Drug Price Negotiations: “We Need to Have an Honest Conversation about Drug Costs”

As the Center for Medicare and Medicaid Services begins the negotiations for the first 10 drugs to be negotiated under the Inflation Reduction Act. The legislation, signed by President Joe R. Biden in August 2022, allows CMS to negotiate prices for drugs covered by Medicare Part D that do not have a generic or biosimilar available.

The pharmaceutical industry trade organization, the Pharmaceutical Research and Manufacturers of America (PhRMA), has said the law is disincentivizing research.

Mark Campbell, Pharm.D.

But Mark Campbell, Pharm.D., RxBenefits’ senior vice president of clinical solutions, said in an interview that innovation is not expected to go away. The IRA could, however, change how companies operate. “The concern is that we’re going to have a fixed price negotiated for the drugs of consequence to the taxpayers,” he said. “We need to have a very honest conversation about what the gross cost of drugs and the true net cost of medications are in this country.”

Here Campbell talks about the possible ripple effects of drug price negotiations.

Q: Do you think Medicare’s price negotiation will save money for Medicare and patients?

Campbell: When CMS launched Medicare Part D, the general thinking at that time was that they wanted to let the free-market system foster competition that would help to keep the price down and availability high. Now CMS talks about affordability of medications, and we definitely have a much greater range of cost for medications than when I started in my career. We have products that cost literally a few dollars, and many that can cost well over $100,000 a year.

But as we look at the products on the CMS list (to be negotiated), these are all heavily discounted by the manufacturers with rebates. The net cost of these medications is far lower than many of the prices you’ll read about. To get to a lower net cost for these, the federal government certainly has the leverage with manufacturers to be able to negotiate lower prices. Some people would that the manufacturers have the ability to walk away from the table, but I'm not sure I agree with that. Medicare and Medicaid constitute roughly 50% of the healthcare spend in The United States. (Editor’s note: All manufacturers of the first set of drugs selected for negotiations have agreed to participate in the program.)

It's possible for the federal government to reduce costs. But what would be the collateral impact of doing that? Will we see a major shift in who stays in the pharmaceutical business where they invest dollars for research and development? Will we see some look to move offshore with some of their operations or do other things that they feel might be more beneficial for the longevity of their company? Sure, the federal government can do it. I'm not sure it’s the best thing to do.

Q: Do you think pharmaceutical companies will leave the U.S. market?

Campbell: I think it could change the way that drug companies operate. It may be harder for smaller companies to compete, and you may see some bigger companies pare back their portfolios or abandon products or lines that are marginally profitable for them. You may see them change their focus and research and development into, and those that were already focused on orphan conditions may put more their energy in orphan related conditions where they may have a bit more of a hedge against negotiated pricing.

Q: Will drug price negotiation impact pharmaceutical company innovation?

Campbell: It’s not likely that they will get out of the innovation business. But I think they will be more thorough about the studies they do to look at the market impact and the economic opportunity for their addressable market. If they’re looking at a market with more than 50% of the opportunity is the government sector, they may consider that. They may lean more toward pediatrics. They may favor drugs that lean more toward lifestyle, but it could influence where and how they put their investment dollars to work.

Q: What do you think will be impact on drug prices outside of Medicare?

Campbell: We’ve seen that when the industry has to provide more discounts for governmental programs that gets pushed over to the commercial side with higher prices, increases in AWP increases in launch prices. As some of that profitability that the manufacturers are giving up on the governmental side, they’re going to try to exact out of the commercial space.