International Reference Pricing: The Answer To Rising Drug Costs?

By Matthew Pillar, Editor, BioProcess Online

Given the federal government’s influence—or, at least, the threat of its influence—on drug pricing and patients’ access to therapy, writing on politics in the context of pharma is sort of unavoidable. This column criticizing Senator Elizabeth Warren’s Medical Innovation Act drew some incoming fire from a few of my progressive friends. Hey, nothing personal, just one independent’s opinion. Alas, here we go again.

This time, the criticism is being launched across both aisles. We could use a little more of that. A little more nuance, a lot less dogmatic bullshit. This one’s going to touch on International Reference Pricing (IRP) and its potential impact on the high cost of medicine, politics, socialism, congressional intervention, and whether the latter can be avoided.

With High-Level Common Ground, How Can IRP Fail?

Taken in isolation, the President Trump/Speaker Pelosi agreement (yes, you read that italicized word right) on adopting IRP to manage the cost of prescription drugs might look like a bright spot. Pelosi and company’s H.R. 3 applies IRP to Medicare part D medications (primarily those distributed by pharmacies), while Trump has suggested the application of IRP to both Medicare parts D and B drugs (those primarily administered by medical professionals).

Common ground? That looks promising to the level-headed centrists and independents who, ideally, would be the only people allowed to vote in this country until the two increasingly polar parties of our government get over themselves. I’m kidding. Well, I’m sort of kidding.

At any rate, at face value, this is a small but important point of consensus on a political battlefield that’s otherwise viciously contested on virtually every debatable issue.

Trump has alluded to a willingness to entertain reference pricing, which is about as firm a commitment we can expect from him with the exception of a border wall. Pelosi adopted a version of reference pricing in the plan to reduce drug prices that she released last month. It’s the kind of thing that gives you warm fuzzy feelings, because you assume anything that could possibly muster bipartisan consensus—at the ideologically-opposed figurehead level of federal government, in particular—must be a not-half-bad idea that could actually work.

But there’s plenty to be skeptical about, at least for the next two years. Why? Because—and this is in acknowledgement that you’ve got to have a screw loose to enter national politics to begin with—election run-ups are no time for common sense and pragmatism in Washington. Instead, it’s a time for digging your heels into party line positions and distancing yourself from appearing to even associate, much less agree, with your opposition. That digression aside, let’s break down the concept of IRP for prescription drugs.

Is IRP A Good And Necessary Idea?

Here’s why IRP is on the table, how it would work, and how congress has turned it into a political issue.

By way of an example, let’s look at a set of biologic disease-modifying antirheumatic drugs (DMARDs). Consider that from 2012 to 2016, annual spending by US public programs and beneficiaries on a dozen DMARDs (adalimumab, etanercept, ustekinumab, abatacept, certolizumab, infliximab, tocilizumab, rituximab, abatacept, anakinra, belimumab, and golimumab) nearly doubled from $5.3 billion to $10.3 billion. That’s according to the American College of Rheumatology, which also specified that the increased spending was due, for the most part, to higher drug costs. Controlling for general inflation, unit price increases alone accounted for 56 percent, or $1.7 billion of the 5-year, $3.0 billion spending increase within Part D. Increased uptake only accounted for 37 percent.

This is simultaneously evidence that 1.) we need to do something to curb rising drug costs in the U.S. and 2.) drug companies are quite adept at increasing their rates. These two realities are in direct opposition to one another, and they’re why IRP is on the table.

Now, you might ask, to the degree that there isn’t an acute connection between a very specific geography and its appetite for a specific drug, can’t a pharma company circumvent IRP by simply hiking its rates strategically in specific countries to steady its balance sheet? The short answer is no.

In keeping with the rheumatoid arthritis example, let’s look at how IRP would work in the case of DMARDs. Rheumatoid Arthritis is a relatively non-discriminatory disease. As such, there’s plenty of global market opportunity for DMARD manufacturers. In Speaker Pelosi’s plan, the price negotiated by the HHS secretary and drug manufacturers is capped at 120 percent of the average price paid by Australia, Canada, France, Germany, Japan and the U.K. (for brand-name drugs with no generic or biosimilar competitor). DMARDs, incidentally, are on average 5.9 times more expensive in the US than they are in France, according to the Annals of the Rheumatic Diseases. For argument’s sake, let’s say the other countries listed here pay, on average, 60 percent of what we pay. Then, let’s say HHS caps pricing here at 120 percent of that, effectively reducing the cost of DMARDs by 48 percent.

How do the powers that be ensure pharma companies don’t nuke that equation by manipulating their pricing in those other countries? That’s simple. Those six other countries were chosen quite strategically. The federal governments in all of them already exercise various forms of tight price controls, either capping prices or dictating the points throughout a drug’s lifespan when its rates can be raised or lowered, and by how much. So, pharma companies have little, if any, leverage to jack up their rates in the countries to which we’d be pegging U.S. prices. Thus, the IRP proposals effectively force change on the internal economics of big pharma.

Resistance Persists On The Right

Despite the signs from adversaries Trump and Pelosi, IRP is far from being characterized as a bipartisan idea. Those way over on the right side of the dogma spectrum immediately level accusations of socialism at the concept. They don’t even like the president’s references to IRP, and they like it far less in light of its alignment with Pelosi’s ideology. Industry orgs like PhRMA and BIO are a bit less divisive, but equally direct in analysis of the concept as an innovation killer. No surprise there. They advocate for and are funded by big pharma, and it is, in fact, incredibly expensive to discover, develop, and deliver a new molecule to market.

Maybe those expenses, those massive internal big pharma economics, are a huge part of the innovation problem. Perhaps there’s not enough innovation being applied to making discoveries faster and more efficiently validating or failing at them. Perhaps the glut of money being made on biologics (they represent 2 percent of prescribed therapies and 37 percent of big pharma revenue) is feeding a spendthrift culture among biopharmas, dissuading them from seeking and implementing materials, production, and logistics efficiencies that could allow them to exact some downward price pressure of their own. Who’s pushing them to? Perhaps IRP would force that hand. Like it or not, Elizbeth Warren’s Medical Innovation Act would. It might not be just and it might not be pretty, but it would affect change.

While the details in their plans might not neatly compute, Pelosi’s IRP proposal and Warren’s bill are, at a minimum, laying down some pressure by formally doing something. Agree with them or not, what they’re doing is far better than what Donald Trump isn’t doing. I’ve seen no action at all on his part to move on his campaign promise to drive down prescription drug prices.

Is Self-Regulation Even An Option Anymore?

In an ideal world, this industry wouldn’t need nor expect the pressure to come from either side of our profoundly partisan government. We’d preemptively adjust and innovate to improve the internal, and subsequently, the commercial economies of therapeutic development and manufacturing on our own. We’d self-correct before we were forced to face the music.

We’d love to hear your take. What drives the high cost of U.S. drugs? How are international pharma companies performing in light of their respective governments’ price controls? And how might we, as an industry, effect the change necessary to avoid government intervention?