Incentivizing Innovation: A Better Approach to Drug Affordability
Written by: Mac Rung
If you take a look at the world’s leading pharmaceutical companies, even among the vast diversity of products a striking commonality emerges: the majority are American. Despite this, public sentiment towards pharmaceuticals seems to veer on the side of skepticism, leading to anger at corporations for prioritizing profits over public health, and calls to reform the dynamics of the industry as a whole. The anger is reasonable – financial stability and health should not be mutually exclusive – but often misdirected at the pharmaceutical industry. Instead of placing emphasis on cost reductions through price controls, advocates should prioritize lowering costs through insurance reform that benefits patients directly.
Take it from me. I was born with Cystic Fibrosis in the year 2000, when very little treatment was available to address the disease. I grew up healthy by CF standards, putting heavy emphasis on my treatment and training my lungs through exercise. Throughout lower school, I struggled to gain weight and eventually saw my lung function begin to gradually decline. It was this – the progressive nature of the disease – that always caused my family to worry about my next steps, while planning for a future that was never certain.
By some measure of luck, I was born at the right time. In the same year, a small start-up biotechnology company began tinkering with compounds it envisioned would fundamentally change the course of CF treatments – a vision shared by the Cystic Fibrosis Foundation to a tune of forty million dollars. While I was taking pills and inhaling treatments, Vertex Pharmaceuticals was executing studies and devising plans to bring their investment to fruition. Fast forward to 2024, I can say with unquestionable certainty that investment paid off in a big way, for the company and the patient population. As I was preparing to leave for college – at a time when my lung function could have continued to decline – Trikafta became available, parting the clouds that once obscured my future.
While inspiring, my journey should not be unique. In the United States, approximately 25 million people suffer from rare disease, with only 5% having FDA approved treatments¹. Government’s role in this aspect of the pharmaceutical industry should be to create the atmospherics of prosperity – allowing innovation to thrive and patients to benefit. Unfortunately, recent actions have moved the needle in the opposite direction.
Certain states have recently taken action to implement prescription drug affordability review boards (PDABs) to assess and address the affordability of prescription drugs. While well-meaning in nature, these boards tend to incorrectly address the value drugs have on patients’ lives. They fail to take into account the lifetime of hospitalizations, ER visits, and further medical bills that are avoided with effective treatment. Moreso, effective treatment brings value in the form of relief to family, economic productivity, and the aspirations of a newly functional patient that’s no longer inhibited by health from becoming a productive member of society. Not to mention the daily quality of life changes that occur for the patient – changes most would describe as priceless. No health technology assessment or complex pricing model can quantify that.
Furthermore, implementing price controls on a drug before its exclusivity window is up will have a drastic effect on the profit the company reaps, while decreasing accessibility for the patients that need it most. In 2017, 40% of retail prescription drug spending came from Medicare and Medicaid². If a drug is price controlled and therefore lowered in one state, this would have a cascading effect on what Medicaid plans pay for the drug across the country, which is 23.1% lower than the nationwide lowest price³. Rather than take the revenue hit, pharmaceutical companies will opt to pull the drug from the state to avoid a perilous drop in Medicaid revenue. This is a dangerous path to go down, at best trading access for affordability. States should leave drugs within their patent period out of pricing discussions and let the system run its course. This results in cheap and accessible generics for the patient population, and an incentivized company bent on diversifying profits into other drug candidates.
Recently, the passage of the Inflation Reduction Act aims to act on some of the frustration Americans have with the pharmaceutical industry. While many people will save money on Medicare plans due to caps on certain out of pocket costs, there are concerning elements of the act that will hinder future drug discovery initiatives by stacking the odds even higher against drug developers. The act makes small molecule drugs – such as Trikafta – eligible for government price negotiation at only 7 years post launch, with controls going into effect 2 years later. By some estimates, this will nearly cut profits in half, with 52% of total drug sales happening in year 10-13 of the traditional ~14 year patent period⁴. Laws treating profits as an obstacle to affordability make small molecule drug development nearly uninvestable, hindering the innovation that has long been a hallmark of our country.
There are two separate legislative measures that would avoid the current consequences the IRA is having on early stage pharmaceuticals. The first is to pass the Ensuring Pathway to Innovate Cures Act (EPIC Act). This legislation aligns the price negotiation timeline for small molecule products with that of biologics, beginning 13 years post market entry. This removes the “small molecule penalty” that currently discourages innovation in the drug class due to the shorter profit window compared to biologics.
The second measure is to pass the Optimizing Research Progress Hope and New Cures Act (ORPHAN Cures Act). Under the current IRA conditions, a drug is only exempt from price negotiations if it has an orphan drug designation for a singular condition. Many drugs, specifically cancer drugs, are designed to pursue multiple orphan designations (e.g., multiple types of cancer). Companies should be incentivized to pursue as many orphan designations as possible without losing exemption status. This legislation exempts all orphan drugs, such as Trikafta, from price negotiations, even if the drug is indicated for multiple diseases.
To achieve the desired goal of drug affordability, focus should be shifted from the pharmaceutical companies to insurance reform. The costs that weigh on patients are out-of-pocket costs, which are the expenses individuals must pay beyond what their insurance covers. These take form in high deductible payments, as well as high co-pays on visits, procedures, and drug prescriptions. If legislative efforts would be focused towards passing acts such as the HELP Copays Act – which aims to require health insurance plans to factor any
reduction in out of pocket payments made by or on behalf of the enrolled patient towards a plan’s cost-sharing requirements – patients would experience immediate relief.
As current legislation stands, the forty million dollar investment the Cystic Fibrosis Foundation made in Vertex Pharmaceuticals small molecule therapy back in 2000 would no longer make sense in today’s climate. While Trikafta entered my life at the right time, looming price controls stand between my experience and other rare disease sufferers, who deserve the same renewed outlook on life I have been afforded. If the end goal is to truly help the patient, the company driving change shouldn’t bear the brunt of the industry’s flaws. It’s time we shift our focus towards actions that benefit patients’ long term viability, and preserve our country’s culture of incentivization that continues to drive advancements in global health today.
Sources:
1:
https://rarediseases.org/wp-content/uploads/2019/01/RDD-FAQ-2019.pdf
2:
3:
4:
https://www.nopatientleftbehind.org/blog/95r1kiynt79tpamvn2z3b7ms54v6nq