How Should Pharma Companies Prepare for Future Price Controls?
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How Should Pharma Companies Prepare for Future Price Controls?

6 mins read

Many in the pharma industry currently fear that the broad use of price controls, once thought of as being theoretical and a remote possibility, is now an inevitability. This author has previously noted in articles published on the Axtria Research Hub that the imposition of price controls represent an existential threat to the industry. The political forces that once shielded the industry from the imposition of direct price controls for federal reimbursement on programs like Medicare have been severely weakened. The imposition of such federal program controls will effectively spillover into private insurance markets.

The lowering of prescription drug costs is now seen as a bipartisan issue that garners significant public support. The House of Representatives passed the “Pelosi Bill” in December 2019. This bill was vigorously opposed by the pharma industry for the projected damage it would do to future pharma innovation [1]. While Senate Republicans provided a temporary backstop against this measure from reaching the president’s desk, how long such support for the industry will continue in a contentious election year remains to be seen.

Politicians who are desperate to maintain their seats may put aside long-held ideological beliefs and make strange bedfellows with others they have historically opposed for their own survival. How long Senate Republicans will remain loyal to the pharma industry is an unknown. One way to determine how individual pharma companies forecast this matter is by analyzing the distribution of campaign contributions across specific candidates and by party. A recent analysis of contributions suggests pharma companies hedging their bets as they play candidates from both parties [2]. The Democratic Party presidential platform will certainly advocate legislation harmful to the pharma industry since healthcare proved to be a winning position for Democrats in the 2018 midterm elections. We should expect to see such legislation in 2021, especially if the Senate turns to Democratic Party control after the 2020 elections.

President Trump illustrated his populist orientation and reacted to his current standing in the polls by recently signing four executive orders in late July to control directly drug prices [3], an action that was predicted in an earlier published white paper by this author [4]. President Trump will further use his executive powers to demonstrate his commitment to lower prescription drug costs, an issue that as noted earlier has broaden bipartisan appeal, and especially if he needs an additional boost in the polls, as is currently the case.

foreign-linkLearn More - Will The Pharma Industry’s Response To COVID-19 Positively Affect Its Image? A Commentary

The four executive orders signed by President Trump involve the following attempts to reduce drug prices through direct government control [3]:

  1. Pass rebates to patients negotiated by pharmacy benefit managers (PBMs) on behalf of government health plans directly to consumers instead of keeping some portion as profit.
  2. Permit the importation of lower-cost drugs from abroad by individuals, allow the re-importation of insulin, and order the US Department of Health & Human Services (HHS) to allow US states to import drugs from Canada.
  3. Order certain healthcare providers to sell insulin and injectable epinephrine at significantly discounted prices to patients who have no or little insurance coverage.
  4. Require Medicare to pay the price of a drug that reflects the lowest price received by selected foreign governments (this is an extension of the importation of a foreign price index from a group of European countries under the Medicare Part B program).

These executive orders reinstitute prior attempts by this administration to enact legislation to control drug prices that failed on practical and legal grounds [5]. An excellent editorial in The Wall Street Journal provides a stinging rebuke on each of these orders [5]. More importantly, as written in previously published white papers on the Axtria Research Hub, there is ample empirical evidence on the adverse effects of drug price controls on pharma R&D investment and the diffusion of new drug technology. These negative effects will eventually lead to lower health outcomes and higher healthcare economic costs to society, which is ironic given the clear need to have a dynamic and robust pharma industry to find effective vaccines and treatments for COVID-19. Moreover, President Trump’s actions, which are unusual from a Republican, illustrate the potential for even more damaging effects if Democrats win the presidency and gain control of both the House and Senate in the upcoming 2020 elections, as noted earlier.

What should pharma companies do now to prepare themselves for future onerous legislation on drug pricing that will adversely affect commercial operations? Key suggested actions include:

  1. Invest in analytical modeling capabilities to understand the direct and societal value of new medicines when engaged in pricing decisions. Health technology assessments (HTAs) such as the Institute for Clinical and Economic Review (ICER) are having a growing influence over future pricing decisions, such as their recent analysis of the price of remdesivir as a treatment for COVID-19 [6].
  2. Leverage economic models to develop the societal value of medicines. This requires developing methodologies unique to the training of PhD economists. The shift toward greater government-payer provided medicines will mean a larger emphasis on the societal value of medicines as tradeoff decisions are made on where to put scarcer public resources (especially with growing federal budget deficits and national debt).
  3. Develop and apply a value/outcome-based and patient/healthcare system-oriented commercial model design (CMD). This means the integration of traditional commercial analytics with methodologies used in health economics and outcomes research (HEOR) and real-world evidence (RWE). This modified CMD must permeate across sales, marketing, and payer strategy and operations. The industry’s shift to more expensive specialty medicines, especially in the area of orphan drugs for rare diseases, means promotion will be more geared toward informative education rather than traditional persuasive activities. This change in the application of HEOR and RWE with traditional commercial analytics will require internal pharma company organizational changes to facilitate this integration of methodologies.
  4. Apply artificial intelligence (AI) and machine learning (ML) to generate real-time changes in model output information. AI and ML can provide pharma decision-makers real-time updates on the estimates of effects of key variables in inferential models and predictions on the dependent variable under investigation within forecasting models (e.g., new brand prescriptions, patient adherence, or patient health outcomes within inferential and forecasting models).
  5. Create an efficient data architecture to handle the size and diversity of the growing myriad of different data sources. More important than handling the size of big data for analysis, is developing the capability to link different databases to build a complete and accurate model picture for analysis. In addition, the data architecture must serve to populate the expanded use of empirical models for decision-making. Lastly, while emphasis has been on big data analysis, the shift to personalized medicines that serve smaller and smaller patient populations, means that “small data” analysis will become even more critical over time.
  6. Generate capabilities in using technology to facilitate the implementation of the preceding analytical and data innovations. These innovations include new data collection (e.g., measuring the information attributes of sales rep-HCP discussions) to the applications of AI /ML for real-time updates and Next Best Action (NBA) decision-making.

Axtria’s think tanks in Decision Science, Commercial Excellence, and Business Information Management have developed innovative solutions and useful insights to help pharma clients transition in setting up and implementing the preceding capabilities. Furthermore, the existence of the COVID-19 pandemic has accelerated existing forces that were already in place, causing changes in pharma commercial models and analytics. Axtria has leveraged its expertise to assist clients in navigating through COVID-19 induced business challenges. If you are worried about how future price controls will affect commercial operations, please contact us (directly below). Axtria would be delighted to help and ensure that your commercial operations are prepared for the challenges brought about through future-imposed onerous price controls. This will allow us to ensure that potentially life-saving medications continue to get to the appropriate patients and mitigate the negative societal health outcomes that public policy measures on imposing drug price controls will trigger.

Follow developments on this and other important topics through articles published on the Axtria Research Hub and Axtria Blogs.

 

References

  1. Lovelace Jr B. House passes Speaker Nancy Pelosi’s drug pricing bill. CNBC, published online 12 December 2019, available at https://www.cnbc.com/2019/12/12/house-passes-speaker-nancy-pelosis-drug-pricing-bill.html.
  2. Facher L. Pharma is showering Congress with cash, even as drug makers race to fight the coronavirus. STAT, published online 10 August 2020, available at https://www.statnews.com/feature/prescription-politics/prescription-politics/
  3. O’Donnell C. Explainer: Trump’s plan to cut drug prices. Reuters, published online 27 July 2020, available at https://www.reuters.com/article/us-usa-trump-drugprices-explainer-idUSKCN24S19W
  4. Chressanthis G. Will the pharma industry’s response to COVID-19 positively affect its image? A commentary. Axtria Research Hub, published online July 2020, available at https://insights.axtria.com/whitepaper-will-the-pharma-industrys-response-to-covid-19-positively-affect-its-image-a-commentary
  5. The Editors. Trump’s drug price panic. The Wall Street Journal 2020; 27 July: A16.
  6. Institute for Clinical and Economic Review (ICER). ICER presents alternative pricing models for remdesivir as a treatment for COVID-19. Published online 1 May 2020, available at https://icer-review.org/announcements/alternative_pricing_models_for_remdesivir/.

George-A.-Chressanthis
Written By:
George A. Chressanthis
Dr. George A. Chressanthis is currently Principal Scientist at Axtria, a big data and analytics company, in a newly-defined position held since his arrival in July 2016. He brings a unique combination of professional experiences into the analysis of strategic and operational issues affecting the biopharmaceutical industry. He is a former executive in the pharmaceutical industry with achievements in academia holding senior professorships in healthcare management, marketing, economics, clinical sciences, and political science.
 

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