Washington. Healthcare. Translated.

Rx Price Reforms: PART III: Pricing Formulas, Consistent with Reform

Ultimately, controlling drug pricing is a shell game. Fixing national drug spend promotes a stronger economy (GDP). Negotiating lower Medicare costs helps the Medicare Trust Fund (or the national debt). Lower OOP spares a patient’s pocketbook (and maybe helps re-elect incumbents). No proposal really helps with all three. In fact, many plans serve one goal (like making copays affordable) while kicking another goal in the shin (affordable copays mean more volume and higher pricing, so national spend rises).


But wait, there’s more. Probably the most disappointing part of the headlines is, not one proposal is new. Canadian imports – been there, done that. Let Medicare patients into copay rebates – well-proven to promote expensive branded drugs over low-cost generics, meaning higher drug spend without clinical benefit.

So we’re seeing recycled proposals that don’t really help. It’s probably too hard to really invent anything novel that might address the big picture challenges in drug pricing. The easy route of recycled proposals wouldn’t be a bad way to keep the topic in the headlines. But would it be too much to ask to recycle the proposals that might actually help?!

Absent from the debate are the simple, while perhaps painful, steps that might make a real difference.


  1. Look at the duals.

Patients dually eligible for both Medicare and Medicaid drug benefits are on average far sicker than other groups and far higher consumers of Rx drugs. They once got their drug benefits through Medicaid, but in about 2005 moved to Medicare. Move them back and suddenly they get huge drug rebates, clawbacks of price hikes above CPI and more. This is not rocket science, folks, but the politics are cruel.

  1. Look at the patient, not the drug.

Manage drug spend for the highest spenders – multiple chronic disease, end of life. Stop looking at the cost of each pill and focus instead on effective drug management to the patients with the highest use. CMS has run demonstration projects on all these options for decades, so the procedures already exist. Use them.

  1. Have “the National Conversation.”

Historically, a new blockbuster drug might increase costs by 10-20% over predecessor therapies. When the cost doubled, speculation grew that insurers would simply refuse to pay. And when the cost hit an arbitrary threshhold — $10,000 per treatment, $100,000, $500,000, speculation moved to outrage. At some point, all policy experts agreed, the nation would need to have a “Conversation” about when a price is simply too high to tolerate. We haven’t had that conversation, even as specialty drugs grow in number, cost, out-of-pocket, and companion costs. It’s time for that chat.

  1. March-in rights and pricing clauses.

NIH research money supports a lot of pharma research, and the law is very generous in “giving away the store” to universities succeeding in discovering new drugs. There are good policy reasons for this generosity, but the law does impose some limits (a reasonable pricing clause for any resulting drug, and a governmental “march-in” right to take over if pricing is excessive). These clauses have never been used. Game over.

  1. State march-in rights.

Just as the feds have march-in rights for some drugs, the States have some similar rights. In cases like childhood vaccines, public health emergencies and more, a State can order production of a new drug (or biologic) without any royalties due the patent holder. States have almost never used this right, but it could be a useful part of a broader strategy.

  1. The $1 mil lifetime cap.

Until the ACA (Obamacare), it was common to put a $1 million lifetime cap on health insurance benefits for any individual. The ACA outlawed those (pretty much) across the board. That happened just as the cancer drug pipeline was moving from the $50K per case ballpark to the $400K level and now to the level of $400K per YEAR, lifelong. Restoring the cap is not an easy topic, but it is part of how we got here so needs to be part of how we get outta here.

These are a few of the missing pieces in the debate over drug pricing. It’s hard to see how we’re going to get out of this mess without bringing these points back into the discussion. But first, we have to start having the discussion.

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