KEI Reaction to the White House CEA Paper on Biopharmaceutical Pricing Home and Abroad

On February 9, 2018, the Trump Administration released a paper by the Counsel of Economic Advisers (CEA) on drug pricing. The paper on pricing was thought to have been led by economist Tomas Philipson, appointed to the CEA by President Trump in 2017. Philipson is also a consultant to the Biden Cancer Initiative.

Much of the paper could have been written by PhRMA, and relied on arguments and evidence provided by many of the big pharma consultants, such as Joseph DiMasi, Patricia Danzon, Ernst Berndt and others.

This is a copy of the report:

CEA-Rx-White-Paper-Final2

One extended theme in the report was that foreign countries that take measures to curb high drug prices are free riding on the United States, an argument that seems at odds with the possibility that the United States would emulate those price moderating measures.

The paucity of patented medicines on the World Health Organization’s Essential Medicines List was mentioned briefly, but in the content of suggesting that poor people could get along with off-patent drugs for the most part, without questioning the obvious double standard for care.

The proposals for US pricing measures were notable for both the lack of ambition and details on implementation. The proposal to move drugs for Medicare from Part B to Part D is an effort to avoid entertaining a role for the federal government (the largest buyer and reimbursement agency in the world by far) from using its power to negotiate prices. There was no mention of measures like compulsory licensing of drug patents, as a means of leverage to move prices down without resorting to formularies or other restrictions on access.

The CEA report did not mention orphan drugs even once, despite the fact that the system of incentives for the development of and prices for rare disease treatments are obviously broken.

The discussion on transparency of drug prices needs more context and details on implementation, particular as the report recommends a larger role for negotiations by Medicare Part D payers.

On the lack of competition for biosimilars, the report ignores the most important measure, which is to mandate greater access to manufacturing know-how and materials, in order to reduce the costs and time of entry for competitors.

There was nothing in the report about the proposals to use Bayh-Dole rights in federally funded research to lower prices, when the federal government holds royalty free rights and march-in rights in the patents and has directly licensed many expensive treatments to biopharmaceutical companies.

The best thing that can be said about the report is that after more than a year, we finally have something in writing about drug prices from the Trump Administration, and now it’s clear that the Administration has been extensively managed by big pharma to avoid measures that would fundamentally change prices on new drugs in the United States, and to punish any foreign country that does challenge excessive prices. This is disappointing content from the Trump Administration, and now we wait to see how the Democrats will respond.

What we are waiting for are measures that would do the following:

  1. Make R&D costs more transparent, so we don’t just keep seeing Joseph DiMasi’s industry advocacy quoted in government reports.
  2. Express a willingness to end legal monopolies on products when prices are excessive. These legal monopolies are privileges and those privileges should be eliminated when abused.
  3. Overhaul the management of intellectual property rights on government funded drugs, by limiting the use of exclusive licenses, and ensuring that when exclusive licenses are used, prices are reasonable (as is required by 35 USC § 201.f).
  4. Require manufacturers of biologic products to provide access to know-how and materials so that when the temporary legal monopoly ends, the actual monopoly ends.
  5. Reframe the discussions over drug prices to include discussions of the reasonableness of R&D incentives. A price is not reasonable if the incentive provided is not reasonable. We are spending globally more than $25 billion per year for HIV drugs, and only getting an average of one novel drug per year over the past 30 years. That is a huge mismatch between the costs of the incentives and the investments induced.
  6. Begin serious work on new business models for drug development that progressively delink R&D incentives from product prices.
  7. Refocus trade policy on policies that support R&D investments, rather than product prices, and promote global norms that include and do not ignore public sector funding of R&D.

Commentary

Steve Usdin, Money in your pocket: Why the Trump administration wants to put medicare part d rebates in patients’ pockets, BioCentury, February 10, 2018.

James Love

James Love is the Director of Knowledge Ecology International. Previously, he was an economist for the Center for Study of Responsive Law where he also directed the Consumer Project on Technology and the Taxpayer Assets Project, Senior Economist for the Frank Russell Corporation, and held lecturer positions at Rutgers and Princeton Universities. His KEI webpage is https://keionline.org/jamie.