The past year has showcased the best and worst of the US systems for developing, approving, and paying for prescription drugs. On the one hand, 2020 saw the rapid development of highly effective COVID-19 vaccines, purchased at a reasonable cost by the US government and distributed to US residents for free. On the other hand, in June 2021 the US Food and Drug Administration announced the highly contentious approval of aducanumab for Alzheimer disease, a drug with serious safety risks, limited evidence of benefit, and an astounding launch price of $56 000 per year, far from the value-based annual price of $3000-$8400 estimated by the Institute for Clinical and Economic Review. It would be hard to find any clearer examples of high- and low-value care in the pharmaceutical arena than these products.
The COVID-19 vaccines provide a glimpse of what drug pricing could look like if the US engaged more directly in price negotiation and value-based pricing—and aducanumab, a high-resolution snapshot of what it looks like now. For the vaccines, the US government acted as a single payer to negotiate a favorable price for hundreds of millions of doses through a series of bulk purchases. It also substantially lowered risk for manufacturers investing in vaccine development by offering guaranteed purchasing contracts and financial support for trials early in the vaccines’ development. In contrast, aducanumab was developed through traditional processes and will be reimbursed primarily by Medicare Part B, which has virtually no cost-containment options for covered products. As with most other drugs, aducanumab’s price is set by the manufacturer at whatever the market will bear.
In short, the COVID-19 vaccines and aducanumab make the consequences of the nation’s choices about drug price regulation starkly clear. The key takeaway, as Congress turns its attention back to addressing prescription drug costs, is that centralized price negotiation must come to Medicare.
A committee of the National Academies of Sciences, Engineering, and Medicine—on which we served—reached this conclusion in 2018.1 Although Medicare price negotiation was a pillar of Donald Trump’s platform as a presidential candidate in 2016, it is not presently represented in Republican-backed drug reform bills. The leading Democrat-sponsored bill in the US House of Representatives, HR 3, would empower the Secretary of the Department of Health and Human Services to negotiate prices, but leading Republican-sponsored proposals do not. Nevertheless, President Biden in April called on Congress to “get it done this year.”
Reaching political compromise on drug price negotiations has enormous potential for generating savings. Under HR 3, savings resulting from drug price negotiation were estimated by the Congressional Budget Office at nearly $450 billion over 10 years.2 Despite this potential benefit, such extensive reform will be difficult to achieve this year. Although action through the budget reconciliation process is possible, support for the bill is lacking among Republicans and softening even among some Democrats. But there are 2 other ideas that have garnered bipartisan support in Congress—achievable targets for 2021 that could help build momentum for bigger reforms down the road.
The first idea is to limit drug price increases in Medicare. Bipartisan legislation from the Senate Finance Committee and Democrats’ HR 3 both proposed to limit price hikes in Medicare Parts D and B to the rate of inflation. Similar limits already exist for Medicaid and this change could save Medicare an estimated $80 billion over 10 years.3 Price-hike restrictions are also more politically palatable than limiting launch prices; when companies set their own initial prices, claims that large subsequent price increases are reasonable and fair are harder to justify.4
The second idea is to fix the Medicare Part D outpatient prescription drug benefit. Medicare beneficiaries’ heavy out-of-pocket burden for outpatient drugs5 has sparked Republican- and Democrat-led bills in the House of Representatives and a bipartisan bill in the Senate proposing a “redesign” of Part D. Today’s Part D benefit consists of multiple coverage phases, all with different patient cost-sharing arrangements. This leads to unpredictable out-of-pocket costs from one pharmacy visit to the next. In addition, the Part D benefit has no limit on out-of-pocket spending, unlike virtually all other insurance benefits available today. The current design also limits plans’ incentives to choose lower-priced drugs or manage drug benefit spending, which increases costs to beneficiaries and to the Medicare program.6,7 There is little disagreement about these problems, making them an attractive target for bipartisan action. Furthermore, the approaches to reform are strikingly similar across bills. Cost-sharing arrangements would be simplified across coverage tiers and patients would have an annual out-of-pocket cap of $3100 or less.
Although neither of these bipartisan ideas will directly reduce drug prices, both would address critical problems and provide financial protection for vulnerable Medicare beneficiaries. Accomplishing these goals could foster coalitions important to the more difficult work ahead.
A sustainable, long-term solution to rising drug costs includes not only Medicare price negotiation, but 2 other big ideas1:
Bringing value-based pricing to the negotiating table. Once the Department of Health and Human Services has the power, it should anchor its price demands for Medicare and other federal programs in value-based pricing. This effort could target drugs that have nonstandard approval from the US Food and Drug Administration, such as those approved (as aducanumab was) through accelerated approval pathways where clinical benefits are yet uncertain, or drugs that public payers are required to cover (for example, protected classes). Such targeting could increase bipartisan support for drug price negotiation by focusing on products with benefits that are less certain or for which market forces cannot function properly due to coverage mandates. Incorporating value assessments and value-based pricing in these circumstances could help incentivize true innovation and protect the public from overspending on low-value care. Moreover, finding a basis for evaluating whether launch prices are reasonable will be especially important once price-hike limits are in place because such limits create incentives to set initial prices high.2
Eliminating percentage-based reimbursement. Pharmacy benefits managers, physicians, and hospitals often receive compensation based on a percentage of a drug’s price. This approach rewards high list prices and encourages use of higher-priced drugs over lower-priced ones. Suppliers should instead be compensated for the drugs they provide through flat-fee arrangements. Limiting the practice of compensating stakeholders in the supply chain based on drug prices would help ensure that treatment choices reflect clinical, not economic, preferences.
Winning the long game will not be easy, but both these ideas have potential bipartisan appeal. If Congress can achieve some modest successes this year, that may help lay the groundwork for bigger reforms in drug pricing down the line.
Open Access: This is an open access article distributed under the terms of the CC-BY License. © 2021 Dusetzina SB et al. JAMA Health Forum.
Corresponding Author: Michelle M. Mello, JD, PhD, MPhil, Stanford Law School and Stanford School of Medicine, Department of Health Research and Policy, 559 Nathan Abbott Way, Stanford, CA 94305 (firstname.lastname@example.org).
Conflict of Interest Disclosures: Both authors reported receiving grants from Arnold Ventures and receiving consulting fees from the National Academy for State Health Policy for reports assessing the legality of prescription drug price regulation proposals. Dr Dusetzina reported receiving grants from the Commonwealth Fund, the Leukemia & Lymphoma Society, and the Robert Wood Johnson Foundation; receiving honoraria from West Health and the Institute for Clinical and Economic Review (advisory panel member); and serving on the Medicare Payment Advisory Commission. Dr Mello reported serving as an advisor to CVS Caremark on its value-based formulary product, but has not received fees from the company.
Disclaimer: The views expressed are those of the authors and do not reflect those of the Medicare Payment Advisory Commission.
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Dusetzina SB, Mello MM. Drug Pricing Reform in 2021—Going Big or Going Bipartisan? JAMA Health Forum. 2021;2(7):e212372. doi:10.1001/jamahealthforum.2021.2372