Mehta Analysis: Trump Pricing Tempest In A Teapot Is An Opportunity For Biopharma Leaders
Executive Summary
President Trump's much anticipated pronouncements on drug pricing reform leave a lot to be clarified. Biopharma companies and their leaders should grasp the opportunity to lead from the front and propose tangible and transformative actions that deliver benefits for all stakeholders, writes Viren Mehta, founding partner of Mehta Partners LLC.
This may be one of the few letdowns that the biopharma industry should embrace, if not relish. Shrill propaganda by so many in the government, starting with President Trump himself soon after entering the US presidential race, had escalated the fear of painful anti-industry regulations to bring drug price inflation under control.
What do we have after this two-year stirring of the drug pricing pot? Certainly not the most dreaded of the initiatives, ranging from CMS authority to negotiate drug prices, to drug importation. At least not in the near future. Instead, President Trump's much-anticipated reforms can best be described as work in progress. "We will cut out the middlemen," Trump pronounced in his long-awaited speech on May 11 at the White House. Details are sketchy, but the secretary of the Department of Health and Human Services (HHS) Alex Azar said that "over 50 different initiatives are being proposed — very sophisticated, the kind of thing you’d expect from a CEO like Donald Trump, getting at the real heart of the business problem." (Also see "Trump Drug Pricing Plan Includes Part D Surprises, Challenges PBM Business Model" - Scrip, 11 May, 2018.)
The very next day, in his speech at the HHS, Azar, former head of Eli Lilly & Co., elaborated on a number of these proposals, admitting, however, that much of this list will take time to take shape, and even longer to reduce US drug spending.
At the other end of the spectrum, where a key Trump proposal accuses most of the 7 billion people on the planet of being freeloaders, many governments have already issued polite denials – and more. The EU issued a statement the same afternoon as the president’s speech that rational purchasers ponder cost:benefit, especially when modern day data enable an informed judgement of value. “The drug manufacturers in the United States set their own prices, and that is not the norm elsewhere in the world,” a spokesman for the 28-member European Union said. “EU member states have government entities that either negotiate drug prices or decide not to cover drugs whose prices they deem excessive. No similar negotiating happens in the US.” Mitchell Levine, the chairman of Canada’s Patented Medicine Prices Review Board, which reviews prices, said in an interview, “With our price regulations, drug companies are still making profits – just lower profits than in the United States.”
The intellectual property issues are the leading sticking point in most bilateral and multilateral treaties, starting with the renegotiation of the North American Free Trade Agreement that President Trump pulled out of as one of his first acts upon assuming office. We in the US cannot count on the world drug pricing order to change anytime soon – rather we are going to have to do our own heavy lifting.
Luckily, in between the aim of persuading foreign governments to pay a higher price for the US innovations, and many demonstration-stage ideas, a number of tangible proposals in the Trump plan are promising. Authorizing the Medicare and Medicaid insurance providers to negotiate and obtain better drug prices is one such example – although the details remain to be spelled out. In effect, a market-driven if not a stealth-mode of Part D price negotiation pathway may emerge. This initiative – combined with value-based pricing, transparency of rebates, and sharing of these rebates with the patient, as well as rationalizing generic and biosimilar acceptance – all do hold a strong promise by removing barriers to an effective competitive market place to function.
Each of these initiatives should help spur competition, but it all still adds up to a list, pulled together more to win votes at the November US midterm elections than as a bold plan to get at the real heart of the business problem, as Azar proclaims. The White House website lists above topics and more, but there is quite some distance between the lip and the cup, leaving ample space (and time) for many interest groups to act, further reducing the chances of a cohesive and impactful plan to gel.
Perhaps the most important of last week’s drug pricing related speeches from Trump and Azar was a pointed warning to biopharma leadership from Azar: “Drug companies have insisted we can have new cures or affordable prices, but not both. I’ve been a drug company executive – I know the tired talking points: the idea that if one penny disappears from pharma profit margins, American innovation will grind to a halt. I’m not interested in hearing those talking points anymore, and neither is the President.”
That the biopharma industry is tone-deaf was confirmed by trade association PhRMA’s initial press release: “The proposed changes to Medicare Part D could undermine the existing structure of the program that has successfully held down costs and provided seniors with access to comprehensive drug coverage. We must also avoid changes to Medicare Part B that could raise costs for seniors and limit their access to lifesaving treatments.” These tired talking points border on fear-mongering.
The drug price blueprint à la Trump/Azar will not yield immediate results, and thus may not harm the biopharma bottom line in the near future. But the battle lines are drawn precisely because status quo is no longer acceptable, even to the industry’s staunchest allies. The biopharma leadership has a choice to make: pretend that this is just another Washington attempt that the complexity of the industry structure will fight off in a protracted struggle, or recognize that the industry landscape will change, and accept the opening that the limitations of the Trump/Azar proposals offer. Can the industry be bold and venturesome to lead in bringing about impactful changes not only in the way drug value is recognized, but perhaps also in showing how a large part of the healthcare system needs to function as if it were deregulated?
An Opportunity To Lead
Let us invite the biopharma leadership, who have more resources and experience to address many of the challenges that the Trump administration seems to have punted on, to rise to this challenge. Arguably the industry leaders have much more at stake. This vacuum around the government’s goal to reduce healthcare spending by focusing on drug prices can be the turning point for the industry leadership to gain an upper hand. Everyone in the biopharma industry laments how its contribution to society’s health is not only not appreciated, and that society considers its tactics aimed more at profits, not patients. Perhaps the single most damaging accusation is that the industry could do more to ensure that its products are accessible to all who may benefit. After all it enjoys a range of protections, from patents to exclusivity to regulatory barriers, that enable it to consistently earn top-ranking profit margins.
The moment is ripe to adopt 21st century thinking to solve what otherwise seem like hopelessly complex challenges. Some selected initiatives, from recent innovation in biopharma product pricing, to Starwood Hotels offering Headspace meditation channel, nicely illustrate the power of complementary value creation. But much more is possible for the biopharma industry to successfully continue to innovate while earning a fair profit by creating a normal competitive market place for its products and services – and in fact broadening these offerings. For example, clear value-based pricing for a growing number of new biopharma product launches can be extended to most countries, adapting the price to the life year value in each country. Similarly, complementary collaborations that expand the biopharma mission to include an open-minded combination of prevention and treatment options around a holistic value package could begin to align industry’s actions with what the society seeks.
The resulting positive impact on biopharma’s image could be further strengthened with direct to patient pathways, recalibrating the power of the middlemen. To be sure, these middlemen, from wholesalers to PBMs, play a valuable role in the biopharma chain, but the role has gone out of kilter, as all the stakeholders have perfected the technique of hiding behind the regulatory veil while deploying market forces to the hilt. Rather than accepting a secondary role in this value chain, building an effective direct channel to patients, and thereby their doctors and hospitals, would enable biopharma to contribute much more than just their drugs in their value proposition.
These and a wide range of other fruits are ripe for the picking. Few other stakeholders in the healthcare continuum have the resources, scientific expertise and experience to play such a crucial role in helping streamline key decisions, which likely have stymied even the blunt-talking president’s ability to fulfill his campaign promises. A concerted action by biopharma leadership could yield a huge win:win:win for the industry, for the healthcare systems globally, and for all patients.
Viren Mehta founded and is managing member of Mehta Partners, LLC, a globally integrated boutique providing strategic insights to senior management teams in the biopharmaceutical sector for nearly 30 years.