SchumerCare and Cancer Patients Drug price controls will create perverse treatment incentives.
Much of the damage from the Schumer-Manchin drug pricing deal won’t become visible for years. But people who understand the industry can already foresee it, and one example is fewer treatment options for desperately ill cancer patients.
The mooted bill would empower the secretary of Health and Human Services to “negotiate” Medicare drug prices. “They have full latitude to basically decide whatever price they want the drug to be,” AbbVie CEO Richard Gonzalez said Friday on an earnings call. “It’s not a negotiation. We should just call it what it is. It’s price controls.”
Here’s how it would work: The HHS secretary would select 10 to 20 of the top Medicare spending drugs each year. Drug makers that don’t accept the government’s price would get hit with a 95% penalty on their sales. Small-molecule drugs would get a nine-year reprieve starting when the Food and Drug Administration grants approval.
This latter stipulation is intended to soften the blow to innovation, but it could result in patients waiting longer for potentially life-saving treatments. Take experimental cancer treatments, which regulators typically require that drug makers test first on patients who haven’t benefited from existing treatments.
If they benefit, “we seek approval for that drug in that patient population, so that those patients will get the benefit of that drug,” Mr. Gonzalez explained. But these “refractory patients are typically very small populations.” Drug makers usually can’t earn a return on their investment in research and development by treating only those patients.
So after the FDA grants approval, drug makers test therapies on more patients as a third-, second- and ultimately first-line treatment. These trials can take seven to nine years to complete, by which time the drugs could be subject to price controls. “It’s impossible to figure out what the return is going to be, so how do you invest?” Mr. Gonzalez mused.
He also warned that drug makers will face a perverse dilemma: “Do I choose not to seek approval in those late-stage patients so I don’t start the clock?” By waiting longer before seeking approval, drug makers could boost the return on their investment.
Mr. Gonzalez said the deal also creates a disincentive to test treatments for new indications. Treatments that work against one form of cancer often will work against others, especially drugs that target common gene or protein mutations—e.g., the KRAS mutation that can cause colon, lung and pancreatic cancer.
But why would drug makers seek to expand the pool of patients that could benefit from a drug if doing so would make it more likely to be selected for “negotiation”? Perversely, helping more patients could reduce how much a drug maker makes on a drug.
Democrats say their price controls will save the federal government $288 billion, but this doesn’t take into account the less visible cost of altering incentives to invest in pharmaceutical innovation. One way or another, patients will pay a steep price.
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