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Will The Inflation Reduction Act Really Cut Drug Prices? · CareTalk: Healthcare. Unfiltered.

• 0:00
  - The Inflation Reduction Act of 2022 which was signed by President Biden in August, includes several provisions to lower prescription drug costs including letting Medicare negotiate drug prices for the first time.
• 0:11
  What are the provisions?
• 0:12
  How will it impact healthcare?
• 0:14
  And why is Big Pharma pushing back?
• 0:18
  Welcome to "Care Talk," America's home for incisive debate about healthcare, business and policy.
• 0:23
  I'm David Williams, President of Health Business Group.
• 0:27
  - And I'm John Driscoll, the President of Walgreens Healthcare.
• 0:31
  Think about that David, Walgreens Healthcare.
• 0:33
  But what's in this inflation reduction?
• 0:36
  This drug thing, I think is a big deal.
• 0:40
  It lets Medicare actually negotiate but I'm shocked to hear that Big Pharma may have a problem with someone negotiating their drug prices.
• 0:52
  Shock horror surprise.
• 0:53
  - John is shock.
• 0:55
  It is shock and horror.
• 0:56
  It's getting toward Halloween.
• 0:58
  So maybe that's what it has to do with, but the Inflation Reduction Act, it's been pegged as the first big loss for Big Pharma in 50 years.
• 1:05
  So I don't think you can expect the industry just to lie down and go to sleep.
• 1:09
  I actually think that the, can we call it IRA, IRA...
• 1:13
  - No, no, please God, no.
• 1:14
  Not another acronym.
• 1:15
  - The act is gonna be helpful if modest break on runaway drug costs, but nothing is specific, nothing is certain John but I would say, let's dig into the specifics.
• 1:26
  - Well, what's in the Inflation Reduction Act?
• 1:31
  Could you, I need some help explaining the prescription drug provisions of this inflation reducer.
• 1:42
  - Well, John, it's good.
• 1:43
  The first step is actually admitting that you need help.
• 1:45
  So I think that's good.
• 1:47
  This Inflation Reduction Act is a scale down version of the so-called build back, better, bigger et cetera, which the Biden administration- Was not...
• 1:54
  - Nowhere.
• 1:56
  - Yeah, they couldn't pass build back better, blah, blah, three Bs.
• 2:00
  So they passed this one and it has climate change and energy programs and then it ended up having quite a lot of healthcare in it as well.
• 2:08
  - We're gonna focus on that but how does this act, this Inflation Reduction Act, actually reduce healthcare costs?
• 2:17
  - So there's a few things it does John.
• 2:18
  So one is that there's premium subsidies for Obamacare'cause those were gonna go away.
• 2:23
  So, those that are on the exchanges they get a continuation of the subsidies and then there's a bunch of drug provisions, John.
• 2:29
  So from part D, the out-of-pocket expenses are now capped at $2,000 a year for Medicare beneficiaries.
• 2:36
  - Part D would be the Medicare part D benefit that Medicare beneficiaries, those who are over 65 get, healthcare wonks just live in acronyms and phrases.
• 2:48
  Some of the rest of us you need to slow down and explain it David.
• 2:51
  - John, it takes one to no one.
• 2:53
  So I'll just say that.
• 2:54
  So how about insulin?
• 2:55
  That's not an acronym.
• 2:56
  So insulin for those on traditional Medicares, can be capped at $35 a month.
• 3:00
  Now it also means that...
• 3:02
  - Massive win, massive win.
• 3:04
  Check, check, check, check, check, check.
• 3:06
  - Yeah.
• 3:07
  - We have an obesity epidemic.
• 3:09
  Diabetes is affecting an increasing number of people who are young and old.
• 3:15
  There are a number of people can't afford their insulin that can put them in a diabetic shock and there's no reason prices should have been going up in this basic commodity.
• 3:26
  - Yeah.
• 3:27
  - I think that's a big win, David.
• 3:28
  - It's a big one.
• 3:28
  - Why you smiling?
• 3:29
  - Hold on, I'm smiling John, why is that man smiling?
• 3:32
  Well, 'cause there's a few more provisions John that I like and I know you're gonna like them if you haven't read about them.
• 3:37
  So one is that manufacturers have to provide rebates if they increase the prices faster than the rate of inflation, which they have been known to do.
• 3:44
  Even at the current rate of inflation John, as you were pointing out before, they're raising prices faster than that.
• 3:50
  - But just to give people a sense of how bad it is.
• 3:53
  Even before everybody else was inflating prices, 2021 to 2022 in a study of 1,216 drugs, last year, that year the average inflation was about 8.1%.
• 4:08
  Which is kind of a lot.
• 4:11
  - It's a big one.
• 4:12
  - To what we've done historically.
• 4:13
  The drug cost mean, David 31% plus during that same time period.
• 4:20
  Pharma likes to increase prices.
• 4:22
  - Get them all outside.
• 4:23
  Listen John, if it's good at $1,000, it should be good at $1,300 as well.
• 4:27
  I think that's the thinking.
• 4:28
  But now here John, here's the big one that the Inflation reduction Act does.
• 4:31
  - Boom.
• 4:32
  - It allows direct price negotiations for certain medications.
• 4:36
  That's gonna be 10 medications starting in 2026, 15 more in 2027, 15 more in 2028 and 20 more in 2029.
• 4:45
  - But David, there are thousands of drugs out there.
• 4:50
  Why is this in any way meaningful and what is it really gonna affect?
• 4:55
  'Cause my understanding, is it actually doesn't affect that many drug categories.
• 5:00
  Can you explain why this is important?
• 5:03
  - So John, first of all, I think it's a well targeted piece of legislation, which is why the so-called first loss in 50 years has occurred.
• 5:10
  There's some real sensible parts in it that take care of the common arguments against it.
• 5:14
  So what does the drug have to be in order to be negotiated?
• 5:17
  Well, it's gotta have no generic or biosimilar.
• 5:19
  So it has a monopoly, to be on the market for already nine years if it's a regular like a pill and 13 or...
• 5:26
  - Just slow down captain, that the generics and biosimilars are those drugs that where there's actually competition in a category of drugs that are post patent, because remember David, you're kinda understating the fat profits that Pharma can charge appropriately when they create a new drug or compound.
• 5:54
  But in many of those categories, generics which are simple chemical compounds like a pill, you get to either biosimilars which are typically infusible drugs that are these kind of remarkable things like immunotherapy.
• 6:11
  But there are even in those categories of novel revolutionary drugs, biosimilars.
• 6:18
  And so I mean what you're saying is, we're only talking about negotiating prices where there is no possibility of a competitor in a category after they've gotten through the patent protected profits, say that five times quickly.
• 6:35
  - Yeah, I'll try not to, it sounds like the PPP John, that's something else from last year's legislation.
• 6:41
  But John...
• 6:42
  - But this is just, I'm just trying to help you here Dave.
• 6:43
  - Yeah, listen, I'll take any help I can get especially after you hit me with that 31% price increase.
• 6:48
  So the product's already, they're only gonna affect things that have been on the market for long enough that they should have a competitor and they don't, right?
• 6:56
  So it's been on the market for more than nine years if it's a pill, or 13 years if it's an infusion, also it's not for, this doesn't count any orphan drugs.
• 7:04
  So that's for like small population.
• 7:06
  - You mean those drugs that don't have parents?
• 7:10
  - Drugs that not only they're so expensive John, that they sold their parents as well.
• 7:14
  That's how much we know.
• 7:17
  Orphan drug is a drug for an orphan condition which is a condition that affects only a small number of people.
• 7:22
  And the idea is extra protections, extra incentives for the pharmaceutical industry to avoid competition so that they will produce drugs...
• 7:30
  - Because they're (indistinct) for the orphan drug categories, they're often rare or limited population clinical diagnoses that you really do need to protect the ability to innovate for those rare conditions where again, there's some remarkable drugs being developed.
• 7:47
  So those are also out, Pharma gets to price those at whatever thinks is a fair price and there's no ability to negotiate.
• 7:55
  So what are we really talking about here Dave and why is pharma kind of all got its nickers in a twist on this one?
• 8:03
  (David laughs)- Well John, the last criterion, is that they are supposed to be like drugs where there's a lot of spending, okay?
• 8:09
  So by definition it's a lot of money.
• 8:10
  So you're goring the big oxen in order to get at it.
• 8:14
  So, but I have to say John, okay, it's a reasonable question.
• 8:16
  It sounds like a fairly balanced plan, right?
• 8:18
  Something I would probably vote for.
• 8:20
  And so why is Pharma upset about it at the end of the day John?
• 8:23
  - Well I thought we could negotiate prices for oxen but sorry, I think it would be helpful for you to give us a sense a context like what is, I mean my understanding is that the federal government is expecting to save about six ish billion dollars a year over the next decade, which does sounds like a lot of money but I think where the drug spend even this year David, is closer to 370 billion.
• 8:54
  - Yeah.
• 8:55
  - So a $6 billion discount on close to $400 billion worth of spend, doesn't sound like something that big companies would really be worried about.
• 9:06
  What's causing all the kerfuffle in the boardrooms of the highly profitable Pharma companies?
• 9:17
  - John I wanna ask.
• 9:17
  - What's going on here?
• 9:18
  Cause there's gotta be, they gotta be upset about something reasonable.
• 9:20
  - I won't ask you to say kerfuffle too many times John'cause I'm afraid it might blend off into some weird word.
• 9:25
  But I think there's a couple things.
• 9:27
  First of all, they don't like the idea if this is a, it's a precedent.
• 9:32
  So it's going to actually affect, gonna set out the fact that they could be negotiation, price negotiation, which hasn't occurred before.
• 9:40
  The claim of course is that it's gonna reduce innovation.
• 9:42
  - Well it is, but David, just the President is Biden and this is going to be, we are going to be negotiating drug prices.
• 9:50
  - Yeah.
• 9:51
  - I mean this is, that they are actually, you just said, they're gonna negotiate I think nine in the first year.
• 9:55
  - Yeah, 10 now.
• 9:55
  - It goes up for a bit.
• 9:57
  So we actually are negotiating, but again, it's a relatively small number of drugs.
• 10:03
  What could be the downside here of us changing our category from the only government in the world that doesn't negotiate drug prices to one that negotiates itsy bitsy part of the total amount.
• 10:18
  Like what's the downside?
• 10:21
  - I think it's good policy John, but you changed the question on me.
• 10:24
  You wanted to know why Pharma is upset about it.
• 10:26
  - Yeah, I did.
• 10:27
  Yeah, cause you kinda rolling in, you were kind of rolling off the table.
• 10:30
  - Fine, okay.
• 10:30
  So even after the law passed, at least until the supreme court decides otherwise, there's still some power in the rule making.
• 10:39
  So how is the law actually applied?
• 10:40
  So, maybe the next Congress would repeal the law so the lobbies could be going after that.
• 10:46
  Probably not'cause they would need to have President Biden, would have to, they'd have to override his veto, which is unlikely.
• 10:53
  But on the rule making side, they're trying to do some things at the edges.
• 10:57
  So I say, well maybe nine years, let's throw an extra leaper in there or something like that.
• 11:03
  Let's change the definition of a year.
• 11:05
  Let's have some more exemptions for companies that first just having one drug.
• 11:08
  I mean you could imagine John, if you had an innovative company, you got one drug on the market and boom, that's the drug that's being negotiated then it is a big deal.
• 11:16
  It's not just the 6 billion, it's your 6 billion.
• 11:19
  So they're trying to do that more exemptions for drugs that have rare diseases.
• 11:22
  So it's trying to like water it down as much as possible.
• 11:25
  And the lobbyists John have to show, they're getting something, right?
• 11:28
  You don't go around with your crocodile skin loafers or whatever they wear these days on K Street and say, "Hey you know what, sorry fellas, but I wanna be paid anyway." Even though you don't accomplishment.
• 11:37
  - You're making them sound like they dress like the "Flintstones."(both laughing) Animal skins and alligator shoes.
• 11:43
  But David, as a practical matter the United States is the innovation capital of Pharma around the world.
• 11:50
  We create the drugs that everybody else actually negotiates and uses.
• 11:54
  - Yeah.
• 11:55
  - It's remarkable some of what's, it's remarkable what's on the horizon whether it's turning cancer into a chronic condition, extending the life of families who suffer from CF of CF, kids into adulthood.
• 12:08
  And it just remarkable what's going on.
• 12:12
  Do you think this is going to pop that balloon of innovation that we've had?
• 12:17
  I mean, what do you think the practical implications of this are?
• 12:21
  - John, I think there is a question about whether Pharma is being shortsighted.
• 12:26
  Whether this is like worth the effort'cause you think about it, well you don't wanna like, when you talk about a large number, 400 billion or whatever drug spend now going up at 10 or more percent a year, eventually the customer starts being able to afford it.
• 12:40
  And it also bring up the question about, well if innovation is threatened by these price controls, I mean or is it really just addressing Pharma price gouging because these prices, we're still probably gonna be paying the highest prices in the world.
• 12:52
  So how is it that the prices that we negotiate'cause the way there's some criteria for how you actually negotiate.
• 12:58
  There's some guidelines, they're still gonna be high, if those prices are unacceptable, but they're still higher than what the companies are accepting from other governments around the world.
• 13:07
  I mean, what does that say?
• 13:09
  That's kind of undermining your own argument.
• 13:11
  Our prices aren't high enough but lower prices are good enough just 'cause they're somewhere else?
• 13:16
  - I think the reality David is, for any of these policies about complicated economic issues, you have to start somewhere.
• 13:23
  And there could be some downsides to innovation.
• 13:25
  There could be some downsides for drugs that need to come to market that people may not wanna fund because they'll see this as a potential target.
• 13:32
  To your point, the drugs that are gonna be affected are large market drugs.
• 13:37
  There's usually a long tail to these innovative drugs.
• 13:40
  But gosh, given the fact that we pay more than anyone else in the world in a system that is the most expensive in the world with weak outcomes, I agree with you.
• 13:49
  This is a carefully crafted policy that balances I think the needs to protect some of that, a lot of that, most of the vast majority of the innovation while starting to just maybe take sort of cut the top off of the inflationary pressures and because it builds over time, nine drugs in the first year and then building up over the years.
• 14:11
  I think it's gonna create an opportunity for Pharma to actually adapt.
• 14:16
  But you'll have to keep us in the loop David because you've got all these friends in big Pharma.
• 14:23
  - John, I'm gonna have to do that.
• 14:25
  Friends in high and low places.
• 14:26
  So let's think of a last question John'cause we seem to be agreeing more than usual which makes me very disagreeable by the way to hear.
• 14:32
  - Yes, I know.
• 14:33
  - Agreeing with one another.
• 14:34
  So how much of an impact do you think this Inflation Reduction Act will have on the Pharma industry?
• 14:41
  Big, medium or small?
• 14:46
  - Well, I think if the, and your point, rule making can affect this, if the policy works as indicated, I think it changes the culture of the way Pharma and go the United States government react.
• 14:59
  And I think it will because it'll change the conversation from how much can we charge to what's the appropriate price where there's actually a value proposition that makes sense and maybe we don't become the biggest inflationary cost in the US healthcare system.
• 15:18
  So I think it'll change the culture of the way hopefully Pharma prices and brings drugs to market, right?
• 15:26
  So I'm actually modestly hopeful, less about the specific drugs'cause we're only talking about $10 billion a year over close to $400 billion to spend.
• 15:36
  But more that the way the market's going to work will adapt to one where we get more value for what we're paying for.
• 15:46
  But what do you think?
• 15:47
  - John, I think this act overall is probably a positive for Pharma because it increases affordability for the end customer by having these caps for outta pocket spend.
• 15:59
  And then the other thing it does, is it does get us into a place where they can't just dictate the prices which I think that's gotta happen anyway.
• 16:06
  And it takes us down more a path of guidelines and negotiation, rather than international reference based pricing.
• 16:11
  Basically taking whatever the lowest price is somewhere else and having that, that's kind of where the previous administration wanted to head.
• 16:18
  So I think if we look at it from those standpoint, Pharma should be happy about it and they should tell the lobbyists to take the rest of the year off.
• 16:24
  Well, that's it for yet another edition of "Care Talk." Today we've been talking about the Inflation Reduction Act and will it really cut drug prices?
• 16:31
  I'm David Williams, President of Health Business Group.
• 16:34
  - And I'm John Driscoll, the President of Walgreens Health.
• 16:37
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• 16:41
  (upbeat music)