June 8, 2016
This paper would have been impossible without the support and encouragement of Jim Greenwood and the BIO team. Their support for looking at the entire health system made it possible for the Gingrich Productions team to develop this draft. We look forward to analysis, insights and suggestions from a broad range of people before developing a final draft.
We live at a time unprecedented in human history. Advances in science and technology have brought us to the brink of a miraculous future. We could cure blindness. We could reverse the effects of aging. We could regrow failing organs. We could reprogram our immune systems and rewrite our genetic codes. We could soon become amazingly stronger, smarter, and healthier–all of it leading to much longer and better lives for every American.
We could do all of these things, and more. We are on the edge of conquering many of lifes most persistent challenges – aging, disease, and threats to brain health.
The breakthroughs we have seen to date are just hints of those to come. But even the capabilities that are here today look like dreams from a science fiction writer.
With the discovery of CRISPR, we may have opportunities to edit DNA to change, activate and shut off genes that cause disease.
With immunotherapies, we are stimulating patients immune systems to attack and kill cancer with biology instead of radiation and chemotherapy.
Already, we have built bionic eyes–cameras that transmit vision directly to the retinas of the blind. And that is nothing compared to the gene therapies for blindness that are working in clinical trials today.
In labs across the country, doctors are growing new, replacement organs for patients whose bodies are failing. Even now, there are patients walking around with bladders that were grown in incubators more than a decade ago.
Breakthroughs in neuroscience hold forth the promise to slow or even to halt the onset of Alzheimers and other dementias.
Miniature sensors can already monitor our vital signs around the clock, transmitting them wirelessly to our phones to alert us–and our doctors–at any sign of trouble. Soon, nano-sensors in the bloodstream will offer continuous access to every conceivable metric of health.
These are the miracles that are right before our eyes. This is the future that every American could have. It would be a tragedy to abandon it. And yet we are in real danger of doing just that.
What stands between us today and the future we can see just in front of us is not a lack of imagination by our nations entrepreneurs, nor is it a dearth of discovery among our scientists.
Instead, our future is limited by the threat of short-sighted policies that would cripple innovation, and by current policy, regulatory, and market approaches that apply 20th century thinking to 21st century challenges.
Our big and bureaucratic government, obsolete laws and regulations, and special interests who protect the past at the expense of progress stand in the way of a dramatically better future for every American.
We must urgently rethink these failing systems and outdated regulations if we are to clear the way for the revolution in health science and technology.
That our health system must change should be clear to anyone who has struggled with the turbulence of Obamacare, or tried to cope with the rising costs of insurance policies as well as the higher deductibles and out-of-pocket expenses that mean insurance pays for less and less, or been denied coverage by both government and insurance company bureaucrats whose job is to ration care.
In the place of our current health bureaucracy, we need a flatter, more transparent and more accountable health system that is open to the innovations that are rapidly becoming available.
Every American should be able to expect certain standards, freedoms, benefits and opportunities from a 21st century health system.
In a 21st century health system, every American deserves and should expect that if they are willing to participate and be responsible:
- their health will improve;
- they will have longer lives with a much better quality of life;
- an experience that is more convenient, more understandable, and more personalized–all at lower cost;
- access to the best course of treatment for their particular illness and their unique characteristics;
- a system that fosters and encourages innovation, competition, and better outcomes for patients;
- a system that truly values the impact that medical innovation has on patients and their caregivers, as well as on society as a whole;
- a government that facilitates and accelerates rather than obstructs and delays the extraordinary opportunities to improve health and healthcare;
- continuous but unobtrusive 24/7 monitoring of both their general health and their chronic conditions and any acute health problems;
- access to the most modern medical knowledge and breakthroughs, including the most advanced technologies, therapies, and drugs, unimpeded by government-imposed price controls or rationing;
- the chance to increase their personal knowledge by learning from a transparent system of information about their diagnosis, costs, and alternative solutions;
- a continuously improving medical world in which new therapies, new technologies, and new drugs are introduced as rapidly as safely possible and not a day later;
- a competitive health system which keeps pace with the innovations happening in America’s labs and research institutions and which is centered around the interests of the patient rather than the interests of the professions, bureaucrats, and institutions;
- greater price and market competition, greater innovation, and smarter healthcare spending;
- dramatically greater convenience than in the current system, so that health monitoring and maintenance can be unobtrusive and efficient;
- a system of financing (including insurance, government, charities, and self-funding) which ensures access to health and healthcare for every American at the lowest possible cost while not allowing financing and short-term budgetary considerations to distort and weaken the delivery of care;
- genuine insurance to facilitate access to dramatically better care, rather than the current system that is myopically focused on monthly or annual payments; and
- a health system in which third-parties and government bureaucrats do not impede or hinder the best course of treatment that doctors and their patients decide on, or in which seniors, veterans, or others under government health programs are not treated worse than their children in private market systems.
To transform todays expensive, obsolete health bureaucracy into a system that conforms to these principles will require big reforms.
New bio-pharmaceuticals and advances in the life sciences will play an especially important role in this process, since they alone can cure or minimize many of the costliest conditions that plague Americans health and threaten Americas budget. We must make it easier to develop breakthrough cures and speed them to patients.
Before addressing the special role of bio-pharmaceuticals in achieving a revolution in health, lets very briefly mention some of the other policy reforms that will be necessary to realize the vision of a 21st century health system.
Creating a 21st Century Health System
There is much that needs to change in order to transform the broken system that has resulted in ballooning costs of health care while reducing choice and limiting benefits for patients.
- Medical liability reform. Far from protecting patients, the sheer number of malpractice lawsuits drives up the cost and threatens patient care by distorting doctors’ decision making. Addressing the medical liability crisis will bring down the cost of care, and improve it as well by returning doctors to making medical rather than legal defense decisions.
- Health insurance reform to give Americans greater choice. The Affordable Care Act significantly limited the diversity of health insurance plans that insurers can offer, requiring that all plans offer a set of benefits determined at the Department of Health and Human Services discretion. Allowing insurers to offer a greater variety of plans–and allowing them to sell coverage across state lines to eliminate the artificial restrictions on competition–would result in better insurance for consumers at lower cost.
- Boost Health Savings Accounts. Health Savings Accounts allow people to save for routine health expenses tax-free. Paired with high-deductible insurance plans, they were attractive options for many patients, allowing them to price shop and giving them an incentive not to consume services they didnt need. The Affordable Care Act placed restrictions on the type of medical expenses Health Savings Accounts could be used for and recently announced rules governing standard benefit designs for insurance plans that further threaten their viability. Furthermore, many exchange customers are purchasing high deductible health plans without taking advantage of the Health Savings Account options available with these plans, making it more difficult for them to cover their out of pocket costs. Giving consumers more health spending flexibility as well as increasing transparency on the exchanges about what plans are eligible for Health Savings Accounts would increase consumer choice, increase competition and lower prices.
- Patient Cost transparency. Patients can’t be informed consumers if the real cost of their health care is hidden from them. Patients will be empowered purchasers when they can compare their actual costs in real time. Reforms designed to create more market competition must include greater cost transparency at the patient level as a fundamental value.
- Medicaid reform. Medicaid programs need to continue to protect those who currently rely on them while adopting long-term changes designed to give states flexibility to implement them and give much greater choice.
- Medicare reform. Seniors should have new choices in Medicare. They should have the option to choose, on a voluntary basis, either to remain in the existing program, or to transition to a more personalized system in the private sector with greater options for better care. If they select the personalized system, beneficiaries should be able to receive support to cover their private sector premiums. Giving all seniors the option to choose their insurance provider will improve price competition and help lower costs for the program. Seniors deserve an insurance program that is as flexible as their childrens insurance, with at least the same benefits.
- Ending fraud and waste in Medicare and Medicaid. My former colleague at the Center for Health Transformation, Jim Frogue, wrote a book called Stop Paying the Crooks, identifying between $70 billion and $110 billion every year of Medicare and Medicaid fraud. This savings alone would have met President Obamas proposal of a few years ago to cut $1 trillion over ten years without touching a single honest person. Making progress in eliminating fraud and waste in public health programs would free up significant resources, some of which could be used to help pay certain expensive specialty drugs for low income patients.
The Special Role of Bio-Pharmaceuticals in Realizing a 21st Century Health System
While we will need a number of significant reforms to achieve a 21st century health system (including those described above), the place where we have seen the clearest evidence of the power of science and technology to dramatically improve our individual health and wellbeing as a country is in the revolution of new cures and treatments now available to patients.
New cures are saving lives and saving money in dramatic ways.
Because future cures have the potential to have even more revolutionary impact, it is imperative that we not only sustain the current drug discovery, development, and delivery processes, but that we find ways to enhance and accelerate them.
The evidence is indeed overwhelming for why we need new cures and treatments, faster.
- Consider the benefit of one innovative therapy for those with chronic myeloid leukemia (CML). Since 1980, the ten-year survival rate has increased from less than 20 percent to more than 80 percent as a result of advances in treatment. One study estimates that society has benefitted more than $140 billion from CML therapies since 2001, with 90% of those benefits accruing to patients from just living longer. The other 10% accrues to the drug maker. This study does not even account for the full extent of societal benefit such as reductions in the burden on the caregiver or a reduction in other medical costs due to improved health. As such, the $140 billion societal benefit likely underestimates the true savings.
- HIV/AIDS is probably the most visible example of this progress. Just three decades ago, the disease was a total mystery, producing death just months after diagnosis. However, the result of unprecedented efforts to find a cure in the form of public and private funding, popular pressure by patients and their supporters, and expanding regulatory flexibility has transformed HIV/AIDS from a death sentence to a chronic, manageable condition. Death rates have fallen by 85% since 1995.
- The cancer death rate has dropped 20% since its peak in 1991, an achievement due largely to the availability of better medicine. Multiple studies have shown that the gain in the cancer survival rate has been worth $2 trillion to our society as a whole. Additional research has shown that reducing the death rate from cancer by an additional 10% would be worth $4.4 trillion to current and future generations.
- There has also been enormous progress in treating cardiovascular disease, the leading cause of death in the United States. According to a study published in Health Affairs, the use of a type of new cholesterol lowering medication called statins translated into roughly 40,000 fewer deaths, 60,000 fewer hospitalizations for heart attacks, and 22,000 fewer hospitalizations for strokes in 2008 alone. From an economic perspective, the result of these fewer deaths and hospitalizations in that year was a 27% reduction in health care costs per patient, and a savings of nearly $5 billion in the United States.
- The same study also estimated that the use of statins between 1987 and 2008 generated $1.25 trillion in economic value from the years of life saved for those taking the medicine. During that time, approximately $200 billion was spent on statin drugs, meaning that the use of these medications resulted in a net benefit to society of $947 billion. That is roughly a 4:1 benefit-to-cost ratio.
And future benefits from these drugs will continue to accrue to society even as the cost of providing such treatments decreases dramatically due to their availability as low cost generics. Most patients today pay extremely little for statin therapy with huge personal and economic benefits. The overall cost savings from the availability of generic statins are estimated to be about $4.5 billion per year.
The example of statins shows the continued societal benefit that medical innovation produces for the nation. New medicines and treatments may start relatively expensive, but they reduce in price over time, meaning that society accrues increasing benefits. Meanwhile, the higher revenue generated from the first few years of availability is reinvested back into research for the next round of breakthrough treatments. This is the recurring cycle of innovation which creates lower priced and more effective medications over time.
The Threats to Accelerating the Development of New Cures
Despite the ongoing debate about certain expensive drugs, there is a widespread consensus that we as a society tremendously value the development of new cures by drug companies.
You will not find anybody who explicitly opposes the development of new cures, nor openly advocates slowing down the development of new cures.
To the contrary, politicians will compete with each other for ideas on how to speed up the development of cures so that the citizens they represent who suffer from chronic and other diseases can benefit from them as soon as possible.
However, there are three dynamics at work that are creating understandable pressure for something to be done about drug prices, with very divergent responses about what should exactly be done.
Lets examine each pressure in turn.
a. Obamacare Has Led to Insurance Companies Making Patients Pay Higher Out of Pocket Cost for Certain Expensive Drugs
One effect of the Patient Protection and Affordable Care Act (a.k.a. Obamacare) has been to shift a number of people away from employer sponsored insurance into the individual marketplace. The Obamacare law has also created an enormous new set of rules under which insurance companies must now operate. In particular, Obamacare included a must-issue rule which required the insurance companies to cover someone who is already sick, and prevents them from charging them more money for those sick patients. As a result, a recent report from Blue Cross Blue Shield estimated that enrollees under Obamacare had medical costs which were 22 percent higher than those enrolled in employer sponsored plans.
The requirement to cover all these new customers who are more expensive than their existing pool has led to two predictable results. The first is higher premiums. The second is insurance companies finding ways to cover fewer sick customers. The primary way in which insurance companies are achieving this objective is through higher cost sharing for medications.
According to a 2015 survey of 6,500 eHealth customers, 35% paid more than expected for their prescription drugs. Patients in private insurance pay approximately 20% of the cost of medications versus 4% for hospital care. That means five times as big a share for drugs as for hospitalization.
Insurance companies are also taking advantage of drug coverage tiers which were initially created to encourage patients to take low cost generic drugs instead of brand name ones. Lower tier generic drugs have low co-pays while brand name drugs have higher ones.
Insurance companies are increasingly adding new tiers for so-called specialty drugs which are used to treat rare or serious diseases. These drugs usually have extremely high co-pays and co-insurance, often thousands of dollars for a single months supply.
These specialty drugs usually do not have a low cost generic drug as an alternative. The purpose of requiring higher out of pocket cost sharing is not to encourage smarter spending on behalf of the patient and doctor. Instead, these drugs are classified this way simply because they are so expensive, regardless of whether there are other options for patients. The goal appears obvious to make these plans unattractive to patients who require such drugs.
Several studies support this conclusion. Avalere Health found that some exchange plans put all the drugs used to treat HIV, cancer, and multiple sclerosis into this specialty drug tier. Harvards Center for Health Law conducted a study of Qualified Health Plans in the Exchange Marketplace in 16 states. They observed that there is increasing evidence that some QHPs are structured to make specific medications, such as HIV and HCV medications, disproportionately expensive. This insurance practice has the discriminatory effect of discouraging individuals in needs of specific medications from enrolling in these plans or of shifting the burden of the cost back to these enrollees.
Steering doctors and patients toward equally effective, low cost drug alternatives with lower co-pays is one thing. Imposing impossibly high out-of-pocket costs on the sickest patients is another.
b. Recent High Profile Stories of Expensive Drugs.
The shifting of more drug costs to individuals in the form of higher co-pays as a result of Obamacare is not the only thing driving heightened concern about the cost of drugs. There have recently been a number of high profile actions by a handful of hedge funds masquerading as drug companies to dramatically increase the price of certain older drugs in their inventory which no longer had patent protection. Turing Pharmaceutical and Valeant Pharmaceuticals are the two companies whose names have most often appeared in the headlines for taking such steps. These companies sought to take advantage of the lack of immediate market competition for certain of the drugs they sold. In the case of Turing, it raised the price of a drug to treat toxoplasmosis from $13.50 to $750 a tablet. This action, and other price spikes by Valeant for its drugs, including two heart treatments, Nitropress and Isuprel, generated a wave of public criticism and has led to a number of Congressional hearings.
An additional headline producing story in the drug world in recent years was the bringing to market in 2013 of a revolutionary new drug for Hepatitis C called Sovaldi by the Gilead pharmaceutical company. In 2014, the first year the drug was on the market, the CDC calculated almost 20,000 deaths from the disease. The list price for the Sovaldi course of treatment was set at $86,000. A year later Gilead came to market with a second drug that expanded the reach and effectiveness of its Hepatitis C treatment. The list price for the course of treatment of this second drug, Harvoni, was initially set at $95,000. Even though the list price of a brand name drug is almost never the price ultimately paid for the drug after rebates and discounts negotiated by various actors in the distribution chain, the high list price for this game changing drug caused quite a shock. Criticism over the initial high list price also did not acknowledge how much money was going to be saved by actually curing patients with Hepatitis C instead of keeping with the older course of treatment for the disease that was far costlier over the long term. It didnt help that most of those who would benefit from the new Hepatitis C treatments were on state Medicaid programs that would be put in short term financial distress by these new expensive cures. However, even as competition has driven down the price, some plans still are not covering it until late stage liver deterioration. Even as some of these same plans sit on massive reserves set aside to deal with a public health crisis. In 2013, according to the CDC, more Americans died from the disease than from 60 other infections combined. That undoubtedly qualifies as the sort of public health crisis they claim to wait for. Yet, they refuse to cover it with the excess reserves. Why not use the reserves and eradicate the disease for good?
c. The 2016 Presidential Race.
The recent public focus on the spiking of the price of off patent drugs sold by Turing and Valeant, and the initial high prices of Gileads new drugs to treat Hepatitis C, has naturally drawn the attention of the 2016 presidential candidates, who have weighed in to demand lower drug prices across the board. The Turing and Valeant cases have been used to deliver a broad indictment of the drug industry and its pricing. It can be expected that as the campaign continues on, the eventual major party nominees will aggressively present their policies to address drug development in general and drug cost and pricing in particular.
Counterproductive Solutions to Expensive Medicines Government Price Controls
Certain proposals put forward during this political season – in the name of lowering drug prices — would have the effect of hindering the development of new cures, while doing little if anything to actually improve accessibility or affordability of existing medicines. These proposals would actually undermine the goal of faster cures for those who need them.
Let us consider a few of them.
1. Establish and Expand Price Controls in Medicare and Medicaid. Proposals such as expanded rebates in Medicaid, new rebates in Medicare, or bureaucrat “negotiations on drug pricing all boil down to government price controls intended to reduce costs today at the expense of patient access and continued innovation. These proposals ignore the fact that competitive negotiations are already the fabric of how the Medicare program pays for drugs, both in Part B and Part D. The many insurance companies that offer drug coverage through Part D already negotiate directly with the drug manufacturers to secure the best possible price for their drugs on behalf of the seniors whom they cover. These competitive negotiations have worked to lower drug prices, resulting in substantial rebates, often as much as 20- 30%, with average rebate levels increasing each year of the program. This free market approach is keeping total costs low $349 billion lower than initial CBO 10-year projections. And seniors using Medicare Part D are happy, which is why approval ratings for the program regularly exceed 90%. These prices are so low that even the Congressional Budget Office has reviewed suggestions that Medicare itself negotiate directly with all the drug manufacturers and concluded that such an authority would have a negligible effect on federal spending because [we] anticipate the Secretary would be unable to negotiate prices across the broad range of covered Part D drugs that are more favorable than those obtained by Prescription Drug Plans (PDP) under current law. Similar competitive market forces establish the rates at which the government pays for Part B drugs, too. And there already exist further mandatory rebates for many government and private purchasers of drugs.
2. Re-importation of Drugs from Outside the U.S. The U.S. has higher drug costs than most other nations because foreign governments impose price controls. The temptation is to buy the same drugs at a lower price abroad and reimport them back into the United States. There are two problems with this approach. The first is safety. It is currently illegal to reimport drugs back into the United States because there is no reliable means of ensuring the safety of reimported drugs. Supporters of re-importation always formulate their proposal by assuring that there will be careful protections for safety and quality. But what re-importation supporters dont tell you is that the FDA doesn’t have the ability to confirm that reimported drugs are safe. The second problem with re-importation is that we would essentially adopt the price control policies of these foreign countries. The end result would be the dramatic slowing of research for new cures, which would harm every country. Indeed, by one estimate, had the U.S. adopted similar price controls in our market over the past several decades, we would have more than 100 fewer new medicines than we have today.
3. Reducing Exclusivity Period for Biologic Drugs. Biologic drugs represent some of the most promising new opportunities for cures. They are also among the most expensive due to great risks of successfully developing them and their costly manufacturing processes. Some proposals seek to reduce the exclusivity period (now at 12 years), claiming that after a shorter exclusivity period more competitors can enter the market to drive prices down. The challenge with this proposal is that any significant shortening of the exclusivity period will threaten their ability to recoup the costs of their research and FDA compliance costs across the range of their pipeline investments (the vast majority of which fail), and potentially will alter their decision to undertake certain drug development risks in the first place. Second, due to the expensive development and manufacturing processes involved with biologics, the eventual entry of other drug makers after the exclusivity period is not likely to offer the steep discounts that are often seen with generic competition to brand name pharmaceuticals.
Such proposals offer illusory relief in drug prices in the very short term while dramatically undermining the development of new cures over the long term.
Nevertheless, there are things we can indeed do about the high prices of certain drugs.
The Right Solutions to Concerns about Drug Prices Patient Access to More Cures, Faster
As we have discussed above, the extraordinary breakthroughs of science, engineering, technology, and entrepreneurial creativity are making possible dramatic improvements in the lives of virtually every American.
They make possible the hopeful vision of a 21st Century Health System in which the primary goal of American health policy should be to get the most effective treatments to the greatest number of people in the shortest time possible.
When it comes to bio-pharmaceuticals in a 21st Century Health System, we must achieve two values at the same time:
1. Accelerating innovation and the development of new cures so patients can get the medicine they need as soon as possible and so that society can lower the overall cost of disease and sickness and the costs of treating it; and
2. Ensuring patient access to the bio-pharmaceuticals they need when they need them.
Developing More Cures, Faster, for Longer and Healthier Lives.
More immediate than health insurance reforms, there are several executive and administrative branch reforms that can put downward pressure on drug prices.
1. Accelerating FDAs Approval Process of Generic Drugs.
In testimony before Congress in February, Dr. Janet Woodcock, Director of the FDAs Center for Drug Evaluation and Research, explained the stakes in the rapid approval of generic drugs.
She observed that 88% of all drugs dispensed in the United States are generic, up from 30% in 1990. From 2005-2014, the use of generic drugs has saved the U.S. health system $1.68 trillion.
This two-decade long growth in the generic drug industry brought with it its own challenges. As more and more generic drug manufacturers entered the market, the FDA could not keep up with its approval pipeline as hundreds and hundreds of generic drug applications were backlogged.
Finally, Congress acted in 2012 to impose user fees on generic manufacturers which allowed the FDA to restructure its approval process and hire hundreds of new examiners to speed up the pipeline of new generics.
The stakes are high that the FDA follow through and achieve real breakthroughs in the approval of new generic drugs. This is especially true for the class of generics known as first generics. These drugs are first to come on to market as a generic in competition with the brand name drug whose patent has expired. The Manhattan Institute reported a finding that a one-year acceleration in bringing FDA-approved drugs to market could deliver to patients an estimated $4 trillion worth of value annually as measured by living longer lives with better health. This is an extraordinary estimate of individual and social savings that should focus everybodys minds on the importance of reforming FDA practices.
2. Accelerating Clinical Trials.
A recent study estimated it currently costs an average of $2.6 billion to bring a FDA-approved medication to market. Lowering the cost of bringing a new drug to market is one of the best ways to accelerate the development of new cures and lower overall healthcare costs.
The 21st Century Cures Act, which passed the House last July and is currently being taken up in the Senate in several smaller bills, directs the FDA to embrace adaptive clinical trials, greater use of biomarker and other surrogate endpoints, and evidence of real world effectiveness when assessing new medicines and new uses of existing medicines all of which can speed the development of new cures and lower R&D costs. For the first time, the FDA would also be required to take into account patient experiences when assessing risks and benefits of new cures. This patient input holds forth the promise of giving others far greater clarity whether a new cure is right for them as an individual.
In addition, the agency needs to do more to help facilitate drug development prior to the submission of actual applications for review by having the right experts available to work with drug companies during the development and trials processes. In order to do so, Congress needs to provide the agency with enhanced hiring flexibilities, to ensure that the agencys talent and expertise can keep up with the innovations occurring in the biomedical research and scientific communities and in our private bio-pharmaceutical companies.
3. Making Foreign Countries Pay Their Fair Share for U.S. Developed Drugs.
The price controls imposed by foreign countries upon U.S. manufactured drugs directly reduce the resources available for American drug companies to develop new cures for the benefit of American citizens and the citizens of all nations, including those who live in those countries whose governments are free-riding on American research and development
American companies shouldnt be coerced into selling their products at unfair prices in foreign countries. The free ride should come to an end. Our trade policy should prioritize that foreign countries pay their fair share for U.S. manufactured drugs. Free riding on U.S. drug research and development is an entirely short sighted policy by those foreign countries engaged in it as these countries will also reap the societal benefits from faster development of new cures. The end of foreign price controls on U.S. manufactured drugs would serve as a significant accelerant of new drug development.
4. Insurance Reform.
Because of Obamacare and other factors, many patients are being denied insurance coverage today for the drugs most appropriate for them (and which will likely lower overall health costs) because their insurance companies either dont cover the drug or they have placed the drug on a specialty formulary that requires a prohibitively expensive co-payment from the patient.
We need health insurance reform that allows consumers more freedom and choice to purchase the health and drug insurance coverage that is most suitable to them and their health condition, at a price they can afford.
An analysis by the Leukemia and Lymphoma Society showed that most platinum and gold plans, and about half of silver plans on the Exchanges, could set $100-$200 limits on monthly prescription drug costs for patients and only increase premiums by half a percentage point. For those plans which would increase by more, many could eliminate the needed premium increase through changes like increasing office visit co-pays by just $5.
Insurance reform also needs to ensure protections for patients to access the therapies they need as well as protections against non-discrimination for clinical characteristics and disease conditions that are beyond their control.
5. Freedom of Information Exchange Among Drug Development Stakeholders.
Current regulations should be changed to allow far more robust communication between drug manufacturers and drug payers and providers about the performance of drugs, both prior to and after FDA approval. This also should cover truthful information about FDA approved uses of the drug, as well as non-FDA approved but medically accepted uses of the drug. Removing the threat of legal action from these conversations ultimately will allow patients to have greater access to drugs most appropriate for their condition, allow payers and providers to plan better for handling the introduction and financing of new drugs, and lower overall health costs.
6. Pay for Performance.
Legal and regulatory changes should be explored that allow drug manufacturers, payers, and providers to tailor arrangements among them to incentivize payments for drugs based on measurable improvements in health outcomes. This will improve health outcomes and lower overall health costs.
7. Maximize Access to Expensive Drugs.
We should remove legal and regulatory barriers that prevent bio-pharmaceutical companies from providing greater direct financial assistance to patients exposed to high out-of-pocket costs for certain drugs, especially where there is no equally effective, lower-cost generic available as a substitute.
8. NIH Prizes for Cures.
The National Institutes of Health (NIH) should explore the use of cash prizes to incentivize the development of specific cures identified by NIH researchers. Throughout history, cash prizes have been an alternative means to focus creativity on solving complex challenges, although they are not a substitute for the private research ecosystem that fuels the discovery of most new bio-pharmaceuticals. Large cash prizes would only be paid out once the achievement is realized so it can be a very effective means of financing cures. No money is spent by the government until a cure is realized, and the projected savings from the cure can justify the payment for the prize. Any such system, however, must maintain incentives for private sector involvement or else such cures will never be developed into actual, marketed products.
9. New Methods for Paying for Certain Expensive Drugs.
For certain specialty drugs that come along whose costs are higher than anticipated by todays insurance company risk models, we need to invent new actuarial, reinsurance, and other financial methods that can help finance the high upfront costs of these new cures. One concrete idea is for health insurance companies to study the reinsurance models of the property and casualty insurance industry. Property and casualty insurance companies know how to price their premiums to cover payouts for catastrophic hurricanes, terrorist attacks, and other very low frequency but potentially very costly risks. Similarly, health insurance companies should be able to develop reinsurance models to cover the payments for the low frequency but expensive cures that come along from time to time that can dramatically improve the health of certain subsets of their covered populations.
The Moral and Economic Imperative of Sustaining New Drug Development
The United States is the only country in the world that doesnt impose price controls on medications.
The reason why U.S. lawmakers have so far resisted the periodic public pressures to impose some form of price controls on bio-pharmaceuticals is the strength of the simple argument that to do so would fundamentally weaken the sustained investment necessary to support our current drug development system.
It is no wonder why we want to sustain our current system. Our current drug development system has produced extraordinarily positive results for our country and the world. There is significant evidence that the introduction of new drugs and devices has been the dominant factor behind a 10-year increase in U.S. longevity, a marked reduction in mortality from cardiovascular disease and cancer, and improved quality of life due to reduced morbidity caused by afflictions such as arthritis.
There is no getting around the simple fact that drug development is enormously costly and an extraordinarily risky investment. To attract the capital necessary to invest in drug development has always required the freedom to set prices and sales that are high enough to generate acceptable returns across a portfolio of investments of which the vast majority fails.
Since 1962 when the FDA required drug companies to demonstrate both safety and effectiveness of new drugs through adequate and well-conducted studies, the cost of drug approval has risen 100 fold. The combination of the extraordinary cost of drug development and the high failure rate of attempting to develop new drugs has led some analysts to conclude that we may be approaching a point at which drug development ceases to be cost-effective.
We have a pretty good idea what will happen to investment in new cures if politicians succumb to short term pressure to set prices or otherwise interfere in the regulation of drug pricing and investment strategies. In 1992, when he was running for president, Bill Clinton threatened to impose drug price controls. This threat caused a 52.3 percent drop in market-adjusted stock prices an amount greater than the entire capitalization of the biotechnology industry at the time as the S&P in general rose by 8.1 percent. Pharmaceutical company stocks did not recover until nearly a year later when the price control threats abated. The current presidential candidates pronouncements about drug prices have spurred a similar investment flight.”
High drug prices do not mean that effective public and private strategies cannot be undertaken to help low income people get the drugs they need for their condition. Many drug companies already have very generous drug assistance programs for low income, uninsured, or under-insured populations. Public and private payers can reassess how they calculate the value of a cure and revisit their actuarial models to handle better how to pay for new specialty drugs that may cost a lot upfront but actually save much more money over the long term. Other strategies have been outlined earlier in this paper.
The complexity and cost of bringing new cures to market should cause every lawmaker to pause before starting to interfere with the innovation eco-system that drug manufacturers have to operate in. Politicians simply do not have the knowledge to fine tune their interventions without doing harm to a system that has an extraordinary track record for saving lives and saving money. What politicians should be doing is removing obstacles to faster research and faster drug approvals. We want more cures, not less. This is a moral imperative that will help improve the health outcomes of millions of Americans while lowering the overall health costs that fall on society.
In a nutshell: we cant stop thinking about tomorrow, especially when it comes to cures. And sustaining the cures of tomorrow means sustaining the freedom today of the financial, scientific, and entrepreneurial risk takers to invest in, research, and price new cures in the way that they determine will best sustain their involvement in the drug development process.
Appendix 1: Gingrich and Health Policy
Newt Gingrich first began working on health issues as a candidate in 1974. Even then, many of our current problems were beginning to surface.
In 1991, then-Congressman Gingrich as House Republican Whip helped launch the House Republican Task Force on Health and Healthcare. The work of that task force created the intellectual framework for successfully opposing Hillarycare in 1993-94.
As Speaker of the House from 1995-1999, Gingrich insisted on doubling the funding for the National Institutes of Health while controlling spending overall and balancing the federal budget for four straight years (the only time in our lifetime). This belief in innovation and new approaches to medicine also led to the reform of the Food and Drug Administration. The Gingrich speakership also included reforms of Medicare which extended the life of the system (which had been projected to go bankrupt). Gingrich worked for mental health parity to ensure that the complete human was included in the health system.
After the speakership, Gingrich continued to work on health issues, including coauthoring Saving Lives and Saving Money in 2003 and founding the Center for Health Transformation.
Gingrich co-chaired, with former Senator Bob Kerrey, a three-year study of long term care and then followed it with a three-year study of Alzheimer’s, which led to a series of legislative initiatives to increase research on brain diseases.
This draft report on a vision for a 21st century system of health and healthcare builds on this earlier work.
This report was written in collaboration with Joe Desantis, Vince Haley, and Ross Worthington at Gingrich Productions.