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Policy experts punched holes in drug companies' claims that the Medicare Drug Price Negotiation Program will stunt innovation and weighed in on other drug price-curbing strategies during a hosted by the National Institute for Health Care Management (NIHCM) Foundation on Wednesday.

The Backlash to Medicare Drug Price Negotiation

A number of pharmaceutical companies and other stakeholders have fought the drug price negotiation program in courts, with some arguing that the program will stifle innovation and reduce access to drugs for vulnerable patients.

However, Gregg Girvan, MPP, a fellow for the Foundation for Research on Equal Opportunity (FREOPP), said the policy won't be nearly as damaging to innovation as pharmaceutical companies have warned.

Girvan and colleagues from 2013 to 2022 that leveraged financial data from more than 4,000 companies. They then categorized each company by size -- as emerging, small, medium, or large -- based on revenue, as well as research and development spending. Companies labeled "emerging" were those earning less than $500 million in revenue, while "large" companies earned more than $10 billion.

They then investigated which types of companies were actually responsible for the most innovation. Specifically, the "originator" of a new drug was defined as the company that brought it into phase I trials, Girvan said. Ultimately, they found that "emerging" companies were responsible for a greater share of new drugs in comparison with large companies: 52% versus 36%, respectively.

In part, this trend is due to emerging companies "punching above their weight" in their research and development spending, Girvan noted, much of which comes from Wall Street and venture capital firms, while large companies are not innovating as much as one might expect, despite their size and their ability to conduct the science and trials.

While some in the industry may counter these findings with the argument that emerging companies develop drugs but the larger companies bring them to market, Girvan pointed out that emerging companies are increasingly "going it alone" -- pursuing FDA approvals and conducting their own marketing. In 2022, 75% of emerging company discoveries were marketed by the companies themselves, "without the help of Big Pharma," he said.

In the context of policy, Girvan noted that the Inflation Reduction Act (IRA) drug price negotiation framework specifically targets drugs sold by the largest firms and excludes small biotech firms.

"So, the implication of [the study findings] is a policy like the IRA is sensible in that it helps to save on Medicare spending ... but what we can take solace in is that the IRA is going to help with that without targeting the most efficient and most productive part of the innovation ecosystem," Girvan said.

That said, there are changes that could improve the framework, including making small-molecule drugs and biologics eligible for selection in the program at the same time, he added. Currently, small-molecule drugs are eligible for negotiation 9 years following FDA approval, while biologics are eligible after 13 years.

Girvan also called for eliminating the IRA's "punitive excise tax" on companies that choose not to participate in the program. He argued that drug companies can work with CMS without that threat, adding that "the parties involved ... want to come to the table and hammer out reasonable prices that both sides can be happy with."

Trump's 'Most Favored Nation' Policy

In September 2020, then-President Trump signed an executive order with a view towards enacting a "most favored nation" policy. The order directed HHS to test a payment model in which Medicare would pay no more for Part B and Part D drugs than the lowest price that the drug's manufacturer sells the drug for in other developed countries -- commonly referred to as international reference pricing.

Two months later, CMS issued an interim final rule, but stakeholders, including the Pharmaceutical Research and Manufacturers of America sued, arguing that the government had rushed the rulemaking process, and a federal judge temporarily blocked the rule from taking effect.

Avik Roy, president and CEO of NIHCM and outgoing president of FREOPP, said he thought international reference pricing was a "good idea" in that it spreads the cost of new drugs across other countries.

"We pay more than any other country when it comes to these new pharmaceutical drugs, and we basically subsidize the rest of the world. And the question is ... shouldn't the rest of the world, the industrialized world, help pay for these drugs?" he asked.

However, Roy acknowledged that this policy strategy is likely "off the table" in Trump's second term, as the president-elect's team recently "erased every mention of it from their websites."

Tackling Patent Thickets

A third mechanism for curbing drug prices is to address patent thickets and other types of gamesmanship that enable certain drugs to retain exclusivity rights for long periods. The "poster child of bad behavior" is adalimumab (Humira), which has over 100 patents and made over $22 billion in 2020 alone, said S. Sean Tu, JD, PhD, a professor at West Virginia University College of Law in Morgantown.

The end result of these patent thickets is that they keep generic drugs and biosimilars from reaching the market.

In June, seeking to target the use of patent thickets and subsequent delays to generic competition.

In essence, Tu explained, the rule said that if one of the top patents is invalidated, then every other patent that is "an obvious variation" of the initial patent will then "fall like dominoes."

Sens. Peter Welch (D-Vt.), Mike Braun (R-Ind.), and Amy Klobuchar (D-Minn.) in a letter.

"Challenging patents is extremely costly, and this rule would reduce incentives for filing numerous duplicative patents that are tied to each other by terminal disclaimers, which would reduce gamesmanship by patent holders and allow for more innovation in the market," they wrote. The senators have also put forward a .

While Tu argued that the draft rule would have been effective in targeting some non-innovative patents, the citing "resource constraints."

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