New research argues drug pricing negotiations would stymie innovation, as Democrats fight for revised proposal
As Democrats hammer out a revised version of their proposal to lower drug prices, new research from the University of Chicago suggests that Medicare negotiations could stymie the development of new cancer drugs — but the size of that effect is widely debated.
Cancer treatments accounted for about 49% of the pipeline making its way through the FDA now, and 27% of new approvals between 2010 and 2019, according to the UC analysis.
“No other drug classes have more drugs than oncology at any phase and, except for Phase III, cancer drugs represent around half of the total drugs,” the report states.
Researchers warned that allowing the US government to negotiate the price of drugs on behalf of Medicare beneficiaries — a move that was part of the failed Build Back Better Act and is now part of a revised proposal, according to the Washington Post — would lead to a reduction in R&D spending and thus fewer new drug approvals.
They pegged a reduction of $663 billion in R&D spending through 2039, and 135 fewer new drug approvals. The proposal would lower annual spending on cancer R&D by about $18 billion per year, or just under 32%, the researchers reported.
Those figures are far off from previous estimates made by the Congressional Budget Office, which suggested back in November that Medicare negotiations would only result in 10 fewer drugs (out of a calculated total of 1,300 drug approvals) over 30 years.
“At a moment of remarkable progress in the war on cancer, and a renewed focus from the Biden administration on reducing the death rate from cancer, Washington should avoid drug price control proposals that will unintentionally reverse decades of progress to beat this disease,” lead author and Harris School of Public Policy professor Tomas Philipson said in a statement.
President Joe Biden reignited the Cancer Moonshot initiative back in February, setting a goal to reduce the cancer death rate by at least 50% over the next 25 years. The CDC cut the first check just a couple weeks ago, shelling out the first installment of a five-year, $1.1 billion grant to get things going.
Though the Biden administration proposed a $1.9 billion annual increase in public cancer R&D through additional funds to ARPA-H and NCI, the authors estimated that the reduction of R&D spending from price negotiations would outweigh those extra funds by 9.5 times.
“Despite the great intent of the Cancer Moonshot and congressional efforts to improve patient affordability, allowing Medicare to negotiate drug prices will undo any investments made to fight cancer and will instead raise cancer mortality substantially,” Philipson said.
Industry group PhRMA similarly blasted the Democrats’ drug pricing proposal, arguing months ago that the bill would “throw sand in the gears of medical progress.”
However, USC-Brookings Schaeffer Initiative for Health Policy researchers wrote earlier this month that the relationship between R&D spending and the supply of new drugs is actually quite modest.
As seen in the graphic below, annual R&D budgets for PhRMA members have been on the rise, growing from $37.5 billion in 2000 to $83.0 billion in 2019. However, during the same time, the 5-year average for new drug approvals went from 36.8 in 2000, then declined for nearly a decade hitting a low in 2009 with 22 new drugs, before the 5-year average steadily increased to 44 new drugs in 2019.
Before Sen. Joe Manchin (D-WV) squashed hopes of passing the Build Back Better Act late last year, Democrats had never been so close to passing major drug pricing reforms.
“A Medicare negotiation is just that — a process, not a price control — a market-based approach to come to a price between purchaser, Medicare and producer,” Senate Finance Chair Ron Wyden (D-OR) argued earlier this year.