PhRMA President and CEO Stephen J. Ubl takes aim at the health insurers and pharmacy benefit managers (PBMs) driving medicines costs up in the US, and the Inflation Reduction Act (IRA) which he sees as failing to address the patient affordability conundrum. Ubl calls for a policy framework able to both support lifesaving innovation and ensure patients are able to pay for it.


Last year, Congress took a swing at fixing patient affordability with the Inflation Reduction Act. Unfortunately, they struck out


Innovation is critical to improving lives and public health. The stark fact is that life expectancy in the United States declined two years in a row. And many around the world live with chronic diseases like heart disease and cancer. This reinforces the need for more and better treatments.


Luckily, there’s a lot in the pipeline. In earnings calls recently, we heard companies talk about treatments in development for Alzheimer’s, sickle cell, hemophilia, depression and more.


While companies work on these medical advances, lawmakers need to work on policies that can help bolster innovation and lower patient costs.


Let’s start with the immediate barriers that patients have in getting the medicines they need: middlemen.


Right now, patients are stuck on the wrong end of a faulty equation: Net prices for brand medicines grew just one percent on average in 2021. More than half of every dollar spent on brand medicines now goes to middlemen, insurance companies, hospitals, the government and other entities. But somehow, many patients are asked to pay more and more out of pocket at the pharmacy counter.


That’s because oftentimes middlemen in the system, like health insurers and pharmacy benefit managers (PBMs) who determine what patients pay for their healthcare, get discounts on medicines, then charge patients based on the full price through deductibles and coinsurance. A study found that commercially insured patients with a deductible have seen their out-of-pocket costs for brand medicines increase 50 percent since 2014.


Last year, Congress took a swing at fixing patient affordability with the Inflation Reduction Act. Unfortunately, they struck out.


The Inflation Reduction Act did take important steps to lower out-of-pocket costs, including some we’ve long supported, like a USD 2000 annual cap on what seniors pay out of pocket for medicines, and steps to improve predictability by spreading seniors’ costs throughout the year.


But it didn’t go far enough. The law significantly delayed the implementation of a regulation that would have required Medicare Part D plans to base patient cost sharing for medicines on the price paid by insurers and PBM middlemen. And what’s worse, the Inflation Reduction Act’s government price setting provision is forcing companies to make hard decisions about where and how to invest in research and development, leading to unintended consequences for medical innovation.


For example, the law discourages the development of pills and tablets, known as small molecule medicines. These types of medicines can be selected for the price setting process as early as seven years after they are approved by the US Food and Drug Administration (FDA), even though they take a decade, on average, to develop. The government-set price can then be imposed as early as nine years after approval.


Companies now must pause and decide if it is worth the investment if these medicines can be chosen for price setting so soon in their lifecycle. At PhRMA, we think at the very least Congress should move the timeline for small molecule medicines to at least 13 years after FDA approval so patients don’t suffer from the unintended consequences of the law.


The law also discourages pharmaceutical companies from spending time and resources on additional research to see if FDA-approved medicines can be used to fight other diseases or help other patient populations.


Take cancer for example. More than 60 percent of oncology medicines approved a decade ago went on to receive additional approvals, and more than 70 percent of these additional approvals occurred seven or more years after initial approval and required significant investment in research and development on the part of the manufacturer. But now medicines can be selected for price setting as early as seven years after FDA approval for small molecule drugs or 11 years for biologics. Because the law shortened the timeline companies have to do extensive R&D and recoup the significant financial resources required for this work, companies are now having to reconsider whether post-approval research is worth the time and resources.


So now we will have less innovation thanks to government price setting…and we are still stuck with the middlemen who are responsible for the things people hate about insurance coverage.


Things like fewer options to choose from. Three PBMs control 80 percent of the market, up from 48 percent in 2010. While these companies are getting big discounts on medicines, they’re not always sharing these lower prices with patients.


Insulin is the most extreme example of this. Economists and actuaries have observed that the distorted incentives within the pharmaceutical supply chain can create a dynamic where PBMs and insurers benefit from higher list prices and higher rebates. The rebates, discounts and other payments made by insulin manufacturers lowered the cost of the most commonly used insulins by 84 percent, on average, in 2021. But insurers often charge patients based on the full price of the medicine, not the discounted one, leaving people with diabetes paying far more than they should.


What’s more, insurers and PBMs are adopting practices that put new barriers between patients and the assistance they need. Patient assistance offered by biopharmaceutical companies can provide a valuable source of support for many commercially insured patients to afford out-of-pocket costs for their medicines. But health insurers and PBMs are using harmful tactics to deny patients the benefit of this assistance at the pharmacy.


Patients should pay based on the lower price health plans and PBMs pay. Middlemen should also be paid based on the service they provide, not the list price of medicine. And we need policies that protect patient assistance so that health insurers and PBMs are no longer able to limit how much this assistance can help patients at the pharmacy counter.


Last year, Congress gave a free pass to the middlemen who drive up patient costs. They’ve also given a free pass to the hospitals who are abusing the 340B drug discount program. This program is supposed to help low-income and otherwise vulnerable patients access medicines, but it’s being exploited by large hospital systems and creating incentives that drive up costs for patients instead. After factoring in the steep 340B discount manufacturers are required to provide to hospitals, the net price 340B hospitals pay for medicines can be as low as one penny. The problem? Hospitals aren’t required to pass along any of these discounts to patients, even those the program is specifically intended to help. Instead, hospitals can bill patients a marked-up price, meaning patients can end up paying far more out of pocket than the hospital spends to purchase a medicine.


That’s not the only way hospitals abuse the program. The New York Times outlined how a hospital system in Virginia uses 340B for that system’s financial gain. The article found the hospital system “build[s] clinics in wealthier neighborhoods . . . but on paper make[s] the clinics extensions of poor hospitals to take advantage of” discounts on medicines in the 340B program. That means that, according to a physician quoted by the New York Times, the hospital system was “basically laundering money through this poor hospital to its wealthy outposts.”


Changes should be made so patients more directly benefit from the discounts provided by manufacturers through the 340B program. A policy that requires hospitals to share the discounts based on a patient’s income level and insurance status is a first step. Policymakers should also strengthen the requirements to ensure the appropriate hospitals are participating and using 340B to directly help patients. This includes making hospitals that engage in aggressive debt collection practices ineligible for the program.


The bottom line? Manufacturer discounts should directly benefit patients, not middlemen and hospitals.


Until we address these issues, there will be patients who can’t afford their medicines and lifesaving innovation will be at risk. Let’s fix it by finally getting to the root of the problem, not with policies that have unintended consequences for patients and future treatments and cures.