Non-Interference, Patent Nonsense and iPABlum

Why did President Obama declare war on healthcare innovation on Wednesday?

It’s hugely disappointing that the same man who (as a United States Senator) once said that …

“Realizing the promise of personalized medicine will require continued federal leadership and agency collaboration; expansion and acceleration of genomics research; a capable genomics workforce; incentives to encourage development of genomic tests and therapies; and greater attention to the quality of genetic tests, direct-to-consumer advertising and use of personal genomic information."

… is now advocating a series of policies that would result in precisely the opposite.

That’s not class warfare – it’s no-class warfare. And it’s deleterious to the public health.

Exhibit A:  The Non-Interference Clause

The first question to ask is, what did Senators Tom Daschle and Ted Kennedy know that President Obama does not?  The answer is that allowing the Federal government to directly negotiate for Medicare drug prices is a bad idea.  That’s why they (Daschle and Kennedy) drafted the original language for the Non-Interference Clause.

Politics aside, consider the facts:

"It is not obvious that allowing the government to negotiate with pharmaceutical companies will lead to lower prices than those achieved by private drug plans. Private plans like Kaiser or United are able to negotiate deep discounts with pharmaceutical companies precisely because of the plans' ability to say no – the ability to include some drugs and to exclude others, allowing the market to judge the resulting formulary. On the other hand, when the government negotiates, its hands are tied because there are few drugs it can exclude without facing political backlash from doctors and the Medicare population, a very influential group of voters. Neither economic theory nor historical experience suggests government price negotiation will achieve lower drug prices. Congressional Democrats need to be careful in making the logical leap from market share to bargaining power. Empowering the government to negotiate with pharmaceutical companies is not necessarily equivalent to achieving lower drug prices. In fact, neither economic theory nor historical experience suggests that will be the outcome. Members should think carefully before jumping on the bandwagon – this promise may bring just the opposite of what was ordered."

Stanford Business School's Alain Enthoven and Kyna Fong

And in the words of the American vox populi (aka, USA Today):

"Both the non-partisan Congressional Budget Office and Medicare actuaries have said they doubt the government could negotiate lower costs than the private sector. The theory behind Part D is that market forces and competition among drug plans, overseen by government, can achieve better results than a government-run program. The multitude of plans allows seniors to pick one that best meets their needs. Government price negotiation could leave people without drugs that manufacturers decide aren't sufficiently profitable under the plan. Medicare recipients account for half of all drug prescriptions. With that kind of clout, government might try to dictate prices, not just negotiate them. This could leave people without drugs that manufacturers decide aren't sufficiently profitable under the plan. The VA plan illustrates the point. It offers 1,300 drugs, compared with 4,300 available under Part D, prompting more than one-third of retired veterans to enroll in Medicare drug plans."

Many of the President’s men and women are ready with the following talking point, “Look at how successful direct Federal negotiation works for the Veteran’s Administration,” suggesting that allowing the feds to directly negotiate for Part D is no different from the current VA scenario. But suggesting that the Veteran’s Administration “negotiates” prices for prescription drugs is a false premise. 

Under rules set by Congress, to sell drugs to the VA, companies must offer each drug at a price that “represents the same discount off a drug’s list price that the manufacturer offers its most-favored nonfederal customer under comparable terms and conditions.” The medication must be offered “at a discount of at least 24 percent off [the] nonfederal average manufacturer price (NFAMP). An excess inflation rebate is also required, equal to the percentage by which the price increase for [the] drug has exceeded the consumer price index (CPI) in the prior period.” The manufacturer must make all of its drugs available through the Federal Service Schedule for any of its drugs to be eligible for reimbursement under the VA and Defense Department health systems, the Public Health Service (including the Indian Health Service), the Coast Guard, and the various state Medicaid programs.

A study by Professor Frank Lichtenberg of Columbia University found that the majority of the VA formulary’s drugs are more than eight years old and more than 40 percent are 16 years old or more. Just 19 percent of all prescription drugs approved by the FDA since 2000 are available to veterans; only 38 percent approved during the 1990s are.

There’s a big difference between negotiating and mandating – and it’s not a thin line. My fear is that a government negotiated Part D plan is but the first step towards a more strident program of government price controls.

The bottom line here is that Part D is a tremendous success – due in no small part to the Non-Interference Clause. 

Consider:

* The projected cost for Medicare Part D is $117 billion lower over the next decade than experts estimated just last summer. This means that over the 10-year period from 2008 to 2017, the estimated $915 billion cost of Part D fell to $798 billion.

Why?  Marketplace competition.

* And, according to a study published in the Annals of Internal Medicine, the Medicare drug benefit led to a 17 percent decrease in out-of-pocket expenses, or $9 a month, for seniors who enrolled in the new Medicare Part D benefit in 2006, the first full year prescription coverage became available in the federal health insurance program for the elderly and disabled.

* And the savings amounted to an extra 14 days of medicine for those who signed up, or a 19 percent increase in prescription usage.

Can Part D be made even better? Absolutely. But this is good news worth sharing -- and not because it helps any particular partisan political agenda but because it means that more Americans -- tens of millions of more Americans -- are getting access to the medicines (largely chronic medicines) that will help them live healthier lives. And this, in no small measure, significantly reduces more drastic medical interventions -- which in turn reduces our overall national health care spending.

We shouldn’t interfere with success.

By revoking the Non-Interference clause, Uncle Sam will be able to "negotiate" prices for Part D drugs.  That's kind of like negotiating with your hands tied behind your back and a gun pointed at your head.  There's also the potential for Uncle to dictate that Part D prices be tied to prices in other countries -- a kind of Medicare reference price.

“Direct negotiations” means price controls.  And price controls = choice controls.

Exhibit B:  Biosimilars

The President wants to reduce the number of years of patent exclusivity for biologics. After speaking (during the State of the Union and a widely quoted op-ed in the Wall Street Journal) about the need for America to embrace innovation – President Obama is trying to make it more difficult, specifically when it comes to the desire to invest in pharmaceutical innovation – a sure bet under no circumstances.

The President’s now seeks to hasten availability of biosimilars by cutting the market exclusivity of innovators from 12 years to seven.

Bad idea since a longer period of exclusivity funds an innovator company’s research and development efforts. If the President’s proposal becomes law, the US would provide less data protection for innovative biologics than Europe.

12 years of exclusivity also gives hope to those suffering from rare diseases or conditions. If innovator companies think they will have a short time before a follow-on versions of their products hit on the market, they will likely only focus on drugs for major diseases and conditions -- potentially ignoring ailments that are less common, but equally as serious, to those suffering.

What’s next – an executive order instructing the FDA to approve biosimilars without clinical trials?  Alas – this is unfortunately not a far-fetched idea considering the tone and substance of President’s speech on Wednesday. 

If innovation is one of the key answers to our national economic recovery, then the President should abide by what he said, “Our economy is not a zero-sum game. Regulations do have costs; often, as a country, we have to make tough decisions about whether those costs are necessary. But what is clear is that we can strike the right balance. We can make our economy stronger and more competitive, while meeting our fundamental responsibilities to one another.”

Exhibit C:  IPAB

And then there’s the President’s idea that Congress should lower the threshold for the Independent Payment Advisory Board (IPAB) to make Medicare cost-cutting proposals, which could include containing drug costs. As BioCentury correctly explains, “Under PPACA, the board's recommendations would automatically be adopted unless Congress enacted alternative cuts of the same size. Under the law, the board will only act if Medicare growth per beneficiary exceeded GDP per capita by at least 1%, a rate of increase that the Congressional Budget Office recently said is not likely to occur. The White House wants to lower the threshold to GDP plus 0.5%”

There’s already the very real risk that IPAB will be insensitive to the needs of Medicare patients. After all, board members are unelected appointees with an incredible amount of power. The IPAB is liable to enact cost-cutting measures that might sound good in the boardroom, but actually lead to worse health outcomes for Medicare patients and strap them with unbearable costs. The President’s proposal makes this twice as bad.

Well – at least the President didn’t trot out drug importation. Well – at least not yet.

For the record, the solution is innovation.

We have to embrace innovative technologies for medical records and prescribing.  We need innovative clinical trial designs and molecular diagnostics so that we can develop better, more personalized medicines faster and for far less then the current $1 billion plus delivery charge.  We need innovation in access and reimbursement policies that rewards speed-to-best-treatment rather than more lower-cost patients per hour.

So we’d all better start taking innovation – of both the incremental and discontinuous varieties – seriously.  And that means both spending more on harder developmental R&D (with concomitant higher investment risks).

There’s lip service to the need for more robust comparative effectiveness – although this is a battle yet to be either defined (comparative effectiveness or cost effectiveness or clinical effectiveness?) or fought (do we need a U.S. version of NICE?).

L’audace, l’audace, toujours l’audace. This isn’t even the end of the beginning. Let’s keep our eye on the prize.  No, not the 2012 elections – the real prize: better access to healthcare for all Americans.  Innovation that focuses on creating a chronic healthcare culture that embraces prevention and prophylactic care.  Rather than wasting time on spin, let’s redouble our efforts on innovation.  Then, when we succeed through brainpower and teamwork (and, hopefully some civil bipartisanship), the circus surrounding the President’s budget proposal will be but a footnote in the history of American healthcare.