does one improve competition by making various kinds of mandates on people? As Erica said, what you're doing is essentially taking away two or three years on all of these drugs. And let me just add something else, which is, in many cases, when you're dealing with medical drugs, it's the last two years that are the most valuable. They are not necessarily drugs that depreciate in value. And in fact, if they have no competitor, which is exactly what's going on in many of these cases, and they have an established track record of very good use. Those values are extremely high, and it's those values which essentially induce other people to try to replicate the situation. So the standard method to try to deal with price difficulties, such as they are, if they do exist, is to spur new drugs to come in, so that the apparent market dominance of a single drug can be undermined by other drugs that come in that can occupy a similar or near space. And what's going to happen is you're going to prevent that particular element from taking place in these cases when you start to put these farcical negotiations in place. Now why do I call the negotiations farcical? Well, what you have to do is remember the way this thing works, and the fact that it's been admitted here is you are told in all of these cases that if you don't like the way you're being roughed up by the various government authorities, you always have the option to withdraw. Well, withdraw from what it turns out you can't just simply withdraw from negotiations and keep the existing price, which is the way all standard negotiations work. What you are told is that you can get out of this particular program so long as you agree to get out of the Medicare program at all. And the government, of course, knows that you're never going to be able to take that particular option, because the gains and losses in a particular drug are going to be small fry compared to everything else. Well, virtually every case that has talked about this says, Oh, gee, this is really wonderful, because all of these things are voluntary consents of one kind or another. Now I'm a libertarian in the room, but when I hear the word voluntary used in this context, I say, this is sadly misapplied. What's going on here is the exertion of monopoly powered by the government, by saying, we will take away all the things that we provide to you, and there's no other place that you can go to serve 40% of the population. And this is straight cartel type behavior. So what you have to do is envision the following argument. We put together a cartel, and then somebody pays the price, and we say, you know, you can't sue this particular cartel because you voluntarily acceded to the price that they were demanding. Well, the answer in that case has always been, whenever there's a monopoly power that is exerted against a particular party, the consent of that party to the transaction is utterly irrelevant to the antitrust implications. For if it were not, then all cartels would be perfectly legal, because the only people who participate in the cartels have consent to it, and the other people have protected themselves by going elsewhere. But the standard argument in all these cases is, no, this is a case of serious exploitation, and we're trying to do is to get the difference between. Between the monopoly price and the competitive price. So essentially, what they're telling you is that you have consented to this under circumstances where they exert monopoly power against you. And the correct response to that is they are not allowed to do this under any circumstances. So either you abort the entire negotiations, or what they have to do is to figure out some way in which they guarantee you your rate of return. Well, you have an exclusive on this particular situation. Other people can come in with patents, and the only way that you can guarantee them their current return is to let them keep their current return. Or, in the alternative, decide that you're going to lower the price that is going to be paid to them by customers and then making up the difference by direct government contributions to the company to get rid of the shortfalls that exist. That has always been the particular option when government comes together and says, We need to take things from you in order to give them to other people. The answer is you just can't take them. What you have to do is essentially decide to make up the difference. So if you're talking about a rent control system and say, We think these rents are much too high in terms of everything that's going on, the government can lower it, but they have to basically make up to the landlord the differential in the prices that they want. And they're not willing to do this. So this is simply a classic illustration of trying to exact the pound of flesh from a group of people, and the long term effects on competition are going to be terrible. There's also another very important feature, if you look at all the briefs that have written talking about how wonderful these voluntary transactions are, they always assume that the price structure that you get under Medicare and so forth is a, unsustainable, but B, not reformable in any sensible way. I've spent a lot of time, much of it with Erica, studying some of these various situations. And nobody in their right mind would say that the FDA procedures for dealing with clinical trials and similar other issues are a paradigm of efficiency. One of the really dangerous effects of a statute of this sort is as follows. You simply say that the current prices are unsustainable, and you say, well, we can now force you to lower them down. And we say, by taking less, you've got more it's more competitive, ie, it's not more competitive, it's less competitive. What you do is you reduce the incentive on the part of various reformers to figure out how it is that you ought to improve the FDA prices. And here, I want to say very strong disagreement with my friend Lisa. I do not think that the government has any idea how it's going to determine value by these various administrative proceedings. They all strike me as being a kind of intellectual world word salad. You can't do them. What you want to do is to take all the information that you could provide, give it to private companies and then let them decide where in the marketplace they think they have the greatest possibility for innovation and invention. And what's going to happen is, if you put this thing into place, and the government can essentially externalize the cost of its own structural blunders, what you're going to do is perpetuate the inefficiencies that are associated with FDA and other forms of policy. So what happens is there is not a single piece of legislation ever proposed by the so called capitalist in the Biden administration which meets capitalist requirements. These are all monopsy maneuvers of one form or another, and the less we see of them, the better. I didn't see any applause.
Daniel Hemel 43:23
I gotta laugh. Gotta laugh so but I'm not gonna give you an extra minute. I
Unknown Speaker 43:27
don't want it.
Daniel Hemel 43:28
I get sad. We're gonna, we're gonna go down to to Rachel. I'm sure you have thoughts sparked by So Rachel, I'll give you three minutes to
Rachel Sachs 43:40
respond, Richard's Good to see you. It's been too long. So maybe I'll start with one point in response to Richard, one response to Lisa, maybe one response to Erica. So, so one reminder about the IRA is that it's focused on what Medicare is paying for prescription drugs in its capacity as a participant in the market, and as Steve reminded us, until now, Medicare has not really had a say in the prices that it pays for the drugs that it purchases for the many Americans who are on Medicare. So one thing we haven't talked very much about is that the statutes underlying Medicare both Part B and Part D, in many ways, require Medicare to cover many and in some cases, all prescription drugs. So the statute requires coverage, but then, to date, has limited Medicare's ability to actually care about what prices it's paying. A number of economists have referred to Medicare Part B in particular, as a price taker, and almost no, I would say exclusively No. But in other markets where we think about things like defense contracting, where we think about other products that are sold to the government, the government has the ability to negotiate, to care about the prices that it's paying in the context of other Medicare service. Hospital services, physician services, Medicare has already entered this sort of arena, and now it's doing so here in the prescription drug space as well. And in that respect, the IRA is, in some ways, brings us closer, not all the way, but closer to a system like what other countries have, where they say, look the job of the pharmaceutical regulators, the FDA analogs, is to determine, is this product safe and effective? Right? The job of their patent, their intellectual property regulators, is to decide is a patent sort of merited here, right, based on the information we're being presented. But the job of their insurers, the job of their insurance regulators is to negotiate with manufacturers, to determine whether the prices that they're public payers paying are merited by these products. Lisa, I think you're being a little hard on the IRA. Just a little bit, just a little bit. I'm going to explain, I'll explain why. So it is designed to address a particular problem. It's not perfectly targeted at addressing others, but it does nod to the too low question, specifically as it relates to the vaccines, and I'll explain why. So first, the IRA is more than just the negotiation program. So one thing that the IRA does is it has provisions both expanding coverage and limiting cost sharing for vaccines in both Medicare and Medicaid. And so in theory, that should expand right the size of the potential market for vaccines. And then something else it does is it doesn't exempt them vaccines from inclusion in the negotiation program completely. But, and here I'm going to oversimplify slightly, in the interest of time, it limits them from being included in certain categories of products, such that CMS can offer a higher price for vaccines that have been on the market longer than other types of products. So it does sort of have this sense that vaccines are special, that there may be a need for special incentives on both the innovation and access side for vaccines. And it does sort of think about some of these potential dynamics for certain types of products. Third, just thinking about the role of innovation and its impact. The IRA's potential impact on innovation. You know, I've written a lot about the role of insurance as a demand side lever to shape innovation markets. And know, there's a relationship here, but I always want to resist focusing exclusively on the number of drugs that are approved, something that can be sort of easily counted, so that we forget to care about how good those drugs are for patients and how much value they add to the options that are available. So the studies showing that part D, the passage of Medicare, Part D, led to increased investment in drugs and classes with high relevance for Medicare beneficiaries also show that a number of those additional new drugs were not real therapeutic advances. They didn't add sort of real therapeutic options for Medicare beneficiaries. And so when we think about the IRA having a focus on comparative effectiveness, is this drug better than other drugs on the market? If so, that would merit a higher price under the negotiation program, the law is really focused on thinking about not just how many new drugs do we have, but what value are we offering, and are we giving new therapeutic options to patients, to payers and to the system as a whole? That's
Daniel Hemel 48:14
an excellent segue to Steve.
Steve Pearson 48:18
So I just have two reflections, I guess, one is sometimes a discussion of whether rewards are adequate or, you know, and I have a healthy respect for skepticism that the government can fix things in a market system, but not complete skepticism. And one of the things that is talked about in rooms of health providers is something that economists call opportunity cost, and you probably all have an intuitive sense for that. But earlier, I invited you to put yourselves in the shoes of pharma at the negotiating table and CMS if you were in the shoes of people who are running Medicaid programs in this country, or even more, if you will, diverse health systems. Every day, they are making choices about what they can do with their limited resources. When the hepatitis C drugs came out, they were a blessing, a miracle of science, a cure, and I talked to the chief medical officer in California Medicaid program, and he said, what I will spend on those drugs this year, I could provide healthy checkups for all the children in my state from birth to age 18, and I can't do that now, and somehow the state legislature going to have to get me more money so I can pay for these hepatitis drugs. And yes, competition led to lower prices relatively soon, but there was a crunch period, and I just want to make the point that there is a harm to over rewarding with price and with cost, and it comes in human suffering. Human lives that are almost never in a room like this. There are people who barely ever get to the table to talk about how hard it is for them to afford their health insurance, much less what the out of pocket is that insurance company and their employer have decided they need to pay. So I just I hope that thinking about the opportunity cost from the patient perspective can be a part of thinking about how we judge whether rewards are too ample or not ample enough. My second very disconnected thought is just about the IRA, if we're taking pot shots at things that we still think are in the general and I do think in general, very good for the country and for patients. There was an evolution, and again, much linked to hatch Waxman. The very first iterations of HR three before it eventually became the IRA were going after high cost drugs full stop. It didn't matter whether they had generic competition. Didn't matter whether they'd been out in the market for 10 years. It was a high spend drug first year out of the block. It was going to be open to negotiation and to be fair, that's the way that every other developed country does this because of their opportunity cost concerns. They think, even if it's during the first few years, if we're spending quote, unquote too much on drugs overall, we are doing harm in other parts of our health system or society, we may not just be able to raise taxes or push it into the into the national debt. So And like any law that takes a bite a piece of the apple or the balloon, if you will, we're trying to squish it. The Ira has done a brilliant job. And Al and others have talked about this. We don't talk about it enough anymore at eliminating price increases year on year that have done a tremendous damage to the affordability of drugs in this country compared to other countries we've now addressed, if you will, the quote, unquote, problem of failure of generic competition late in the cycle of a drug life. What does that leave if you're a drug company and you are mandated by your shareholders to try to keep your revenues up and to expand them. It leaves you with your launch prices. And so, like any balloon, if we squeeze on price increases and we try to really kind of hardwire generic pricing later on, there's every reason to expect that 10 years from now, be back talking about a law that addresses launch prices. Every economist will tell you that's coming as the baby boomer generation continues to age and costs more. So the IRA didn't touch that because of the respect, if you will, for the innovation incentives that it might harm. But I feel like it's on a generational path towards getting there, and I hope we can get that part right, because that really is where innovation is in the cradle, and where we need to think very hard about the trade offs of which drugs we get, how many we get, and how much we can pay for them. Erica.
Erika Lietzan 52:54
Okay, so I have two, two quick thoughts in response to Rachel and Steve, and then I want to say one of the other things that I was going to say before the one thing I would say in response to Rachel is that I believe that the prescription drug plans were able to negotiate as well, and I believe that all the products that were actually put into the program, the 10 had already been the subject of a fair amount of price negotiation with the plans putting aside Medicare itself. So I don't mean I'm
Rachel Sachs 53:33
not supposed to respond, right? So
Erika Lietzan 53:38
as if to respond, I'll give you 20 of my second Well,
Rachel Sachs 53:41
three minutes if you say you must cover all drugs in this particular class, sure you could negotiate, but you must cover all drugs in this particular class, how meaningful is the negotiation ability of private plans?
Erika Lietzan 53:54
Well, I guess I would say I appreciate the concern when negotiations aren't really negotiations. As to Steve's point, I actually the thing I agree with him about is, is that I think that we're going to be back here, I don't even think in 10 years. I forget, I mean, not specifically at lunch prices, but I think we're going to be back here in five years. And I just, I think there are so many unintended consequences here. I think we just have no idea how this is going to play out. One of the areas, and this was one I was going to talk about it earlier, is is back to biologics and biosimilars. And I know everybody is concerned that there aren't enough biosimilars on the market. And you know, everyone, there are lots of reasons, lots of people, lots of theories, but I see this as having a real impact on that. I just when I think about a biosimilar company, if you think the but imagine the brand biologic. It's got a patent out to year 17, let's say, um. Yeah, there's no biosimilar at year 11, because there can't be. So it's going to be put into the pricing program with a price kicking in at year 13. And I think about a biosimilar company, and I don't, I'm sorry. I get that time back it. I don't know what they're supposed to do. They can't ask for the delay in the price kicking in at year 13 without without having the patent litigation resolved, because they can't show that they're highly likely to come to market within two years. But they can't try to settle the case, because, I assume, and maybe this is wrong, that CMS is going to say that the settlement provides an incentive for them to ask for the pause, which is one of the grounds on which the pause can't be granted. So I the only thing that seems to work in my head is that they get the entire patent litigation fully resolved in their favor before asking for the pause. But that requires filing the application really early, and although the statute allows it to be filed at year four, the requirements that FDA has put in place for the contents of a biosimilar application. Mean, there's no way it can be done by then, all right. I mean, it's going to take them at least, if they start right away, it's going to take them at least eight years. I just and most of them will tell you that they try to aim for having their action date right around the time when they could launch. So I just, I don't see it working. I don't understand how, how that's not going to end up with resulting even fewer biosimilars than the few that we're getting now. So I mean, again, I just, I feel like we're going to be back here at the table in five years
Unknown Speaker 56:57
sooner. It warms
Daniel Hemel 56:59
my heart to see cozy and bargaining over the allocation of speaking minutes among panelists in real time you set a year up next.
Lisa Larrimore Ouellette 57:07
Great. So I agree with Rachel's response to Richard. I'll just add that, like, if you care about markets, I mean, the way we're currently setting Medicare and Medicaid prices are distorting the private markets. And and I think is another justification for doing them in a different way, rather than having them interfering with the market the way they currently are. Rachel's points about the that I'm being a little too hard on, on the IRA in terms of the too low problem, problem are, like, well, taken like, yes, there's. But I think these are small tweaks, and not on the scale that I'm talking about. And like we we saw during covid, the the kind of results that are possible given, like, enormous sufficient investment in tackling a problem like developing a vaccine, which was done in like remarkable record time and and you can debate about exactly the details of how we did that, and lots of aspects of that, but like by any measure, the amount of social value that was created was, like enormous compared to the cost there. And I think there are more opportunities like that if government policymakers are willing to invest in innovation to that extent. And Steve's point on the kind of price to patients and the like real harm that can come when people can't afford their insurance or their medicines, I also completely agree with that, and that's why, as I said in my initial remarks, I think it's important that policymakers both be thinking about how to set innovation policy and be thinking about how to provide broad, universal access to the results of these innovations. And I think, like the covid vaccines are another example of how this is possible, like the rewards the manufacturers was very large, but most of us were able to receive a covid vaccine without paying anything like it is possible for policymakers to design policies that accomplish both of those goals. Richard,
Speaker 1 59:06
I'm going to make several points. One is the first thing. When you're talking about Medicare and you compare it with private plans, you don't simply have to put yourself in the position by statute, where every drug that's on the market you have to buy. You could play one off against another. So as far as I can see, Medicare does not necessarily know how to run its organization when it does that. The second point that I want to make is about the covid vaccine. I don't know what world Lisa lives in, but it's not the world that I live in. The number of objections to the vaccine, premature development, various kinds of side effects and so forth, various kinds of trauma. My wife was Damn near killed by that vaccine, and nobody at NYU bothered to report it when I mentioned the difficulties associated with this. If that's what value engineering is about, the whole process is so incredibly political that one has to have very, very difficult about it. Yeah, and you do remember, for example, that they banned ivermectin and HcQ in May of 2020, was that a value decision, or was it not? This is what was going on here. Is not, we don't want to get value. We do want to get value. Of course, we want to get value. But the issue is whether or not running this by a series of government programs that essentially are biased in one particular direction is there. Just take a look at the transcript, which was suppressed in the Murphy case, having to do with Missouri and other places. And you have no confidence whatsoever in this. So what's really going on here is just a massive government takeover, and it's not the exercise of a competitive market. That's a dream land. This is an exercise of really powerful market dominance, buyer, single buyer, which is pushing things. And Rachel, I'm going to ask you, how many defense contracts have gone the following way. Well, we would like you to supply some artillery shells, and this is the price that we're willing to do it. And by the way, if you don't supply us with the artillery shells. What's going to happen is we're going to cancel all government contracts with you. That's exactly what's going on in this particular case. And to sort of pretend that that's just not a feature of these negotiations is a simple form of blindness. You know? What they say is, we have a method. You don't want to take our prices and you don't want to leave the program. Well, it's really simple. What we'll do is we'll take the money that you get and 95% of it will be a tax that we'll get, and you'll get the residual 5% there is no market in the history of sex and civilization that would call that voluntary, and that's what we're being sold here. This is a monstrous program which ought to be terminated forthwith, and if the government wants to bargain first, what it ought to do is get its own Medicare and Medicaid stuff in order which it is not, and then figure out what to do. So the one last point is, 1965 it was basically pure stupidity when Medicare was introduced to say that we'll pay you the price in the prevailing market. So what happened is all the low casing people were out of the market. You then sold the pie hire people who could pay more. So what you did is you got more people in the voluntary market because you only had a different supply group, and then you had to pay those prices for everybody else. That was a complete recipe for disaster, and one had to really reform that. And what I'm not seeing here is any real appreciation of the many blunders that have led to this situation. All we see here is you've got 10 blunders. The way we solve it is created an 11th. This is not the way I think that you want to be doing serious business.
Daniel Hemel 1:02:33
All right, we'll move to questions in in a moment. I'm not an MD, but I'm going to continue to recommend the covid 19 vaccine. Don't bribe. Do not take it. But we've we've talked about potential unintended consequences of the negotiation provisions, effect on innovation, effect on generic and biosimilar competition. I'll use moderator's privilege to ask about this idea that squeezing at the back end could lead to a higher launch price. So it strikes me that if we believe that pharma and biotech companies are rational actors, they should be choosing the revenue, maximizing launch price, pre and post the IRA, and if they could get more revenue by charging a higher launch price. They should have been doing that already. So I'll kick it to Steve, and then if other panelists have used, why would we expect this then to lead to higher launch prices? Unless pharma and biotech were just leaving money on the table? Oh,
Steve Pearson 1:03:38
well, they were very reasonable question. I guess maybe two interlinking responses to that. One is, if you look the best public of it, publicly available information on how drug prices are set came from the Senate investigation of Gilead after the hepatitis C drugs were created, and they showed these classic slides. If we price here, what will payers do? What will key doctors do? What will patient groups do? What will government do? And they have red, green and yellow. Red means bad things will happen. Yellow is we're not sure, and green is go for it. And as the price goes up, it also shows how much money we're going to make in different time horizons. So it's a single slide that can kind of put all this together, and I did mention it, but what I've heard anecdotally from a lot of people inside drug companies is that the reason they don't price a million dollars a day for their drug is because they know that Congress will change the rules of the game. If they try that, the public pushback will ultimately lead to killing the golden goose, and there was a lot of consternation actually, when Gilead priced its hepatitis C pills at $1,000 a pill, because people said they're overdoing it, they're going to get Congress on our backs and change the rules. So that's a key feature. I've also heard from venture capitalists that IRA has now changed this game. Am a bit already that they were somewhat deferential to scientists coming into the room and say, we think it's got this therapeutic value, we'd like to charge x because that's kind of what other people have been charging in the market. Maybe they a little bit better, but I have at least two venture capital friends in different companies who now say they demand to know why they are not charging a million dollars a year. Other more other drugs in the market now, gene therapies are well over $2 million a year. You've got a good drug. Tell me why you're not going to make more money. For me by charging a million, they're pushing companies to go for it, and they say it's partly because they need that curve to show that they're going to make a lot more money in the early years, especially for small molecules. So I think I have anecdotal information. You can also go back empirically and when the Clinton health care reform was tiptoeing up to the finish line, pharmaceutical price increases and launch prices, their empirical data showing that they went suddenly, very quiet, very few price increases, launch prices. No one wanted a headline. The second the Clinton reform plan went and then boom, price increases went way back up, and price launch prices went way back up. So right now, not just the pharmaceutical industry being a rational actor, but a lot of people feel that Congress has basically expended every last ounce of its energy to get the IRA passed. The chance they're going to do something substantive on drug prices in the next five years is pretty small. So why not go for it now? Now the gates are open. There's even some financial reason to go higher on launch prices, and if you get into the headlines. So what? Just deal with it, because Congress is not going to, in a sense, have much to say. So that's my argument, at least. And it all wraps up into a big anecdotal ball, to a certain extent. But I have different threads that lead me to think that we are likely to see a continuing and Aaron's done great empirical work on this to show that the launch prices have been increasing anyway, but my guess is that we'll see a step change.
Daniel Hemel 1:07:05
I already see a question in the audience for Maddie,
Speaker 2 1:07:07
Hi Richard. So I guess my question is, Oh, thanks. I guess I hired our technicals yesterday. I guess I want to sort of fight the hypo that this whole panel's about a market. I mean, look, if you ask anybody in the insurance industry, you're part of a normal market, they're going to say, hell no, right? They're going to say, we're part of a regulated market. We get transfers from the government, we get guaranteed customer days from the government, and we get regulated in return. So the pharmaceutical industry has benefited from a long time, as you said, Steve, from sort of being apart from the market because the history of the failed Medicare part de negotiation reforms. People who don't know know that Medicare didn't cover prescription drugs till 2003 hush Waxman was 20 years older than Medicare covering prescription drugs. So I guess my question is, even if everything you say is true, it's kind of weird to say, on the one hand, this is not acting like a normal market. It's not a normal market. And with each increasing development, I mean, I don't want to, I want to talk about this on our panel, but there are a lot of other ways in which the government regulates drug pricing outside of IRA, outside of hatch Waxman. And so the question is, like to think about, to talk about it in this term, it seemed a little, it just seemed a little rarefied. And I guess Richard, my question for you is, isn't the answer Medicare should be abolished? Like, that's the answer to your that's the answer, not, not this one tweak among all of these different tweaks in a non market environment should be you're
Speaker 1 1:08:33
asking me this question the year, in 1965 I was opposed, even when I was in law school, to the statute for exactly the reasons that happened. The green eyeshades of Bob Dole were going to turn red very quickly. But can you abolish it today? Given everything that has else has happened, I think the answer is no. There's just been too much that's gone on, too many reliant interests, the destruction of too many situations. The parallel take something that's really easy in comparison, the abolition of Social Security, right? Much simpler. And the whole thing founded. Because once you start having people over 65 the cross subsidies within that group, between 65 and over 80 I can verify that personally, are enormous. And there was no way if you go back to a market situation, unless you had enormous transfers to older people that would solve it. And so what we did is we kept with the cross subsidies that we knew, as opposed to the cross subsidies that we didn't know. So the answer that I'm going to give you is, I do not understand how to unscramble the omelet, but I do know this, that if you basically stir it up more with a crazy statute like this one, it's going to only make things worse. And look, I mean, Erica is an in the trenches litigator in her previous life, when she was at Covington, we worked together, and what happens is, when you sit with that perspective, what you do is you realize that high sounding statements about knowing value this out. The other thing are going to be overwhelmed by the technical difficulties of the statute, where very clever lawyers on both sides are going to find glitches and unanticipated situations that will take years to resolve itself in a judicial situation. So don't do it again. The situation is bad enough as it is, and there are ways that you can deregulate within Medicare or Medicaid, which are far superior than this highly coercive statute, which now masquerades as moving us towards competitive prices. Omelet is
Speaker 2 1:10:28
like your omelet is a bacon, lettuce and tomato omelet, but there are mushrooms here that are not in the omelet, and somehow have gotten to be completely apart from the omelet when everyone is part of breakfast, right? So we have like, we have a health care system where everything else, or most everything else, is now in the Affordable Care Act, which, by the way, was drafted by and relaxment, we have,
Speaker 1 1:10:52
wait a second, it was Waxman and Hatch had very different statutes in mind we
Speaker 2 1:10:58
have. Why is it that the pharmaceutical market gets to hang out here when we have all the other I don't
Speaker 1 1:11:03
look I mean, if it turns for sensible reform, I'm all with you. This is just a stupid reform.
Daniel Hemel 1:11:09
I'm just going to note that bacon, tomato, mushrooms in an omelet. Heard of that before, but lettuce in response to isn't the implication of your argument that we should abolish Medicare? No, actually, we should abolish Medicare and Social Daniel, can
Rachel Sachs 1:11:26
I add it? Can I add one historical note to Abby's comment? Just briefly, he's looking around, Hi,
Richard Epstein 1:11:31
I just
Rachel Sachs 1:11:34
want to add one historical note to Abby's point, just because I don't know if everyone in the room caught it, just that this is the time that we're seeing Medicare come in and have something to say about prices. But it would be maybe remiss of me not to note that Medicaid, which is actually now a larger government program, has had sort of drug rebate program since 1990 and so when we talk about, you know, price increases over time, when we talk about statutory discounts, some of these things, Medicaid has been doing it for over 30 years, and there has not been the sort of same outcry in that context as there has been here. So just, just to sort of bring out Abby's point a little more,
Speaker 3 1:12:18
first off, thank you. This is an amazing panel I'm learning so much from you all. Oh, okay, my question is about what your thoughts are on balancing the sort of short term upfront costs versus the long term savings of some drugs. And that was sparked for me when you brought up the Hep C drugs like Sovaldi, but that product is curative, right? So of course, it's going to have a much, you know, larger upfront cost, and you could say the same thing for a lot of other new products that have come to market, like wegovy ozempic, those products all have very significant long term savings, but very significant short term costs, right? So what are your thoughts on how to balance that properly in a way that's fair to all parties.
Steve Pearson 1:13:05
Well, there's a technical way to do it, which is cost effectiveness modeling, in which you do try to capture the long term effects. And surprisingly, though, ethics starts to knock on the door when you do that from a truly societal perspective, because every year that we keep people alive after age 65 they are, as one politician put it takers, right, and so you have to be very careful what you really want to count as a benefit and a cost and something that society doesn't want to consider as a benefit or a cost, in order to make sure that our values, if you will, our social values, are embedded in that kind of perspective, but we don't have a national payer that covers everybody from soup to nuts. I remember talking to the Chief Medical Officer at Medicare about hepatitis C drugs, and I said, Look, you're going to save money because they won't need liver transplants, because most of those don't happen until people have had the disease for several decades. So you actually stand to benefit financially and from a health perspective, if people get treated for hepatitis C in their 40s. So why don't you kick in the money from Medicare? Kind of do an early down payment on better health and lower costs. He said, I would love to do that, but if I get paid for every uncontrolled diabetic who ends up at Medicare's door at age 65 or someone who's been smoking for 10 years who hasn't been told to quit, so there was even at that level, there was a hard time thinking about the lifespan health and costs in our country in particular. Doesn't make mean that it's super easy in other countries as well, but they do, in some ways, have a an ability to think a bit more broad term and try to figure out how to make those balances work.
Lisa Larrimore Ouellette 1:14:48
Can I just briefly add that I think this is one of many ways in which the current pharma pricing system is broken and that there is a distortion where it is more profitable to develop a. A treatment that needs to be taken repeatedly versus a like one time cure. It's also more profitable to be producing a treatment than a preventative, like all else equal, due to a combination of economic factors and behavioral effects. And that is not a distortion that from a social welfare perspective we should want, and so from an innovation policy perspective, you should be thinking about how to correct for that and the incentives we're providing for companies. Let's go for another
Patricia A. Martone 1:15:33
question. Hi. My name is Patricia Martone. I'm a retired Patent Trial Lawyer and taught patents here for many years as an adjunct, and I'm a strong believer in a strong patent system, but I'm also a taker now as a retired person, and I'm covered by Medicare, and I have a Part D plan, and I'm fortunate in that I don't need to rely on Medicare all the time, but I think we're missing a big societal perspective here from for many of the comments about isn't our duty as a country to make sure that people have access to health care? What is the point of charging so much for a drug that most of the people in this country can't afford it? That, to me, has to be very high on the list of things that government considers when it decides on passing a statute like the IRA and your comments, we welcome
Daniel Hemel 1:16:30
Erica and Rachel. Erica hasn't had a chance to weigh in recently. Would you like to on this? Rachel?
Rachel Sachs 1:16:37
Well, so as
Erika Lietzan 1:16:39
I've said before, I can make my time to Richard, though, right?
Rachel Sachs 1:16:44
Maybe, maybe I will say it again, the IRA is more than the negotiation program. And so one of the things the IRA did is it restructured the Medicare Part D benefit, and for the first time, there's now a cap on seniors out of pocket costs. So previously, seniors could be asked to pay 1000s and 1000s of dollars, without limit, the more expensive a drug that they took. Now there's a cap on seniors out of pocket costs, and seniors may be able to spread the cost of their medications throughout the year. So if you know that you're taking a very expensive cancer drug, you don't have to spend $2,000 which is the cap for 2025 in January. You can spread that cost throughout the year. So there's a whole range of ways in which the IRA does things to care about exactly that question, to care about seniors out of pocket costs. One thing about a reform like that is, it turns out to cost the government money. Because one thing you're doing is, you're saying and the government is going to provide a more generous insurance benefit for seniors. Medicare subsidizes seniors premiums, right in many ways. So, so that element of the IRA scores the Congressional Budget Office scores that as costing the government money it is combined with these inflation rebates the negotiation program, which CBO scores as saving money. And if we're in the spirit of recommending law review articles, and then I'll be done. I often find myself going back to Tim westmoreland's classic piece standard errors, how budget rules distort lawmaking, which is basically about the Congressional Budget Office and the ways in which the 10 year time horizon and its various scoring provisions shape the legislation that we see. And I think it's relevant to a lot of the questions that we've been talking
Daniel Hemel 1:18:21
about, I see a bunch more questions. So why don't we go, Well, I just want to make sure that we have more people, more
Unknown Speaker 1:18:29
I know, but you never want the opposition to come in.
Daniel Hemel 1:18:33
Why don't we get a question from there, and then Melissa, and then we'll give the panel the panel
Unknown Speaker 1:18:37
spot, not me. Sorry.
Speaker 4 1:18:38
I'm also Melissa. So this is confusing for me. Miss Melissa, and then a different Melissa. Is that right? Yeah. Is that right? Yes. So hello. I'm an economist that does a bit of law, which I think is the reverse of what's happening here, which is very, very smart lawyers thinking about economics, a very explosive statement was made that no market in the history of civilization has ever had essentially cost plus pricing, and defense contracting got bought up a lot. And the fun thing about defense contracting is they literally do cost plus pricing. They literally say, How much does it cost you to do this? Have an extra 10% and that works for defense contracting of medicines as well. I also just kind of want to expand the scope of what we think of there have been some statements that, like the IRA is this draconian, crazy thing. This is completely unprecedented. It's lettuce and an omelet when we're talking about price negotiations and things government can do, a really interesting thing the government did to deal with price speculation some decades ago was they were faced with a crazy price and so they said, Hi, we're going to manufacture the drug, unless you bring the price down. All of a sudden the price comes down. They don't even bother to manufacture the drug. So when we're talking about like, spectrum of policy options, negotiation is like center, right? It's really not the full menu of things that government can do. And I realize that's a comment, not a question, but there
Daniel Hemel 1:19:44
we go. That's great. And then Melissa, other Melissa, so
Richard Epstein 1:19:51
Erica, I was curious if you could just respond. I thought to like Rachel's counter to the seven and nine years as. Which I thought you were saying is, in part, that we need, like, comparative effectiveness data, or that the government's not going to go crazy. So what was your response? I
Erika Lietzan 1:20:08
don't, I guess I I'm happy to respond if Rachel had something on the seven and nine years, I
Richard Epstein 1:20:12
don't remember. Okay, no, you
Rachel Sachs 1:20:14
were, you were commenting about the number of new drugs, and I was talking about the importance of looking at the value of new drugs and the law comparative effectiveness. But that's that wasn't about the seven to nine years question. Yeah,
Erika Lietzan 1:20:26
yeah, no. I mean, it was my comment that, you know, it's either 100 and some new drugs that we're not going to have, or, you know, two or three. And her comment was, you know, the value of the drug is more important than the number of them, and also important. Yeah, I guess the problem is you don't necessarily know at the beginning of a 10 or 12 year research project what you're going to get at the end. So you have to make the investment decision without knowing that.
Lisa Larrimore Ouellette 1:20:51
I'm joining Dr Pearson and educated minority. I have a comment from what Professor Saxo said for years, the United States government, VA system has negotiated price cuts. According to the GAO in last year, they commented about, I think 2020, average 54% discount on drug prices, and that's probably billions of dollars. And in theory, it could have been a one paragraph comment saying that we're going to adopt the VA prescription program, although that would cause layoffs for many people in the CMS arena to negotiate
Daniel Hemel 1:21:26
great more questions,
Speaker 1 1:21:28
I have an answer. Let me answer the first question about the subsidies. Medicare essentially receives public subsidies so that the current recipients pay only a small fraction of the total cost. The hard question is to ask whether that money should go to exotic drugs in very expensive cases, or should be used for more general treatments which cost less and may give you a higher rate of return. And we do know that Medicare expenses, essentially on the drug industry, have done very little to expand life expectancy, because drugs are much less important in the long run than having a balanced diet and avoiding childhood illnesses and all sorts of other things. Second point I want to make is that nobody is objecting to cost plus pricing as such. The argument here is, if you don't take our prices, we're going to steal all your business. And what you have to show me is a defense contractor says the Grumman, you don't yield to us. In this particular case, we're canceling all your contracts that does not exist. Lisa, do
Daniel Hemel 1:22:23
you want to take the opportunity to object to cost plus pricing?
Lisa Larrimore Ouellette 1:22:27
I mean, I think it makes sense. It can make sense in the context where you're like, just trying to obtain something that is on the market. But if you're like, thinking about from an innovation perspective, cost plus pricing has been defended by some people as the like way we should be optimally thinking about this. But I think the problem is that it then doesn't align, in any way, the incentives with the like, actual social value, because it then would produce the same incentive to invest in any project, because every project, like, if you're getting cost plus, then, like, whether it's saving like, 10 people or a billion people, like, you're going to get the same plus based on whatever your cost was. So this is like a theoretical perspective. When you're trying to incentivize innovation, it doesn't make sense.
Daniel Hemel 1:23:13
We have time for I think one more question, do we not Yep,
Unknown Speaker 1:23:20
whoa. Let him run.
Reshma Ramachandran 1:23:25
Thank you so much. Just one comment and a question, the CBO has been tracking venture capital investment since the passage of the IRA, and they've noted repeatedly in two years reports, the venture capital investment in pharmaceuticals has not decreased. It actually increased. And that's to kind of Steve's point about their interest in actually, some particular products, especially solid gene therapies, and also increased launch prices. So I think, you know, companies, at least on that front end investment is are doing just fine. The second question that I have is just talking about this in the context of reality, in some ways, in terms of, you know, there's prices that people pay under Medicare, but there's also insurance premiums, and I think that kind of part of the discussion has been ignored a little bit here, and talking about questions of increased drug spending as a way to kind of incentivize innovation. We have a public payer, and they have specific budgets. So in doing so, how do you kind of contend with the idea that we and we've seen this in real time, that with increased drug prices, we're seeing higher insurance premiums. We saw this with aducanumab, a drug that was not very good, we saw a 15% price premium increase for Medicare Part B. So just want to ask this sort of question about these sort of opportunity costs that come into play, and to kind of Richard's last point, there's also an opportunity cost, if you're talking about healthy food and all these other sort of programs saying about Medicare, invest in if they're paying a lot of money for drugs, I don't see how they're going to be able to kind of address those sort of
Steve Pearson 1:24:48
preventative health
Daniel Hemel 1:24:49
services as well. Lisa, do you want to take
Lisa Larrimore Ouellette 1:24:53
that? I mean, to the extent that, like, incentives are aligned, so that we are paying for things that have added value? Then. And like, the cost that we're spending on them is, as a society, is worthwhile. I think there's issues with like, what gets put on the government budget, and the dysfunction of like, the current government budget setting process, but and the way like, different innovation policies are on the government books versus not. And also, to Rachel's point about the like, way we think about the scoring process and how we count what, what's actually cost, but from a policy perspective, if we are investing in things that have a like, greater social benefit, and the cost is much less than like, that's a good thing,
Daniel Hemel 1:25:35
given attention to the rigidity of the 10 year budget window, I think we've just reached our 80 minute time window. So thank you to the panelists and to the questioners for our great
Announcer 1:25:46
discussion. The engelberg center live podcast is a production of the engelberg center on innovation Law and Policy at NYU Law, and is released under a Creative Commons, Attribution, 4.0 International license. Our theme music is by Jessica Batke and is licensed under a Creative Commons, Attribution, 4.0 International license.