Negotiating with Big Pharma Over Drug Prices for Medicare

You really can't blame Big Pharma for hating the new federal law that authorizes the Medicare program (for the first time in its 59-year existence) to stop buying drugs for the manufacturer's price but instead to negotiate for a reasonable price (the way the VA, state Medicaid agencies, the Defense Department, and most other countries do).

Medicare has been a predictably incredible cash cow for Big Pharma for generations, and that way of doing business is on its way out. 

The Medicare Drug Price Negotiation Program was authorized by Subtitle B (Prescription Drug Pricing Reform) of the bipartisan Inflation Reduction Act (once you're at the IRA, just do a search for "drug price"). As the Centers for Medicare & Medicaid Services (CMS) eases into this new role, it identified 10 drugs that cost the program the most (a function of price x frequency of Rx). 

Big Pharma's government-relations/lobby folks have all sorts of arguments against the program. Some question whether the government will save as much money as it predicts will be the case. Time will tell.

But one argument is more philosophical: This level of government intervention is inconsistent with the traditional "free market" system that has served patients so darned well.

There's an article in the April 25 issue of the New England Journal that refutes Big Pharma's assertion. The article is "The Myth of the Free Market for Pharmaceuticals" by Rena M. Conti, Ph.D., Richard G. Frank, Ph.D., and David M. Cutler, Ph.D. There's a "public link" that's available behind a "Share" button on the NEJM webpage. I don't know if it works for nonsubscribers, but here it is: https://www-nejm-org.foyer.swmed.edu/doi/pdf/10.1056/NEJMp2313400.

The article makes the point that the market for pharmaceutical products is not and never has been a "free market," at least not in the classic economic sense. The characteristics of a free market, the authors argue, are:

1. consumers are assumed to be fully informed, 
2. it is assumed that they choose products on the basis of their discernable benefits and costs, 
3. sellers can freely enter markets and make products similar or identical to others, and 
4. prices, set by firms seeking to maximize profits, are competitive with those of other sellers and unmodified by government intervention.

The authors conclude that "[t]he U.S. pharmaceutical market strays from all these features." The point is a basic one, and you don't need a Ph.D. to figure this out. The government issues patents that grant monopoly status to drugs, entry into the market with competing drugs depends upon FDA approval, consumers are woefully uninformed about benefits and costs (or highly dependent upon information provided by parties with very strong economic interests), and most purchasers are shielded from paying the true cost of drugs by third-party payers (insurers who may pick up 80% or more of the price).

Perhaps the more salient point to be made is that Big Pharma knows its business even better than I do, and its "free market" argument is not even intended to be technically correct. It's political speech, like the AMA's old argument against Medicare ("it's communistic" or "it's socialized medicine"). Not true, but it rings bells and sets off alarms. 

That said, "free market" is a technical phrase, and it deserves to be dispatched by reference to its technical meaning. This week's NEJM article does just that. 

Biden's State of the Union Address: 13 Health Care Take-aways

Becker's Hospital Review takes a look at "13 healthcare takeaways" from President Biden's State of the Union address last evening. They include:

1. Expanding Medicare's drug price negotiation scope
2. Limiting drug costs
3. Expanding rebate requirement
4. Closing Medicaid coverage gap [for 10 states, including Texas, that haven't expanded eligibility]
5. Capping the cost of insulin
6. Abortion access
7. COVID-19
8. Affordable Care Act
9. Women's health
10. Taxes
11. Gun violence
12. PACT Act [Resources for Veterans]
13. ARPA-H (Advanced Research Projects Agency for Health ) 

Chamber of Commerce Is Denied an Injunction to Halt Medicare Drug Price Negotiations

Happy to do the bidding of Big Pharma, the US Chamber of Commerce sued the Biden Administration to stop the Drug Price Negotiation Program created by the federal Inflation Reduction Act,  42  U.S.C.  §§ 1320(f), et  seq in its tracks on the theory that this program violates due process. The Chamber was joined by a handful of affiliates -- along with AbbVie, Inc., manufacturer of the lucrative Imbruvica (used to treat Chronic lymphocytic leukemia (CLL) and small lymphocytic lymphoma (SLL)) and is one of eight such suits filed around the country.

On Friday a Trump appointee in the Southern District of Ohio denied the Chamber's motion for a preliminary injunction, as well as the government's motion to dismiss. The opinion is a Civil Procedure teacher's dreams, covering such juicy first-years topics as:

• subject-matter jurisdiction
• standing, especially associational standing
• ripeness
• the standards for a preliminary injunction, especially irreparable harm if denied and likelihood of prevailing on the merits.

Dayton Area Chamber of Commerce v. Becerra, S.D. Ohio, September 29, 2023, No. 323cv00156SDOh/5.

It's hard to say how long this victory for HHS will last. Plaintiffs were ordered to file an amended complaint by October 13, and HHS will have until October 27 to respond, so it will be at least November before there's another ruling. Meanwhile, discovery will continue.

SCOTUS Agrees to Review Proposed Opioid Settlement

From Bloomberg's USLW email teaser:

The US Supreme Court agreed to consider scuttling Purdue Pharma LP’s $6 billion opioid settlement, taking up a Biden administration appeal that contends the accord improperly shields the Sackler family members who own the company.

High court review threatens Purdue Pharma’s bankruptcy reorganization plan, which includes the opioid settlement as well as an agreement by the Sacklers to give up ownership of the company.

The plan would end a mountain of litigation against the OxyContin maker and funnel billions of dollars toward efforts to abate the opioid crisis. Family members have agreed to pay as much as $6 billion to those suing.

The high court also halted implementation of the settlement while the justices consider the case. The court said it will hear arguments in December.

See also CNN.

The Justice Department had multiple objections to the proposed settlement, the central one of which was included in the Supreme Court's order granting certiorari today:

Application (23A87) granted by the Court. The application for stay presented to Justice Sotomayor and by her referred to the Court is granted. The mandate of the United States Court of Appeals for the Second Circuit in case No. 22-110 and the consolidated cases is recalled and stayed. Applicant suggested this Court treat the application as a petition for a writ of certiorari; doing so, the petition is granted. The parties are directed to brief and argue the following question: Whether the Bankruptcy Code authorizes a court to approve, as part of a plan of reorganization under Chapter 11 of the Bankruptcy Code, a release that extinguishes claims held by nondebtors against nondebtor third parties, without the claimants’ consent. The Clerk is directed to establish a briefing schedule that will allow the case to be argued in the December 2023 argument session. The stay shall terminate upon the sending down of the judgment of this Court. (emphasis added)

As the Justice Department put it in their request to the Court for a stay of enforcement of the settlement:

Until recently, Purdue was controlled by members of the Raymond and Mortimer Sackler families.  Members of those families, who withdrew approximately $11 billion from Purdue in the eleven years before the company filed for bankruptcy, App., infra, 19a, have now agreed to contribute up to $6 billion to fund Purdue’s reorganization plan, id. at 40a, but only on the condition that the Sacklers and a host of other individuals and entities -- who have not themselves sought bankruptcy protection -- receive a release from liability that is of exceptional and unprecedented breadth.  The plan’s release “absolutely, unconditionally, irrevocably, fully, finally, forever[,] and permanently release[s]” the Sacklers from every conceivable type of opioid-related civil claim -- even claims based on fraud and other forms of willful misconduct that could not be discharged if the Sacklers filed for bankruptcy in their individual capacities.  Id. at 25a (quoting C.A. SPA 920). 

 

The Sackler release extinguishes the claims of all opioid claimants except the United States, and therefore applies to an untold number of claimants who did not specifically consent to the release’s terms. The Sackler release is not authorized by the Bankruptcy Code, constitutes an abuse of the bankruptcy system, and raises serious constitutional questions by extinguishing without consent the property rights of nondebtors against individuals or entities not themselves debtors in bankruptcy.  The Bankruptcy Code grants courts unusual powers specifically authorized by the Constitution for addressing true financial distress.  Allowing the court of appeals’ decision to stand would leave in place a roadmap for wealthy corporations and individuals to misuse the bankruptcy system to avoid mass tort liability.  That is not what Congress enacted the Bankruptcy Code to accomplish.  And if such abuses are permitted, the gamesmanship that is sure to follow will only amplify the harms to victims by redistributing bargaining power to tortfeasors.  

Considering the vast stakes involved in this case, every sentence of that last paragraph will be hotly contested between now and December.

 

Pharmaceutical Firms Seek to Block Price Negotiations with Medicare

The New York Times has an excellent piece (23/24 July) on the drug industry's efforts to derail drug-pricing negotiations with Medicare that are authorized by the Inflation Reduction Act. As the deadline for starting negotiations nears, lawsuits have been filed by Johnson & Johnson; Bristol Myers Squibb;  Astellas Pharma; the National Infusion Center Association (NICA), the Global Colon Cancer Association (GCCA), and the Pharmaceutical Research and Manufacturers of America (PhRMA) (read here); and Merck. 

As the Times piece points out, the policy arguments for and against  price negotiations focus on (1) how much of a financial hit the firms will take as a result of lower prices for drugs covered by Medicare and (2) the impact of those reductions on R&D and ultimately on the number of new drugs that will not get to market over the next decade:

A study released last month that was funded by the Biotechnology Innovation Organization . . . warned that the pricing provisions would discourage innovation, resulting in as many as 139 fewer drug approvals over the next 10 years.

But that assessment is at odds with an analysis by the [nonpartisan] Congressional Budget Office, which estimated that the law would result in only one fewer drug approval over a decade and about 13 fewer drugs over the next 30 years. 

The calculations are actually quite difficult to nail down. Consider, for example, that we don't know which drugs will be included in future negotiations (and therefore what the projected savings to Medicare will be). And then there's the spillover effect. Most if not all the most expensive drugs whose prices will be negotiated have competitors, and there is likely to be an effect on the competitors' drug prices. Modeling all these variables can account for much if not all of the difference between the two estimates, but I will take any estimate from a pharma trade group with a large dose of salt.