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Shkreli Implodes And Provides Hillary A Perfect Medicare Moment

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to the pharmaceutical industry. (It didn’t help that Billy Tauzin, the GOP congressman who helped push it through, soon after left Congress to run PhRMA, the industry’s top trade group.)

But the 2003 law has overall been good for Medicare patients, lowering their out-of-pocket expenses, according to a 2014 Kaiser Family Foundation report. And one of its flaws—the “donut hole” coverage gap—was addressed by the Affordable Care Act, which promises to close the hole by 2020 and “bring additional relief to millions of enrollees,” the Kaiser report said.

But that’s about patient welfare, not taxpayer costs. Does the MMA need fixing on that front? Opponents of Medicare negotiation, led by PhRMA, say leave well enough alone.

On its website, the trade group cites a Congressional Budget Office report from last year that says Part D is not as expensive as once feared. In 2003, the CBO estimated the cost would come to nearly $550 billion through 2013. Turns out it was $353 billion.

But PhRMA doesn’t cite CBO’s reasons for lower-than-expected Part D costs: a significant slowdown in the growth of drug prices in the last decade, and fewer people joining Part D than anticipated. The drug industry group explicitly says lower costs were “due to rigorous competition in the program.” CBO’s report says no, there isn’t enough evidence to make that claim: “Determining whether the actual effects of competition have been larger or smaller than those incorporated in the original [2003 CBO] estimate is not feasible because many other factors have also affected Part D costs.”

That’s important, because Kaiser says the external factor of drug prices—which helped keep Part D costs down—is set to start climbing at a higher rate again, from an annual average increase of 2.3 percent in recent years to 6.0 percent between now and 2023. The foundation estimates that Part D spending will jump from 11 percent of all Medicare spending to 17 percent in that time period.

And when that happens, the alarm bells will ring again, because the private contractors who administer Part D don’t seem able to demand the same breaks that other giant insurers demand. In a paper published two months ago, the consumer advocacy group Public Citizen and Carleton University in Ottawa, Canada, said Medicare pays on average 83 percent of the full U.S. drug price, while Medicaid pays 48 percent and the VA 46 percent. If Medicare could reach those levels of discount, it would save $15.2 billion to $16 billion a year, the study says.

(A related piece of Clinton’s plan, applying Medicaid’s low-income discounts equally to Medicare, would also save $116 billion over the next ten years, according to the CBO.)

What is Medicare paying nearly full price for? A check of the top ten drugs that Part D paid for in 2013 shows a lot of old warhorses, led by acid reflux treatment omeprazole (Nexium). Those top ten added up to $18 billion, or 17 percent of the program’s total spending that year.

Shocking enough that Medicare’s biggest drug bills are paying for old heartburn drugs, statins like rosuvastatin (Crestor), and largely ineffective Alzheimer’s treatments like memantine (Namenda). But the bills are about to get a lot bigger.

As Congress’s own Medicare advisory commission Medpac warned earlier this year, “The pharmaceutical pipeline is shifting toward greater numbers of biologic products and specialty drugs, many of which have few therapeutic substitutes and high prices.”

That doesn’t mean Medicare should simply adopt the Medicaid or VA system. Medicare historian Tom Oliver says there will “grounds for debate” about the right policy design. He expects a kind of “grand bargain” in the end. “The entire mechanism for pricing drugs will be rethought,” he says, perhaps involving a change in drug patents and generics rules. “It’s not going to look like government on one end of the table and industry on the other saying, ‘Let’s come to a price on your drug.'”

There will be unintended consequences, as with any changes to a massively complex system. The debate, then, comes down to whether the savings enjoyed by people on Medicare is enough; whether it’s worth the current spending; and whether that spending can be cut back—particularly in the face of ballooning drug prices—without screwing up the savings benefits.

The political fight is to convince enough Americans that something they like can be made even better, so that those Americans convince their representatives (likely Republicans) to roll up their sleeves. Sure, partisanship seems immutable these days, but politics runs in unpredictable cycles. In 1973, President Nixon’s health, education, and welfare secretary Caspar Weinberger advocated for price controls and generic-drug substitution. In 2003, the GOP under George W. Bush created a massive federal entitlement expansion.

Sometimes all it takes is a single incident—or a galvanizing figure to rally against—to change momentum yet again. In a few years, we might look back and say Martin Shkreli was it.


For those who haven’t seen reports yet, or read Hillary Clinton’s plan, here’s a quick summary of each component.

—End tax breaks that drug companies receive for direct-to-consumer advertising.

—Mandate certain levels of R&D spending that are tied to the benefit some companies receive for developing “life-saving” and “health-improving treatments,” which seems to be a reference to the enticements for orphan and so-called “breakthrough” drugs.

—Place a $250 monthly cap on the amount individuals have to pay out-of-pocket for prescription drugs.

—Fully fund the FDA’s generic-drug office to “clear out the backlog” and speed more approvals.

—Lower the exclusive marketing period for new biologics from 12 to seven years.

—Allow faster FDA review for biosimilars that only have one or two competitors already on the market.

—Prohibit “pay for delay” arrangements between branded drug manufacturers and generic companies that keep generics from coming to market.

—Allow importation of drugs from abroad to encourage price competition.

—Require that drug makers pay higher rebates to low-income Medicare enrollees to match current rebates in state Medicaid programs.

—Allow Medicare to negotiate what it pays for drugs.

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