What does a split congress mean for healthcare reform?

What can we conclude from the election of Democrats to the House while Republican’s increased their majority in the Senate? The simple answer is that nothing will get done in the next two year. I’ve long held that a congressional fix for healthcare is an unlikely outcome; however, I now believe that there are some interesting things that can happen. The focus should be on the (progessive/trifecta blue) states.

#1) Create durable protections under law for pre-existing conditions

IF the Democrats are clever…The Democrats should take Republican claims of support for pre-existing conditions seriously. Even Ted Cruz supported pre-existing conditions down the stretch. Democrats should put pressure on Reps by passing legislation in the House carving out and creating a long-term, legal protection for pre-existing conditions. Even though this is technically unnecessary, given the prominence of pre-existing conditions in ACA, it’s possible that the Republicans may suddenly ‘forget’ their support for this policy. It is unlikely to pass in the Senate – but that’s not the point. Election stump talk is cheap, legislation is more expensive.

Allowing Republicans to u-turn on pre-existing conditions and not holding their feet to the fire would be a mistake. (but count on Democrats to miss a good opportunity whenever they can)

 

#2) Stop focusing on prescription drugs – start focusing on the medical benefit

Last night Nancy Pelosi gave a truly cringeworthy speech that touched on the need to reduce the cost of prescription drugs as a primary way to make healthcare affordable. As I’ve written many times, we could eliminate our spending on drugs, crippling both the branded and generic drug manufacturers at the expense of thousands of jobs, and ONLY reduce healthcare spending by >10%.

In politics cutting healthcare spending means ‘cutting drug spending’ because drug out-of-pocket costs are highly visible to consumers. But until politicians see the forest (medical benefits) for the trees (drug spending) we aren’t going to see healthcare costs come down. Having a single payer system isn’t going to solve this problem, despite what progressives wish to be true.

 

#3) The cauldron of innovation is now the States

One lightly reported change is the democratic pickup of 5 ‘trifectas’. With the slow/no rate of healthcare change at the National level, these states are the most likely to try something creative. Rumors abound that California will resurface it’s $400B single payer legislation that went nowhere in 2017. Without the balance of a meaningful opposition party, Democrats in these 13 states will want to demonstrate to their constituents that they can deliver on healthcare. IF they take a serious look at BOTH pharmacy and medical benefits (see #2!) it will be interesting to follow the outcome. Reducing spend by eliminating overbilling, unnecessary care, prioritizing less expensive treatments, etc. sounds much easier than it is. However, I will applaud their efforts and we should all watch with open-minded interest. After all, almost every other advanced economy has managed to provide (good/better) healthcare at lower costs.

Pharma: Please stop blaming R&D for high prices!

Pharma: Please stop blaming R&D for high prices!

 

I cringe every time I hear a CEO or pharma policy representative suggest that high prices are necessary to encourage innovation. It implies that pharmaceutical prices ARE high because of the investments made to get products approved. Thinking in this way is a mistake. It’s falling victim of the Sunk Cost Fallacy – as the value of a product in the market is completely disconnected with the amount of investment to get that product to the market. Let’s look at this in more detail.

 

For years, Pharma, PhRMA, and Bio have made the argument that we need to have high prices (particularly in the United States) to enable investment in future biopharmaceutical research. However, the monies flowing into biopharma flow from the high profitability of the industry, NOT directly from high prices. In fact, high prices COULD divert broad scale research AWAY FROM diseases that affect large portions of the population, i.e. diabetes, heart disease, common forms of cancer, by making orphan diseases ‘artificially’ profitable. This is (potentially) fuel for another piece in the future.

 

Here I want to talk about what we really use to price pharmaceuticals in the United States. The process is simple. We take all possible clinical outcomes, model the financial offsets (also known as HEOR) if they are available, and talk about potential patient populations – both at launch and over the drug’s lifecycle. These are presented in a brief designed to mirror a condensed form of the pharmacy and therapeutics dossiers produced by U.S. payers during the review process. Yes, these dossiers do benefit from and include various outcomes of the R&D process. But there’s not a single payer in the U.S. – state, Federal, or commercial – who cares how much money was invested to produce those clinical outcomes.

 

Once these value propositions are completed we debate their merits and try to understand where the product fits within the current set of options available. We attempt to include developmental products that will likely come to market during the products’ protected period. We include competitive product characteristics and trade-off various products’ value propositions. Generics & biosimilars will typically offer more value-for-money versus branded alternatives. Many payers have generics first preferences. Understanding this, we work with payers to understand their preferred treatment pathway, and where the new agent fits within that treatment pathway. These treatment pathways create the drug Tiering and controls that define coverage. Depending on the therapeutic area’s unmet need Step Edits (through Generics or Brands) may be appropriate. Depending on the clinical outcomes from misuse or off-label use, prior authorization may be appropriate.

 

Again, at NO TIME do we talk about the investment required to bring products to market. Because these investments aren’t relevant to the value of the products we produce. Payers don’t care.

 

Imagine a couple of examples –

First, my wife and I purchase a property in the mountains, far off the road and away from others. We invest to bring expensive building materials to the site and construct our dream home. After we’ve built the home and enjoyed it for years, we decide we want to sell the mountain home to purchase something else. Buyers will come to the property and evaluate the value we’ve created relative to the replacement cost, building from scratch, and their perception of the value of being able to live/vacation at the property. They won’t and shouldn’t care how much money it cost us to build it – instead their perception of value will stem from what we’ve created.

 

Another example…imagine if the film industry constantly reminded us that we need to pay more for movies in which they’ve cast expensive stars. They’d say, ‘public, you’d better go see this movie because we spent $200m to film it!’ and ‘if you don’t go see these fancy movies, we won’t make them anymore.’ They don’t say that because it’s laughable. Everyone knows that stupid movies with expensive stars that don’t make money flop. And Hollywood, Bollywood, and now China will continue to make movies because SOME make a lot of money.

 

We need to get more sophisticated about the way we talk about value creation in the biopharma world. It would be great to have a consistent view of value creation and reward – and I believe that will happen in my lifetime. In the meantime, it’s important to discipline yourself, your organization, and your leadership to avoid falling for the sunk cost fallacy when pricing pharmaceuticals & talking about your pricing. Because those of us in the know see through it, and it sounds silly to pharmaceutical outsiders.