CareTalk Podcast – Why Moderates Said “Maybe” to Drug Price Negotiation

Moderates in the House are blocking leadership’s drug pricing effort on the Build Back Better Act. John and David take a look why the moderates are opposed and what’s at stake. 

David Williams:

Welcome to Care Talk, America’s home for incisive debate about healthcare, business and policy. I’m David Williams, president of Health Business Group…

John Driscoll:

And I’m John Driscoll, the CEO of CareCentric. Welcome. So, David, what are we going to do about the fact that Democrats can’t even get their self organized around something that 80% of Americans agree on, which is to take action to lower drug costs for patients? I mean, it’s insane.

David Williams:

John, the reason this came up is because the so-called moderate Democrats are blocking certain elements of leadership proposal from advancing in this part of this big infrastructure bill and the so-called progressives are up in arms because now they can’t pay for all their favorite things. But John, I’ve read these headlines a hundred times. So what is a leadership actually proposing to do? What did the moderates block?

John Driscoll:

Well, I think what the most important thing that they took off the table was the government’s ability to negotiate down the exorbitant price that pharma charges. I mean 90% of the money that is made in drugs is made by Big Pharma, the manufacturers, researchers, and merger and acquisition giants of the industry that rarely focus as much on drug development as they do on marketing and distribution. We have the envy of the world in terms of drug research R&D and we are the joke of the world in terms of drug pricing. And the reason is because every other country in the world negotiates prices, governments buy, pharmas sells. And we have historically, because of the money and the leverage that Big Pharma has over Congress, been afraid to allow the government to directly negotiate drug prices, and as a result we have by even a higher percentage, more than we get when we are charged for everything else in America in healthcare relative to the rest of the world, the highest drug prices in the world.

And one out of three people who are on maintenance meds thinks twice or skips a prescription because they don’t have enough money to pay for it. It’s crazy.

David Williams:

John, the leadership proposal is actually fairly clever. The prices are capped at 120% of an international benchmark, which by the way, President Trump had something similar that he proposed. They also making these same prices the government’s negotiated, they’re making them available to the privately insured companies as well. So everybody should be able to benefit. And interestingly, they certainly anticipate that the critics are going to say there’s going to be no innovation. And they put some funds into the NIH which frankly is where a lot of the early stage innovation comes from. So that was the plan. It had unanimous support from Democrats, but now three of them have blocked it in committee. And the reason this is so important, John, is that the plan was to take something like 500, 600 billion in savings over the next 10 years and use it for other their priorities, like adding benefits to Medicare, making the Affordable Care Act subsidies permanent, and providing Medicaid even to people whose states hadn’t approved the expansion. That’s why it’s such a big deal.

John Driscoll:

But don’t get distracted, David. If the government could negotiate prices, prices would be lower and more affordable. That’s what we’ve got to focus on. That’s the [inaudible 00:03:39]. I’m glad you think it’s clever, but we’ve yet to get it supported. And yet even conservative Republicans, your buddy Trump even supported this. And I remember this is tying U.S. prices to prices in places like Germany and France. Why should France get a better deal than your neighbors in Boston?

David Williams:

They all thought they had some extra submarines over there now too for sale. Maybe they could tie those in. That’s like a suppository or something. You could use it that way for a gigantic oil-

John Driscoll:

But seriously, this is all about Big Pharma, which is one of the most effective political organizations in the beltway, in our corporatocracy of kleptocracy of lobbyists influencing Congress that is preventing government from negotiating even for drugs for which there’s no real reason to raise the price. There’s no innovation. It’s not new. Remember that 70% of the inflation in drug pricing that’s breaking the back of the average patient’s ability to pay, two-thirds to 70% of all that inflation is unstable chemical compounds, those normal pills that aren’t breakthrough innovations. They’re pills on a shelf that people will just want to charge more money for it. It is a shock to people when they realize that Big Pharma gets to change the prices of drugs on a whim anytime they feel like it. And we are the only government in the world that has treated this market alternative with unconditional surrender of our ability to negotiate.

David Williams:

John, so the moderates do have their own proposal. It also has a clever name at least, which is the Reduced Cost And Continued Cures Act. And their point is, it’s going to continue along with what the Cures Act did, which is promoting patient centricity and innovation. And they’ve actually come at it from the other side. So rather than looking at it from, we’re going to push down the prices of drugs, they’ve looked at it from affordability. And so there’s some out of pocket caps for those at different income levels for Medicare-

John Driscoll:

Oh, that’s terrific. What a clever idea. That’s not moderate. That’s just cost shifting, David. I mean, let’s remember that even in the leadership bill, we’re talking about negotiating to 120% of the international benchmark. So even if we’re paying 20% more than your friends in Germany, Sweden, Switzerland, and France, we’re going to somehow think that’s a bad deal? Then instead we should find a way to cover a few more of the patient’s bills and just ignore the fact that pharma is taking government to the cleaners? I mean, I don’t know, David. I mean, I can’t really say what I’m thinking, but I don’t think that’s moderate. I think that’s quisling. I think that’s appeasement. I know it’s actually surrender.

David Williams:

Well, John, after Representative Peters wrote this letter basically saying he was opposed to what the leadership was doing, I read an article in Stat News and it said that he was showered with contributions from Pharms. He was showered with cash is what it said. You know how much it was? $19,600. That’s not much of a shower [crosstalk 00:07:07] in Washington.

John Driscoll:

That may not be much to a rich businessman in Boston, but for a press release and a proposal, it’s not a bad down payment on what’s likely to be a very lucrative arrangement with Congressman Peters and his pals in Big Pharma. I mean, come on, David. You can’t tell me. I mean, again, I will give you that we should extend a great amount of flexibility for any new breakthrough therapy that’s going to solve Alzheimer’s although the FDA, just to prove one of those that doesn’t actually do it for Alzheimer’s, that the Big Pharma is still charging a lot of money for and trying to sell. But let’s say I’ll give you the breakthrough therapies. Give me the ability to negotiate prices on everything else and tie it to the cost of inflation and we’ve got a deal. These aren’t moderates. They’re moderately interested in more campaign cash from Big Pharma.

David Williams:

John, the Congressional Budget Office, which I suppose you’re going to cast dispersions on them next, they said that if they went through this, the leadership bill is going to be 60 fewer treatments over the next three decades. So what are you going to tell the patients about that?

John Driscoll:

Well, it’s a theoretical exercise, like a lot of your model exercises, but let’s start with the flawed baseline that we are an industry that we pay too much to because they get to charge whatever they want. And then you can’t take that drug development model and build in the $1.8 billion that pharma currently spends on getting new breakthrough drugs, when if they made less, they would probably build them more efficiently. It is an incredibly inefficient business model because of the way in which we’ve actually allowed Big Pharma to overcharge. As well, by taking a historical model saying, “It cost me this much to build a car yesterday. It’s going to cost me that much plus more tomorrow.” That’s not always true. Most other industries as they get bigger and do more, they get smarter.

There’s something called the experience curve where the more you do it, the less it costs. And in fact, the cost to develop, to build these drugs, to manufacture the drugs, the typical chemical compounds for most generics, the cost of actually making that plastic bottle is more than the cost of actually manufacturing that generic drug. Think about that for a moment, David, and that’s because they get better and cheaper over time. Instead, the CBO, the Congressional Budget Office took that static high cost model and said, “We’re just going to build that and assume because we, the Congressional Budget Office in DC, think we can model what pharma’s willing to invest in order to develop a new drug. I think that’s unknowable, but I will tell you that if we don’t put a cap on the prices these Big Pharma gets to charge we’re going to, again, it’s going to destroy our healthcare system.

Drugs used to cost about 5 to $6 out of every $100 of expenses for commercial health plans. Currently it’s 19 to 20. It costs more to cover drugs for most insurance than it does to pay for people’s time in the hospital. This is the one area where costs are completely out of control and if you think about that, healthcare inflation as being a tax on all of us, a solution for some peoples’ out-of-pocket costs while everybody else is being charged more, more than it even costs to put your relatives up in the hospital. I mean, that’s crazy. And I think you can separate the cost controls for the breakthrough new drugs from the infinite ability for drug companies to just charge more because they feel like it and want to buy more of their stock back.

David Williams:

Well, John, I think there is actually a compromised position whether it’ll be had here or not. I’m not sure between leadership and what the so-called moderates are doing that does allow for negotiation and even just dictation of prices on some areas that does not kill innovation. But I want to make a couple of other points along the way here. One is that the drug companies, the ones that are blamed for the high prices of drugs in my experience, I’ve seen hospitals and physician offices radically mark up the price of drugs tenfold to 50 fold. It’s really out of control. And I’ve seen that on my Explanation Of Benefits and what I’ve had to pay on an out of pocket basis. So it’s not just the drug companies that’s getting in on the fun here. There’s also-

John Driscoll:

Oh, I think it’s hard to find a commercial enterprise in America, that if you told them, “Hey, you could switch your business model to one where you can just charge whatever you feel like it,” they wouldn’t jump into it and add it to their portfolio. I mean, that’s not a shocker, David. That’s an example of the hole in the boat of healthcare costs that unless we fix it with the ability to negotiate, we’ll continue to hemorrhage cash and frankly make healthcare and frankly, healthcare insurance unaffordable. The interesting thing here is unless we’re very clear about talking about this, I think the moderates or the conservatives, however you are, the pro drug inflationary pricing overlords will continue to win. I mean, I think that it was interesting that the Kaiser Family Foundation found that 65% of Americans opposed government negotiated prices because it had already been demonized.

David Williams:

The way the question was phrased is, “If you tell them it’s going to lead to less research and development spending,” then they’re like, “Oh, whoa,” all of a sudden, “I don’t want it.” And that’s clearly an interesting freebie to farm out to them going “Tell people that, ‘Hey”… I saw a couple lines they were trying out. One was, “There won’t be the innovation. You won’t get the new cures,” and the second was, “We won’t be ready to help out in the next pandemic.” That’s a winning one, too. What are they going to be doing next time, John?

John Driscoll:

Well, these companies spent… What if you shared with us the potential voters that Big Pharma largely spends more money on marketing and distribution than they do on drug development? How would they feel about that? Why don’t they cut that big [crosstalk 00:13:37] marketing drug? Yeah. I mean, think about all of those ex-college cheerleaders calling on doctor’s offices, all of that direct to consumer advertising that promises you, even you David, permanent sexual potency.

David Williams:

If I have that, John, not sure I’d be sitting here talking to you, but no offense, as my son would say.

John Driscoll:

I think that is magic in what these drug companies can do. My sister died of cystic fibrosis. The new drugs that have been developed are transformational and allow people to live to see children and grandchildren. We are, as a society, huge beneficiaries of great drug innovation in this country, but that doesn’t mean we should pay any price for any drug, regardless of our ability as a society to pay. We ought be wise about our investments. We ought be fair about our pricing, and that’s going to require government to be able to negotiate. Otherwise, you’re going to see more and more people skipping their maintenance meds and making our entire society sicker.

David Williams:

John, last topic here. Now we don’t talk a lot about inside the beltway stuff. I actually grew up inside the beltway, but I moved away from that. But what about the… just inside the beltway, by the way, just about one mile inside the beltway in Bethesda, but what about this argument that it doesn’t need to pass the house anyway, because it’s going to fail in the Senate. The two so-called moderate democratic senators from West Virginia and Arizona indicated their opposition. I mean, does it make sense to-

John Driscoll:

David, you’re getting… You beltway habituate, you. I mean, you’re getting hung up in the trivial sports life tactics about how we’re going to move what pitcher in what inning. Stop. The United States has to take a bold new position where they refuse to allow pharma for anything other than breakthrough new biotech drugs to allow pharma to tell the government and patients how much they’re going to pay. That system has got to stop.

And the clearer we are about that, the more extreme within those boundaries and clear that position is, the easier it will be to negotiate a compromise that we can live with with your Republicans in the Senate. I think, it’s like saying, “Well, I think the game might be hard to win and we may have a split score going into the fourth quarter. So rather than start at the 50 yard line, let’s start at our own 25. It makes no sense. It’s a loser in football and it’s a loser in politics.

David Williams:

All right. Well, that’s it for yet another addition of Care Talk. I’m David William your moderate president of Health Business Group.

John Driscoll:

And I’m an extremely annoyed John Driscoll, the CEO of CareCentric. Thanks so much for listing. And please remember to subscribe.