A significant part of the health care reform debate and subsequent legislation and implementing regulations is how America can control health care costs. One of the main purposes of the Patient Protection and Affordable Care Act (ACA) is to address the rising costs and sometimes poor quality of the U.S. health care system.
Within the legislation and resulting regulations, there have been numerous discussions about how to control costs, while improving quality and patient outcomes. New payment and reimbursement models, such as bundled payments and accountable care organizations (ACOs) have been proposed, yet it is too soon to know their financial impact.
During the negotiation phases of the ACA, the life sciences industry promised billions of dollars in the forms of new rebates, discounts and coupons in order to close the Medicare Part D “doughnut hole.”
More recently, Congress is set to consider the Generic Drug User Fee Act (GDUFA), which would give the Food and Drug Administration (FDA) more money and resources to improve the speed at which they can approve generic drugs. The implementation of this program could save the federal government billions of dollars since generics cost a fraction of their brand name equivalents.
Despite all of the promises and negotiations, there has been a constant stream of criticism aimed at the drug industry for charging high prices. Congress and federal health agencies have targeted drug makers as a main priority to control costs, even though prescription medicines account for only 10 cents out of every dollar spent on healthcare and over 75% of drugs prescribed in the U.S. are already generics.
In light of all this confusion, a recent lesson in Europe suggests that all of the focus Congress and the media are spending on lowering drug cuts and cutting prices may have a detrimental impact on drug innovation in America.
Specifically, Pfizer CEO Ian Read explained how “Europe is undermining drug innovation by cutting prices, raising barriers to new medicines and freeloading” off others in Asia and the United States who are more willing to pay. “European governments are sacrificing the long-term future of science in their countries for the sake of short-term budget cuts.”
“There is a disconnect in Europe between the marketplace for pharmaceuticals and the desire of European governments to have innovation and research,” he said in an interview. “Europe is not paying its fair share of innovation.” This is extremely disturbing considering the costs to develop new lifesaving treatments can exceed $1 billion and take over seven years to reach the market.
Tensions between large drug companies and European governments have been rising for several years as administrations across the region face the challenge of curbing the rising costs of healthcare in tough economic times. Governments are by far the biggest buyers of medicines in Europe, allowing them to dictate prices.
The article explained that, “The common European practice of cross-referencing to medicine prices in other countries means that exceptional price cuts in Spain or Greece will trigger knock-on cuts elsewhere.”
Read hit out at governments who have slashed drug prices and racked up close to $20 billion in unpaid bills for medicines, largely in southern Europe, saying their increasing reluctance to pay up for innovative therapies would come back to haunt them.
“The pharmaceutical industry requires a vibrant marketplace. It’s a high-risk business … and a high-risk business needs the potential for high returns. So in the end, European leaders are sacrificing the long term for the short term,” Read said.
GlaxoSmithKline Plc Chief Executive Andrew Witty said last month he now ranked Europe behind the United States and Japan as a market where he would want to launch new products. Bayer AG CEO Marijn Dekkers has also expressed concern about Europe’s direction, noting in a recent results presentation that the money earned from today’s drugs was needed to pay for developing the medicines of tomorrow.
Pfizer‘s Read singled out Germany for particular criticism, pointing to Berlin’s recent decisions to extend drug price freezes from 2010, which were initially designed as an emergency measure, and to use a basket of countries including Poland and Greece as a benchmark for how much it will pay for drugs. Since Germany is one of Europe’s wealthiest countries, Read questioned whether referencing its prices to Greek or Polish levels would offer drugmakers a fair return.
“What is the fundamental message there? They are saying … investment in innovation is at a level that Greek prices can support. That’s not a recipe to create an innovative industry that can compete on the world stage,” Read said. Instead, he wants European government to take a longer-term view and engaging on the issue of who should pay for the research and development costs of cutting-edge medicines.
Conclusion
Given the difficulty, drug companies are facing in Europe regarding government reimbursement, Congress and other health officials in charge of policymaking for reimbursement and other payment related decisions should look to these events as an example. If the Centers for Medicare and Medicaid Services (CMS) begins cutting reimbursement rates for innovative new drugs or the ACA, through the Independent Payment Advisory Board (IPAB) or the Patient Centered Outcomes Research Institute (PCORI), companies may begin to send even more jobs and products overseas.
The high-risks of developing drugs, in the particularly rigorous regulatory environment set by FDA, warrants high-returns for companies. Without reinvestment, companies will not be able to find cures or the next greatest breakthroughs and patients will suffer.