Reforming Drug Price Regulation: Using Tools That Work

Abstract

Drug pricing reform to increase affordability has historically relied on increases in regulation often with a focus on administrative pricing for public programs in order to try to lower drug costs. This paper examines the consequences of this strategy, pointing out that regulated prices fail to drive affordability, create unintended, hidden costs to the system, and drive demand for a body of ever-growing regulatory interventions to address shortfalls created by prior policies. Within this context, the paper examines examples of regulations affecting large percentages of government payments the Medicaid Drug Rebate, the Inflation Reduction Act Maximum Fair Price, and the Average Sales Price formula in Medicare B enumerating how each of these programs that direct funds to Medicare or Medicaid only create hidden systematic costs when considered from the total market perspective. Next, a new paradigm for drug pricing reform philosophy is suggested, with a focus on market-based interventions to reform existing government regulation aimed at improving competition and consider examples of effective private market policies including co-insurance/copayment reform, private formularies, specialty pharmacies, and value-based contracting. The paper concludes by arguing that shifting from a programmatic view of affordability to an understanding of the regulatory effect on costs in the drug market, including regulatory burden reduction, is the best way to drive affordability for payers and thus ultimately for employers and consumers.

Introduction

Despite decades of policy work designed to lower drug prices, nearly 8 in 10 consumers say they are still too high. ¹ Drug pricing laws for public programs historically relied upon a philosophy that affordability could be achieved by replacing market competition with regulatory interventions, such as formulaic rebates and discounts, which influence how purchasers such as hospitals, physicians, and pharmacies structure their pharmaceutical transactions. As each policy iteration has played out, it was inevitably found lacking. Rather than change tactics, some in the policy community doubled down on this interventionist strategy calling for new legislative, regulatory, or legal interventions to further control costs in public programs. The mindset of tweaking laws and adding higher and higher offsets to the public program rigid pricing formulas combined with free market pricing in adjacent markets subject to spillover impacts has raised total costs. ² A philosophy based upon stacked statutory intervention focused around administrative pricing also fails to directly address system incentives or mismatches such as payments relative to the value of the product to patients, efficient purchase and delivery of drugs by or to providers, and incentives for effective use by providers.

This paper examines multiple programs to demonstrate how historic regulatory interventions have contributed to a complex and disjointed environment with conflicting incentives, repeated investigations by the General Accountability Office (GAO) and the Office of Inspector General (OIG), course corrections, and drives increased cost-shifting from public to private markets. Each drug pricing program was designed and passed into law for a specific targeted use. For example, the Medicaid rebate was designed to ensure that state Medicaid programs funding a drug benefit receive with limited exceptions the best price in the U.S. market in exchange for broad market access (ie, an open formulary). The average sales price (ASP) formula within Medicare Part B was designed to tie the price paid for medication administered under the Part B benefit to the net of discounts and rebates average market price paid by providers to purchase the product. ³

These proposals are not inclusive of all drug price regulations in the United States that are controversial such as 340B program ⁴ as beyond the scope of a single article. The selected policies represent the largest single source of coverage in the U.S. (Medicaid), a third of the prescription drug market (Part D), and a metric used for payment for almost all drugs in the medical benefit across markets (ASP), The pharmaceutical market ecology also involves many different issues across the private and public market related to antitrust, and the history thereof. ⁵ The arising vertical integration issues in care delivery are currently undergoing extensive examinations as policy analysts evaluate such as different arrangements of vertical and horizontal integration of hospitals, plans, pharmacy benefit managers (PBMs), pharmacies, and physicians. The latter integration issues are weighty topics deserving of an extensive economic and legal examination, ideation on potential solutions, and as well the causes of the disparity between drug list and net prices. ⁶

Drug pricing policy interventions are evaluated on: the effectiveness of the intervention, whether or not it decreases taxpayer costs, effects on private payer costs, and the financial impact to beneficiaries. This analysis shows how varied provisions in these programs unintentionally or intentionally affect other regulations, creating externalities for other public programs, private payers, and consumers. The problems and incentives created by these policies are contrasted against a different philosophical framework for driving drug affordability: interventions aimed at improving efficiency and competition in the market for drugs. In conclusion, this paper recommends policymakers shift their focus to evidence-based interventions that have been validated in the private sector and support these recommendations with specific successful examples of repurposed, measurable solutions such as co-insurance/copayment reform, private formularies, specialty pharmacies, and value-based contracting that if designed properly can result in transparent and predictable rates ultimately driving increased affordability.

The Usual Process

A good place to begin is Congress’ initiation of the Medicaid drug rebate program in 1990, wherein drug costs are controlled by a mandated offset (rebate) from the average manufacturer price for drugs paid for by Medicaid programs. ⁷ The intended purpose was to disincentivize states from choosing between funding medical and other benefits and covering an optional benefit of prescription drugs, given many state limits on budgets. ⁸ Congress has passed multiple increases to the Medicaid rebate base percentage offset for brand drugs from 12.5% at inception in 1990 to 23.1% in 2010, ⁹ with the law amended early on to require states to maintain an open formulary ¹⁰ with prior approvals for products not on the preferred drug list.

While the rebate formulary and structure appear simple, it has required multiple legislative and regulatory fixes on problems identified through lawsuits and a series of reports by the GAO and the OIG. For example, in 2005, new provisions in the Deficit Reduction Act (DRA) redefined the terms used in the calculation, what discounts (or rebates) different actors in the supply chain count toward the rebate, and the discounts included or excluded in best price listing. ¹¹ In turn, the 2010 Patient Protection and Affordable Care Act (ACA) required the Centers for Medicare & Medicaid Services (CMS) to redo the requirements again changing the calculation of the average manufacturer price (AMP) 5 years post-DRA ¹² because a prior revision resulted in an injunction. ¹³ A second example, the ACA required bundling new formulations with the originator products to calculate an inflation rebate, triggering a decade of regulatory changes, OIG reports, redefinitions and lawsuits.^14,15 The ACA also required new rebates for Medicaid managed care plans and that policy has continued to have operational problems with effective collections 14 years later and duplication with the discounts required by the 340B program. ¹⁶

Evidence suggests that this regulatory complexity has had a significant impact in drug pricing but not always in the way it was intended by Congress. A Department of Health and Human Services (HHS) report examined the impact of Medicaid rebates on net prices concluded that increasing launch prices partially offset the $48 billion in rebates given, as manufacturers have an incentive to raise launch prices. The larger the expected Medicaid share of sales, the greater the incentive to increase the list price, ¹⁷ with a study examining the top 200 drugs over 5 years found that a 10% increase in Medicaid share increased prices 7% to 10%. ¹⁸ The Congressional Budget Office (CBO) has also recognized the links between Medicaid best price, decreasing private plan rebates, and an increase in launch prices from the ACA Medicaid rebate expansions.^19,20 Despite or because of value extraction from return on sales, since 2018 significant increases in net spending attributed to the higher utilization of newer higher cost brand drugs. ²¹ Private market impacts are also very real: a recent study found that when the net prices for drugs decreased in Medicaid, it increased more for non-Medicaid payers. ²² The concept of spillover effects from public market price regulation when higher prices can be extracted in commercial markets is well documented for providers and is similar if not exacerbated in this case ²³ —for it to be otherwise would suggest that manufacturers do not behave rationally in response to regulated prices and economic incentives. ²

Medicare Part B’s weighted average sales price (ASP) formula is another example of regulatory structure leading to perverse incentives. In 2003, Congress reduced the payment for pharmaceuticals from an inflated average wholesale price to a volume-weighted ASP plus a 6% add-on. ASP is net of all plan or other purchaser rebates, discounts to wholesalers and physicians and price concessions, excluding discounts to the federal programs. ²⁴

Under the ASP formula, physicians have a financial disincentive to buy and use therapeutically equivalent lower cost products. Specifically, the higher the ASP the higher the add-on payment and margin to the prescribers at practices or hospitals. The add-on impact on choice of higher cost drugs has been extensively debated with differing findings; however, Part B drug costs are rising faster than Part D due to increased utilization and prices.^25,26 Private payers have reacted to these same problems by substituting payment to physicians for drugs with payment to specialty pharmacies which buy and deliver the drugs to providers—called “white-bagging”—for sterile injective drugs and infused biologics that otherwise would have billed under the medical benefit. ²⁷

In contrast to the examples above, the singular part of the Medicare benefit where the indexed net price is slowed is in Part D, which is largely operated as a managed competition marketplace with limited legislative and regulatory intervention. Private plans extracted about 23% of gross drug costs from manufacturers in the form of rebates, reducing the Part D premium paid by enrollees and the Medicare program (and indirectly taxpayer costs). ²⁸ Specifically, in the year prior to the implementation of the Inflation Reduction Act changes in the Part D benefit, the 2023 Part D base beneficiary premium that covers the cost of retail prescription drugs for most of Medicare beneficiaries was $32.74, a modest (2%) decrease from 2022. ²⁹

While private sector negotiation has also slowed the net price of drugs, it does not necessarily result in an equivalent reduction in cost-sharing. When manufacturers in competitive classes give higher rebates, this results in consumers bearing a higher share of the costs through copays and coinsurance tied to list price, a perverse relationship where due to the benefit formula more competition does not commensurately reduce costs to consumers at the pharmacy check-out counter, even as it lowers premium costs for Part D enrollees. ³⁰

Some policymakers argued that the Medicaid rebate inflation penalty constrains price increases, thus explaining the need for the IRA to extend the same formula to Medicare. ³¹ Yet, there is no evidence of any price constraint given the higher growth in producer price for pharmaceuticals trend above the consumer price index (CPI) in the U.S. for the last 20 years.^32,33 What isn’t arguable about the lack of effectiveness is that to offset the cost of the lowered sales prices ³⁴ to the Medicaid program, manufacturers must either increase gross or net prices to other purchasers or experience reduced shareholder value. ³⁵ The data show that in aggregate branded pharmaceutical companies’ stock prices, ³⁶ net revenues, ³⁷ or that returns to shareholders have not dropped over time. Given the incremental effect of none or 1 or 2 new launches each year, it supports the assertion that costs are shifted to non-price regulated purchasers in the form of higher purchase prices. ³⁸

Overall, the number of actors in the supply chain, the confidentiality of discounts and rebates, the many policy changes, and the lack of a transparent metric to assess net drug price changes obfuscate many direct empirical assessments of the effectiveness or ineffectiveness of these policies over the last 3 decades. ³⁹ The more dependent on regulation the market is, the more regulation is demanded by regulators to address any market responses or add new detailed instructions on reporting.

Administrative Pricing and Payment

Administrations across the political spectrum have deployed different variants of administrative pricing metrics to address drug costs. On November 20, 2020, President Trump, who has reached across the aisle on drug pricing, announced a new drug payment model for Medicare because “Americans have often been charged more than twice as much for the exact same drug as other medically advanced countries. We would be having a drug—identical drug, same company—and we’d pay many times the price of what that drug would sell for in certain countries.” ⁴⁰ The “most-favored-nations rule,” tied Medicare Part B price for high-cost drugs to an OECD market basket. ⁴¹ The CMS Office of the Actuary (OACT) estimated about $85 billion in savings over 7 years with $25 billion in savings for beneficiaries. ⁴² The rule was challenged in court, with a preliminary injunction enjoining HHS from implementing the Most Favored Nation Rule (MFN). ⁴³ Given this preliminary injunction, the subsequent administration withdrew and rescinded the MFN Model.^44,45

In June 2021, then-Senate Finance Chairman Wyden ⁴⁶ said “The United States is the largest market for biopharmaceuticals, yet prices in our country for many prescription drugs are the highest in the world.” He proposed a different solution: Medicare drug price “negotiation.” The subsequent Inflation Reduction Act (IRA) was signed into law in August of 2022, changing the rules such that for the first time Medicare will rely on direct government negotiation rather than benchmarking based upon private sector plan negotiation. The IRA was built on the political belief that prescription drugs were widely unaffordable, limited competition had failed to lower price levels, and that administrative price regulation through government negotiation is the best tool to constrain prices given the otherwise undesirable impacts or difficulty in reshaping the private U.S. marketplace for the delivery and payment of drugs.

The IRA has 2 key provisions intended to restrain price inflation and reduce payments for drugs in the Medicare program: a Medicare inflation rebate for price increases above the consumer price index, benchmarked as of 2022; and Medicare price negotiation for a select number of drugs as of 2026. The final Medicare prices will be transparent, unlike the hidden de facto lower sales prices created by the rebates and discounts from Medicaid Drug Rebate Program. While the output—Medicare Fair Price—is transparent, the Medicare negotiation process in the CMS guidance documents is not. For example, it does not establish a transparent method for determining therapeutic alternatives other than starting at a minimum with pharmacologic class, it does not specify how prices of all the therapeutic alternatives are combined into a pricing benchmark, nor the specific weighting for the drug prices with the other required evidence on effectiveness or research and development costs. ⁴⁷

These features have been discussed extensively with differing views of the potential efficacy or if the approach should be tweaked to bring in private actors with deep expertise in the topics. ⁴⁸ Irrespective of these views, the negotiation program has announced prices to be effective January 1, 2026, and there is a range of assumptions and theoretical findings of a variety of experts^49-52 on the savings, short and long-term impact of drug negotiation and on the spillover effects of the law on prices, cost shifting to the private sector, and innovation.

A New Paradigm for Public Programs

Under Medicare Part D program, negotiated discounts have climbed from $8.6 billion in 2010 to $50 billion in 2021, ⁵³ and the use of generics increased from 2006 to topping out at 90% in 2017, proving that market solutions do functionally work.^54,55 Despite over $50 billion a year removed from manufacturers by the Medicaid rebate and another projected $237 billion over 10 years from the IRA, ⁵⁶ policymakers clearly believe that the market is not controlling spending and that the expensive, highly technocratic system of operating and overseeing complex administrative pricing interventions is insufficient at controlling costs.

Pragmatic policy alternatives are needed to combat the accumulative financial drag on private plans and thus to the premium and cost sharing privately insured, the U.S. Treasury, and prepare for the new world of gene and cell therapy. Policymakers should move beyond administered pricing and remove the overhang of mandated formulas that increase costs to private markets and drive administrative inefficiency. Both policymakers and regulators can move more rapidly by using solutions tested where possible in segments of the private market that increase positive incentives for competition, and reward consumers. The following are examples of policies designed to be efficient, transparent, and drive competition to lower costs.

Reforming the Medicaid Drug Rebate Program

Whether or not hidden fees in these programs resulted in higher drug list prices, ¹⁸ policymakers recognize that the Medicaid rebate pays for over half of Medicaid prescription sales ⁵⁷ so it is unrealistic to remove this value from financing the Medicaid program). Given the political constraint of keeping stable the level of funding, the Medicaid drug rebate program could be transformed into a single transparent fee administered by the Department of Treasury with an administrative account used for covering pharmaceutical costs for both Medicaid fee for service and managed care. This serves the goal of reducing the impact on private payers in order to lessen the impact of best price given the price must be greater. Medicaid recipients should be neutral to these funding changes. ⁵⁸

The collection and funding would be simplified for both manufacturers and the states. Specifically, manufacturers would pay a set explicit fee that functions as an across-the-board transparent sales tax. Two options for the fee: first a percentage such that as prices or utilization increase, revenues to the government increase, and similarly, as medicines become genericized and brand prices and associated utilization decline, fee collections drop. Another is a flat fee per prescription, which is complicated in a market with heterogeneity in the cost and trend of prescriptions and the size of pharmaceutical product manufacturers. Either model could alleviate the pressure pushing costs up lopsidedly in the private sector for certain products commonly used in the Medicare and Medicaid program. A broad based fee across all types of products also eliminates lower negative returns for pharmaceutical product manufacturers with significant portfolios in treatments for children or disabled or mentally ill populations predominately served by Medicaid or dually eligible. ²²

Part D

Rebates fund almost a quarter of the Part D program—$50 billion in 2021 ⁵⁹ —and under the Medicare formula in law reduce beneficiary premiums. ⁶⁰ Rebates generally do not result in an equivalent offset to individual cost share as rebates are usually tied to volume which is not known at time of sale, even if the product is in a preferred cost-sharing tier. ⁵⁵ For example, rheumatoid arthritis patients experienced 34% reductions in out-of-pocket costs due to the start of the closure of the Part D coverage gap in 2010. ⁶¹ More than half of those savings to those beneficiaries were lost by 2019 because of higher coinsurance attributable to annual increases in list prices for that class.

The more competitive the product class, the higher the rebates and the more that the beneficiary using the product overpays relative to the net price. Part D would be enhanced by tying cost-sharing to net market price, similar to emerging private market efforts, ⁶² so that patients are rewarded for the positive results of competition. ⁶³ Policymakers should consider changing Part D law to modify the 25% average coinsurance requirement for the standard benefit, otherwise, as cost sharing in highly rebated classes went down, plans would have to increase cost sharing for other products. ⁶⁴ Mechanically, a change in law could incorporate a requirement for plans to adjust the coinsurance or the copayment to reflect the net market price achieved through negotiation, not the list price. This policy would increase Medicare plan premiums but lower patient out of pocket expenditures. ⁶⁵ It would have little direct impact on taxpayers or private payers and their enrollees unless speculatively this model grew in popularity among employers.

The change in cost-sharing should be paired with transparency for drugs so that seniors can actively shop. The majority of the studies outside of healthcare find that price transparency leads to lower and more uniform prices. ⁶⁶ The Federal Trade Commission has stated in the past that disclosures of pharmaceutical rebate arrangements through transparent net prices may raise the price that consumers pay by undermining competition among pharmaceutical companies for preferred formulary treatment. ⁶⁷ Others have argued that transparency should only be for cost sharing but not net price. ⁶⁸ Transparent net price and cost sharing are not dissimilar to how drugs compete in the private market for patients by use of advertised transparent copay coupon programs ⁶⁹ or in cash prices listed for generics by the Mark Cuban Cost Plus Drug Company. It is possible that for pharmaceuticals that price transparency will lead to more use of higher cost brands or branded generics, if viewed by consumers as “better” than other generics. If policymakers are concerned that transparency results are uncertain, consumer choices across similar drugs with different prices and similar effects could be tested and net price transparency could be phased in first for protected classes in Part D that have limited competition for formulary placement.

Another recently advanced policy model targeted to drive lower costs is BlueCross BlueShield (BCBS) of California’s two-fold plan ⁷⁰ : first, the plan undertook direct negotiation with an outside manufacturer of the first biosimilar used in the traditional pharmacy benefit. BCBS of California will offer that specific biosimilar to its members with transparent pricing and no cost-sharing for that biosimilar. Second, it will explicitly use multiple contracted PBMs for other products as often found for the BCBS plans. The rationale is that competition between PBMs will increase discounts. Similarly, if Medicare prescription drug and MA plans were required to contract with multiple PBMs and not just their own PBMs, and adopt similar consumer incentives for biosimilars, costs may be reduced. There is conflicting evidence from Part D in that bigger PBMs have larger rebates but that data is unadjusted for lives or similar types of patients, ⁷¹ while others argue it is necessary because of medical loss ratio (MLR) incentives to reduce rebates. ⁷²

Decreasing Part B Drug Costs

By law from the passage in the Medicare Modernization Act of 2003, ASP is defined as net of any price concessions, such as volume discounts, prompt pay discounts, cash discounts, free good and other factors related to Federal purchasers or the 340B Public Health Service Act discounted purchases.^73,74 Manufacturers do not provide rebates to the Medicare FFS program for Part B drugs except for the new IRA Medicare inflation rebate and future IRA “negotiated” discounts. The ASP formula has at least additional 2 features that are not cost-minimizing. First, the calculation averages plan rebates with the zero FFS rebates or discounts to Medicare, diluting the offset from manufacturers’ rebates to commercial plans. Second, the ASP formula incentivizes minimal rebates and discounts to private plans given manufacturers are aware that selling requires the ASP payment to also cover the physicians’ net acquisition cost.

The Medicare Payment Advisory Commission and others have looked at formula tweaks to reduce Part B costs such as changing the Part B physician-administered drugs pricing formula by decreasing the 6% add-on. ⁷⁵ Formulaic changes executed in statute have spillover effects on commercial markets and on future pharmaceutical product launches. ⁷⁶

Other policy levers exist to drive change in Part B physician-administered drugs. Congress or CMS could incentivize Medicare Advantage plans to function as a laboratory for executing different methodologies and report on the impact of these mechanisms to the program and to beneficiaries, a framework suggested by some policy experts to address both pricing and coverage concerns. ⁷⁷ For example MA plans could be asked to demonstrate savings to taxpayers and/or beneficiaries given the flexibility that they possess to shift from prescribers’ purchasing drugs to non-prescribers such as specialty distributors or specialty pharmacies or home infusion providers. In 2022, private payers shifted a quarter of oncology sterile injectables to specialty pharmacies to be delivered by white bagging. ⁷⁸

In addition to breaking the link between prescribing and profit, specialty pharmacies remove the logistical and financial burdens placed on physicians of acquiring and maintaining a stock of injectable products. If the rigid formula underlying part B physician-administered drugs moved toward a managed competition model, pharmacies could centralize negotiated discounts for products used in both traditional Medicare and in MA. To maintain payment parity between “buy and bill” organizations and special pharmacy entities, specialty pharmacies should be paid on ASP. ⁷⁸ Setting pricing policy at transparent net ASP will reduce program costs and coinsurance for both FFS Medicare and MA beneficiaries, and potentially for those covered by private insurance. It should have a small positive effect on taxpayers as Part B is financed in part by general revenue.

Pragmatically, policymakers should ensure there are no barriers to referrals or billing for the administration for infused drugs delivered to the office by physician-owned and operated specialty pharmacies. ⁷⁹ This may require a change in Stark self-referral law, which could also have the benefit of reducing the ongoing consolidation of physician-owned offices into hospital organizations. To offset the loss of some drug revenue, Congress could equalize the physician fee schedule administration rates between hospitals and physicians’ offices within the constraint of still achieving savings for the program from the change in the administration rates.

In combination with the specialty pharmacy delivery option, policymakers could remove the barriers from MA plans extracting bigger discounts from drug list prices in the medical benefit to lower net prices. Under current law and regulation, MA plans must provide at least the same Part B drug coverage as in FFS.^80,81 With a statutory change, MA plans could deploy formularies to extract higher rebates—with a requirement that they passed along to the point of sale to reduce beneficiary costs—or discounts in competitive multi-product classes. The protected classes in Part D demonstrate that without formularies discounts or rebates are much smaller, with aggressive prior authorizations and utilization management subsequently the only available tools to reduce costs. Specifically, as noted by the Medicare Payment Advisory Commission, the rebates in the protected classes are less than 10% in comparison to more than 40% for anticoagulants, or COPD, or asthma drugs. ⁸² These discounts should continue to be included in ASP as under current law. ⁸³ Higher voluntarily negotiated discounts in MA would reduce ASP under current law and lower the cost in FFS Medicare and MA markets, with the potential for spillover lower effects in the private insurance market which also uses ASP. The commercial sector is already moving vigorously in this direction. ⁸⁴

Pragmatically, for both specialty pharmacy and MA formularies, CMS could add processes for exceptions with rapid turnarounds, CMS could also integrate specific patient satisfaction measures such as service satisfaction, overturned appeals, average time for and frequency of pre-defined rapid turnarounds for formulary exceptions (a longstanding and recent target of regulatory attention). ⁸⁵

Value Based Payment

Within Medicare Parts A, B, or D, provisions for innovative contracting and market arrangements specific to pharmaceutical products could encourage competition, better information, and improved pricing. The difficulty has been in creating designs that can be operationalized by government programs with existing data and systems or existing financial instruments. Historically, real-world success is unlikely if the proposed arrangements require accessing clinical data not available on the claim, impose large administrative costs, or require an entirely new payment process.

To reduce costs, policymakers can instill a strong incentive for manufacturers to offer value-based arrangements by exempting warrantied and value-based products from the IRA Medicare Fair Price, exempting these discounts from computations of the IRA ceiling price, and/or the MDRP. ⁸⁶ Warranties offer repayment if the product doesn’t meet certain treatment individual and/or population-level clinical performance benchmarks over time. ⁸⁷ These can be designed for oncology products, gene or cell therapies, and other high value, high cost therapeutic areas. Performance metrics can be established at either the individual or population level as appropriate. Operationally, warranties need to utilize existing payer operations and data available on the claim form.

Other regulatory actions would encourage warranty-based payment. If CMS wishes to actively attract warranties for products where the clinical outcomes are less certain, it may require removing certain regulatory barriers from the pricing formulas. For example, the current regulations on the ASP formula treat company premiums to insurers that offset warranty liability as provider discounts. ⁸⁸ If manufacturers acted to limit their liability and paid the premium for the service, the inclusion of the premium payments lowers provider payments below acquisition. If CMS revisited the ASP definition, it would incentivize pharmaceutical product manufacturers in Part B to pay for clinical outcomes. This in general would result in savings in Part B in Medicare for the Trust Fund, beneficiaries, and taxpayers.

The cost savings may not be easily replicated for payers other than Medicare due to insurer churn. Firstly, the timeline for clinical administration and effectiveness of cell and gene therapies is too long for state Medicaid programs and some private employers. Secondly, rebates or discounts are narrow transactions that do not hedge against variability across populations within a state program or an employer group. Reducing risks for high value, high-cost therapies requires insurance models that focus on population-level risk. Options include group contracting for private reinsurance across employers combined with securities or multi-state reinsurance pools for Medicaid. Further research is needed to understand the barriers created by multiple regulators such as the Department of Labor, the Internal Revenue Service, and the Centers for Medicare and Medicaid Services. ⁸⁹

Real world data would be improved by new clinical specificity that could be added to claims for warranty operations such as condition codes for information on cancer stages, data that is currently sequestered in clinical notes. Private market spillover information effects are a positive side effect of infrastructure changes that enable increased value-based arrangements in Medicare markets. In the future, information may be richer by bridging the gap between insurance claims and electronic health records.

Conclusion

On its face, the evidence suggests that the current overregulation of pharmaceutical product prices has not lowered prices. Rather, hidden fees and nontransparent pricing created barriers to competition and drove up net and list drug prices in the mid- and long-term. Constant litigation, stacked regulations, and changes in law broadly characterize the public regulatory environment market and has failed to resolve pharmaceutical product affordability for the nation. Churchill stated, “Americans will do the right thing having tried everything else.”

Rather than continue the shortcomings of the current approaches to drug pricing regulation, it is time to rethink drug pricing strategy and enact new solutions that will be more efficient, equitable, and promote greater transparency.

The views are the authors’ own and not necessarily those of their employers or affiliations.