When I was 13 years old, my doctor told me I had Crohn’s disease, a painful gastrointestinal condition that swells the intestines and threatens the digestive tract. Breakthrough treatments like Remicade, Enbrel, and Humira were still decades away, so the diagnosis cost me my colon.

My surgeries and the lifelong challenges — and triumphs — that came with them inform my vantage point in the simmering drug pricing debate. I believe in the social contract that drug companies, mine included, have a duty to responsibly set list prices so patients can access needed medicines. And I think it’s time for industry leaders to exert more pressure on colleagues who violate that contract.

I also believe in a strong patent system to protect investment, not just in medical innovation but also in equally strong generic and biosimilar competition when intellectual property rights expire, making medicines more affordable.

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Biomedical innovation is currently being jeopardized by a well-publicized minority of bad actors, drug companies that exorbitantly jack up prices on generic and branded drugs because they can and/or create frivolous patent extensions that game the system and prolong exclusivity for years or decades. Not all price increases are exorbitant, nor are all patent extensions frivolous, but the behavior of a few is laying waste to the reputation of the entire pharmaceutical industry at the worst possible time: as the genomic medicine revolution begins to deliver a new era of previously unimaginable cures.

The innovative medicines barreling down the development pipeline conjure images of Bones in the “Star Trek” sick bay. Gene therapy, cell therapy, CAR-T, and immuno-oncology don’t just treat fatal diseases but potentially cure them. The next decade will unleash the most astonishing medical breakthroughs in human history, unless our leaders in Washington embrace short-sighted drug policies that kill innovation in the cradle.

And consider this problem: Four of this year’s Fortune 10 companies — UnitedHealth Group, McKesson, CVS Health, and AmerisourceBergen — are middlemen in the U.S. drug distribution system. These companies are health insurers, wholesalers, and pharmacy benefit managers — all-powerful wardens of American medicine that determine which drugs can be accessed by which patients and for how much. PBMs don’t innovate a whit of health care for anyone, so why is their revenue higher than GE, Google, and Verizon’s? What service do they provide to merit such largesse?

Last year in the Rose Garden, President Trump was on the right track when he called out the least transparent players in the pharmaceutical value chain, pharmacy benefit managers, for their excesses. The president promised to end “the dishonest double-dealing that allows the middleman to pocket rebates and discounts that should be passed on to consumers and patients.”

The administration proposed a rebate rule that would require Medicare Advantage insurers and the PBMs they own or hire to pass on manufacturer rebates directly to patients. Doing so would reduce the actual costs that beneficiaries pay at the pharmacy counter. The president received glowing reviews in the media and the patient advocacy community for the move, and rightfully so.

But the president abruptly rescinded that rule this month after relying on a dubious Congressional Budget Office report that predicted additional government costs because insurers would respond by raising premiums. Trump was pilloried for the reversal in the press and the patient community, and rightfully so.

So we’re back to the status quo. Insurers and pharmacy benefit managers can continue to pocket rebates from drug manufacturers without sharing savings, and patients still struggle with high drug bills.

How did we get here? Pharmacy benefit managers were conceived to negotiate lower prices in the pharma value chain, but rebate abuse has become so widespread and profitable that the middlemen routinely abdicate this responsibility to lower list prices and co-pays for patients.

Insurers and PBMs trade prime placement in formularies — sanctioned lists that specify which medicines are covered by which plans — for higher rebate checks from drug makers that don’t get passed on to patients. The more inflated a drug’s list price, the larger the rebate. This issue is seldom discussed publicly by biopharma executives, because three mega-PBMs control 76% of the market and can crush emerging drug companies by restricting the availability of their products.

The perverse incentives in our system harm patients in two ways. First, patients’ share of a drug’s cost is typically calculated as a percentage of a drug’s list price, which PBMs work to keep artificially high. Higher profits for middlemen are being generated by raising costs on patients. Second, patients want the best therapies to be on their insurance formulary, not medicines tied to the biggest cash payouts to PBMs.

Now that the rebate rule has been rescinded, things could get really scary. The administration is pivoting to ideas guaranteed to send biotech investors running for the exits: importing foreign drug prices and maybe even foreign drugs themselves.

Benchmarking drug prices to single-payer health care systems in Europe and importing drugs made for foreign markets represent a startling embrace of socialism from a president running a reelection campaign premised on its evils. Every Food and Drug Administration commissioner in the last two decades — including Trump’s — has said that importing foreign drugs threatens the safety of patients and should not be certified.

The president still has time to reject those who are telling him that government price-setting and corporate welfare for insurers are good for patients and good for his bid for reelection. Neither is true.

It’s also not true that people who run biopharma companies care only about profits. My company has yet to earn a dollar in profit, but every member of my team cares deeply about innovating on behalf of patients. Some of us are patients. And all members of the health care network — innovators, payers, caregivers, and lawmakers — owe it to our patients, our customers, our shareholders, and our constituents to abide by the social contract to provide affordable access to our innovations. If we don’t, politicians from both parties may do it in ways that harm patients and innovators alike.

Paul Hastings is president and CEO of Nkarta Therapeutics in South San Francisco; a board member of Viacyte; and vice chair of BIO as well as chair of its Patient Advocacy Committee. The views here are his own and do not necessarily represent those of the companies and organizations with which he is affiliated.

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  • I appreciate the author’s perspective but I think that perspective is too limited. Egregious pricing is not, unfortunately, limited to a ‘minority’ of industry bad actors.

    While Mr. Hastings takes aim at irresponsible price increases, I think we need to concurrently talk about responsible/affordable launch prices. Almost all drugs are ‘invaluable’ to the patient but far too many drugs are no longer affordable to patients or the health care system writ large. The fact that patient drug costs are high is a symptom of the price problem here — not the source of the price problem.

    I also understand the author’s concern about rebates and all the very real problems they incentivize. Importantly, rebates were the creation of pharmaceutical manufacturers to compensate for high prices or low value or both. Opaque rebates are far more useful than on-invoice discounts to maintaining high list prices. But now the system is a quite run-amok and drug companies are not as advantaged by the system as they once were.

    The industry wants rebates to go to patients, which can work to a certain extent but I’m guessing that the industry does not want the actual rebate amount to be known by the patient or the pharmacist, which makes the whole idea very complicated and probably unworkable. In the meantime, people suffer as a result of ever higher list prices so the industry can hit revenue targets in spite of their rebate creation.

    I also think it is past time to end the disingenuous line about importation. Rather than ‘socialism’ (which is already a tired boogeyman). I think we should think of it as importing MARKET COMPETITION. Pfizer is free to compete on a transparent, market price with its identical product manufactured in the same overseas plant as its product shipped directly to the US. The reality is that about 70% of the drugs we consume in the US were manufactured by our US companies in FDA registered plants they have built overseas — for cost efficiency purposes.

    It’s time to talk about affordable launch prices alongside responsible price increases. And its time to talk about affordability rather than ‘value’.

    I think there is no way for the industry to act in anyone’s interest but their own/their shareholders’ interests. That’s just the way it is today and it’s not a good place to be unfortunately. That’s why we need public policy to address what otherwise cannot be addressed. There are a limited set of public policy tools by which to truly right this market and address the variety of poor incentives and bad behaviors that have grown up in the system.

    • Excuse me Jane, Have you ever worked in a drug store? Do you even understand how drug distribution works in this country? Do you even know what a drug rebate is, or what it’s actually used for? The answer is NO to all the above. PCMA says that Drug Rebates are used for preferential placement on a drug formulary. The PBM’s had a problem calling this what it really is, extortion !! by the PBM’s.
      The PBM’s whole method of pricing of drugs was all for their profits and nothing else. Spread Pricing, Drug Rebates, Claw back of DIR fees or GER fees. The whole concept of AWP as a way of pricing a drug is the ideal setting for the PBM’s to take all the money they want!!
      PBM’s should be treated like a credit card company. They should get a transaction fee PERIOD! For
      that matter drugs should be priced according to cost to the pharmacy.
      You know what lowers prices? competition lowers prices ! The lowest price gets on formulary !
      So Jane, this author got everything correct.

    • Hi Jane I am about launch pricing, and I believe my industry, the biotech industry can defend its launch pricing, then I believe in patent protection for a set period of time, followed by generic competition, either biosimilars or generic drugs…I am about innovators , not middlemen. Middlemen add nothing to the system but costs, and yes, I want patients to know what the rebate is, i want congress to know what the rebate is, and more importantly WHERE IT GOES, which, unfortunately is not to the patient. If innovators price their products knowing that after a set period of time, generics will come along, and they encourage that cycle, all will win. And of course, responsibly pricing, providing assistance to patients on ridiculous co-pays and deductibles, should all be part of the social contract. Rebates are the creation of the PBMs not manufacturers, btw.

      I would love one big congressional hearing with PBM’s insurers, distributors and wholesalers, and innovators…take a health care dollar spent on a prescription, and then identify the amount of that dollar that goes to each group in the chain. That would be enlightening and would probably dispel a lot of inaccuracies out there about the industry. Importing drugs from Canada ear marked for Canadian patients is not competition. Let real competition drive pricing in our market by getting less expensive alternatives on formulary when patents are up.

  • caveat one: …. minority of bad actors, ….. the behavior of a few is laying waste to the reputation
    The reality is that they are the vast majority. If you don’t see it, you are either delusional, or lying. And that makes any other consideration pointless.

    caveat two: as long as biopharma companies will be allowed to go public on the stock market, nothing will ever change. Because, whether they like it or (very rarely) not, the only metric is revenues and stock market value. Investors don’t care what moral reasons make your revenues shrinking. All they care is whether the value of your stocks goes up or down

  • The writer sees the culprit of government controlled drug pricing, stunted R & D, investor’s aversion, and hampered medical innovation quite correctly : cut out the self-serving patient abusing money-hungry gougers = PBMs !!! The US medical “system” is an overgrown mammoth of profiteering corporations, that do not service patients at all. With PBMs gone, the elephant in the room slims down, a crucial necessity for reducing drug costs in the US. Really, the US should look at WHY other countries have lower drug prices, and for once dare to adopt what works so much better elsewhere.

    • You got it right Chris !! The PBM’s always were and always will be the problem with drug pricing. Trump was afraid he wasn’t going to get his reelection funds from pharma and PCMA . That’s why he stopped going after the drug rebates. What is the purpose of a PBM ? EXACTLY !!! They have no purpose !!! They claim that they’re
      negotiating a better price. Really ? A better price for who ? Does the PBM buy any drugs ? NO ! The PBM’s negotiations have no effect on what the drug wholesaler charges the pharmacy. PBM’s figured out a way to
      fleece America, and our President is afraid to stand up to them! Sad !!!

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