Addressing Prescription Drug Pricing: The Urgent Need for Price Negotiation in Medicare

Join us for a conversation about soaring US prescription drug prices, the need for Medicare price negotiation, and proposed structural changes with Stephen Crystal, PhD, Director of the Rutgers Center for Health Services Research and Distinguished Research Board of Governors Professor at the School of Social Work.

For Part 2 of this conversation, click here. 

Read the full transcript: 

Welcome back to Pophealth Perspectives, a conversation with the Population Health Learning Network where we combine expert commentary and exclusive insight into key issues in population health management and more.  

In this episode, Dr Stephen Crystal shares his insights on the soaring prices of prescription drugs in the US, the need for price negotiation within the Medicare system, and more.  

Please share your name, your title, your affiliation, and your background. 

I'm Stephen Crystal. I'm the Director of the Center for Health Services Research at the Institute for Health at Rutgers, and Board of Governors Professor of Health Services Research. So in this role, I've been here a long time. We are concerned with a lot of national health policy issues that we research, with an interdisciplinary team. We bring economics, we bring pharmacoepidemiology, we bring different methods of public policy analysis, we bring mixed methods where we combine big data analysis with understanding the impact of programs on citizens and participants and providers through interviews. So we are really interested in the big public choices that shape our population's health.  

So over time, that has certainly included prescription drugs. And we have, over the years, had a very big picture concern as well as a lot of very specific studies about how we, our population, effectively uses prescription drugs effectively or not so effectively, to improve health. So all of the issues about who gets what treatment and what does adherence look like and, how can we improve outcomes, and how can we assess outcomes in situations where clinical trials aren't being done or can't be done, all of those questions.  

So when you take the big picture as we go, we've always been concerned with this issue of cost and access. So the the Medicare prescription drug benefit is something that I've been involved in since it was first proposed. I was with, at the time, we were doing work for the Commonwealth Fund and Kaiser Family Foundation on the state pharmacy assistance programs, which were kind of filling in some of the gaps. And when they passed the legislation, those programs would have to be those beneficiaries would have to be somehow, transitioned to the new benefit. So that was sort of one of the pieces. We got very much involved in how Medicaid beneficiaries who would dual eligibles would be transitioned into the system. There was a lot of technical issues. Do you auto convert somebody if they don't choose a plan on their own? Many other issues we've met with the CMS administrator to talk about those issues. But I had the opportunity to I was one of the one of the few academics who was invited to testify before the senate finance committee at the time they were developing this legislation. And part of the picture that I shared then was that if you went forward with the sort of rules about CMS purchasing drugs that were built into the law at that time, you would create a very unstable situation in terms of the cost of drugs because you were essentially prohibiting CMS from acting in the way that other buyers of drugs do and that we would end up being you know, essentially, the United States would end up paying most of the profits for the world, and we'd end up paying much higher than world prices. And it would create a lot of sustainability issues and also because of the cost-sharing, a lot of burdens on patients.  

So my argument at that time was, and we all understand why it was done in that way at the time, in the late 90s, early 2000, President Bush wanted this legislation as an achievement and as something that he could bring to the seniors, and he was willing to make great compromises when they passed the National Health Service in England and gave a lot of extra benefits to the doctors. They were said to be stuffing their mouths with gold. So you could say that something similar happened at that time. We knew it was not going to be a sustainable situation, but it's been a situation that has been extremely beneficial to the industry but increasingly unsustainable.  

So that is my general take on this situation that, essentially, this step, which has been postponed of allowing negotiation, is something that is really needed for Medicare's stability and sustainability, and it was something that ultimately needed to happen in some form. 

Could you share an overview of the federal government’s announcement of the first prescription drugs subject to price negotiation?

Well, I'll make a couple of comments. One, that specific set of drugs that were targeted for negotiation because they illustrate those particular drugs illustrate the problem, probably has any drugs that they would choose would. But, you take, for example, Eliquis, and Eliquis is one of the drugs that was selected. Now Eliquis costs the US taxpayer 16 and a half billion dollars a year in Medicaid payments. If we were paying the price that Germany has negotiated, we'd be paying about $4,000,000,000. So that's a lot of money that we could be spending on other health care needs or using to reduce the out-of-pocket cost burden for patients for those same drugs or, maybe improve coverage for some new classes of drugs that may be very greatly needed.  

For example, some of the antidiabetic drugs that are beneficial for weight loss and that Medicare is afraid of adding because of the cost burden. So we have a lot of different needs, and it's just not sustainable for us to pay 4 times the world price for these drugs, it does have an impact on who can get them. If you take Jardiance, which is on that list, costs Medicare $7 billion per year. If you go to Canada, the price is a fifth. So this is kind of unsustainable in terms of how much the US taxpayer has to pay, has to sort of contribute to the world's drug budget

I want go directly to the argument that you always hear, back from the industry and that you hear in the litigation against the implementation of this, which is that if you didn't have this 1 payer that's 4 times more generous as the rest of the payers in the world, you wouldn't have as much profit, and therefore, you wouldn't have as much innovation. There was a very good study in the Washington reported in the Washington Post, which goes directly to that question. And they talked, for example, about the independent estimate from the congressional budget office, which found that the Inflation Reduction Act, these provisions for negotiation, would lead to only 1% fewer drug approvals over the next 30 years, and that is, in my view, having looked at one time or another very carefully at the whole way that the big pharmaceutical companies invest money and spend money. That that is even probably an exaggeration because it assumes that our present tax treatment of research and development in the pharmaceutical industry remains the same. It's very the tax treatment is, of course, very complicated as taxes are, but the bottom line is that we don't incentivize research and development enough, and the companies don't pay enough of their spending on research and development. They're highly incentivized to pay it on marketing, and the deductions that they get from marketing, enable them to keep, you know, to keep all of this spending, which does for marketing, which does nothing to develop new drugs.

So if you sort of combine actions like this with some tax reforms to encourage the research and development side and encourage the companies to spend more of their money on that, and also on real needed new drugs as opposed to me to drugs that do exactly the same thing as the last drug, but they have one little molecule tweaked, and they give the company the opportunity to get another period of exclusivity because they've made this small change, which happens all the time, many other trips. If you reform some of that, because this really is a partnership between the public and the companies [and] the companies know that it's a partnership between the public and the companies, which is why precisely why they argue that Medicare should be the big funder of their profits, but there's other ways to think about that partnership. And remember that the partnership starts with the fact that the government gives a company an exclusive license to be the only one to sell that particular drug for a fixed period of time? So already, they've got a government monopoly, just from the way that our intellectual property laws but that's sort of part of a social contract with the public or should be. That should be to mutual benefit. 

What is the importance and impact of Medicare negotiating drug prices for Medicare’s sustainability and seniors’ financial well-being? 

Because the price of medications has gone up so rapidly and, it's been across the board, I just want to pick up a prescription last week for a nail polish that would deter that was prescribed by my podiatrist that would deter fungus. And I didn't particularly notice until I got to the cash register. Oh, it was more than $500. This kind of thing happens to people all the time. And, so, you know, we have a pattern that the US consumer, whether it's Medicare or whether it's private insurance, pays more. It's well known that in the United States, we pay more for health care than any other country. In many cases, twice as much, and as a share of our income, and it's apparent in the population health statistics that we don't get the benefit of that. We don't get better health outcomes than other countries. You know, we don't give get better health outcomes than Costa Rica or other countries that spend far less. 
So something is not adding up.  

And, the whole structure, the Part D program has been improved because of pressure from seniors who were hit so hard with the donut hole and the copayments. So it's gradually being improved, but that's something else that we need to find money for to have those patient side improvements. So we need to be, we need to be responsible purchasers, prudent purchasers, just like the rest of the world, and pharmaceutical innovation we'll be fine. It will be absolutely fine if we do that, and it it's something that we have to do. So if we don't, there would be a lot of consequences, but the consequences, inevitably, we can't protect all the we can't even keep all the consequences falling on the federal government without also having those consequences through cost-sharing fall onto went to seniors. So then you end up with these stories about people having to cut their doses in half or they can't afford to fill their medication, and that doesn't exactly help population health. 

Do you think the United States will align more and more with buying policies of other governmental health systems worldwide that produce lower drug prices? 

We're taking baby steps towards it. And in the present political environment, that was as much as could be achieved, and there are very important baby steps to it because it's proof of principle. That's why the industry is fighting so hard that not even so much because of what it will cost them because, you know, you have this very limited program. It's 10 drugs, so far, in a certain number of drugs per year, and it's a negotiation process that's limited. It doesn't even apply to a drug until they've already been out there and made their profit, you know, sort of at the prices that they set for several years. There's all kinds of things built into it to limit the impact on the industry. But the principle is very important, and the amount of money that we can save on these drugs because it's such extraordinary amounts, is also important. So I think we will in the end. Like everything else in health policy, it ultimately comes down to political decisions. But how do political decisions get made?  

The more that members of the public understand the issues, the more they need to be heard. They need to be heard by their members of Congress, and we need to have a balance. You know, the AARP makes contributions to Congress as well, but it doesn't have nearly the money from all these drugs to make the kind of contributions that the pharmaceutical industry makes. So they have to try to triumph to a certain extent by the strength of their arguments. And the only way that we have rational choices that are in the public's interest is when people get involved, when they decide to take a health policy course in college when they decide to get involved with an organization and get interested in the issues because health systems belong to us. They have to belong to us, the public, and the public has to be interested in how this you know, this is how we got Medicare in the first place. This is how we got Medicaid in the first place is that members of the public said what we've got going on is not sustainable, and we have people dying unnecessarily, and something has to be done.  

You know, there's a long history to this. Health reform, you know, when you go back to the first major time that health care reform was put forward, it was put forward by Harry Truman. And at that time, it was the physicians who thought it would, it would impair their revenues. So the AMA, through extraordinary amounts of lobbying money into stopping that first health care reform. Now it's other kinds of interest groups. And now the you know, the doctors have been kind of proletarianized, so they're not playing as much anymore, but it's a corporate battle. You know, it's something like, well, I don't wanna make metaphors. They're very powerful players, and they're all kind of crashing around in Washington, exercising their power, but we need a different I think we need a public understanding that we need a different kind of social contract with the industry.  

The industry does fine. The industry will always do fine, but they are also citizens. They also have grandparents and kids and others that they're concerned about. So we kind of need to come together and say, can we have a set of rules that's more balanced, more sustainable? And that will happen through the political process because that's what happens. But it will happen when people watch this episode, and when they watch other episodes and they become interested in, being public, you know, active citizens. It's the only way it happens. So, otherwise, it's the classic example that, you know, special interests dominate. So this is our only chance is for the people to understand how tilted the system is.

Thanks for tuning in to another episode of PopHealth Perspectives. For similar content or to join our mailing list, visit populationhealthnet.com.