WASHINGTON — The National Academy of Sciences called Thursday for sweeping changes in the pricing, sale and promotion of prescription drugs to make lifesaving treatments more affordable without discouraging the development of new medicines.
The federal government should negotiate drug prices with manufacturers, the academy said, an idea pushed by Democrats for years and embraced by President Donald Trump during the 2016 campaign but opposed by congressional Republicans.
The government, it said, should also deny tax deductions for drug advertising aimed at consumers and set annual limits on out-of-pocket drug costs for Medicare beneficiaries.
“Consumer access to effective and affordable medicines is an imperative for public health, social equity and economic development,” a panel of 17 experts said in a report issued by the academy. “However, this imperative is not being adequately served by the biopharmaceutical sector today.”
“The federal government,” it said, “should consolidate and apply its purchasing power to directly negotiate prices with the producers and suppliers of medicines.” Specifically, it said, Congress should allow Medicare to negotiate prices with drugmakers and should amend the Medicaid law to make it easier for states to deny coverage of certain drugs when less costly medicines provide “similar clinical benefit.”
The need for change is urgent, the panel said, because more than half of all people in the United States routinely use prescription drugs, and 15 percent regularly take five or more drugs.
The report does not endorse price controls, saying they could erode incentives for the development of valuable new drugs. But the panel recommended many other steps to promote competition and make drugs more affordable. The government, it said, should take steps to prevent “common industry practices that delay the entry of lower-cost generic drugs into the market.”
In addition, the panel said public and private health insurance plans should be modified to reduce the financial burden on patients who need costly prescription drugs. The patient’s share of the cost “should be calculated as a fraction of the net purchase prices of drugs” — after rebates and discounts — “rather than the list prices from manufacturers,” the benchmark widely used, it said.
The report is significant for several reasons. It gives the imprimatur of a respected national organization to a searing critique of the way drugs are bought and sold. It brings together a huge amount of research on the economics of the industry. And it coincides with a groundswell of public concern about drug costs that is reverberating in Congress.
But some of the proposals are anathema to brand-name drug companies, which can be expected to mobilize a small army of lobbyists to oppose ideas like price negotiations with the government or changes in the tax treatment of drug advertising. Such advertising, they say, often benefits consumers, informing them of treatments that can prolong life or improve its quality.
The panel included doctors, lawyers and economists who specialize in health policy, a state health official from Louisiana, a former executive vice president of the UnitedHealth Group, one of the largest insurers, and a former senator, Jeff Bingaman of New Mexico, a Democrat.
Two members of the panel, Dr. Michael Rosenblatt, a former executive vice president and chief medical officer at Merck, and Henri Termeer, a former chief executive of Genzyme, filed dissenting views. “Allowing all government health plans to negotiate as a single block would establish a near monopoly,” would be tantamount to price controls and could have “a devastating effect on long-term, high-risk investment” in drug research and development, they wrote. (Termeer died in May.)
The panel said consumers suffer because of a “complex and opaque drug pricing system.” To remedy this, it said, the government should require drug companies to issue annual public reports showing the list prices for their drugs, the amount of any rebates and discounts, and the average net price of each drug sold in the United States. Likewise, it said, insurers should be required to disclose what they pay for prescription drugs. And the Federal Trade Commission should use this information to identify and take action against “any anti-competitive practices.”
In this industry, the report said, “the market mechanisms that usually moderate product prices have been blunted or even eliminated.”
The Justice Department and the trade commission, it said, should “vigorously deter” brand-name drug companies from paying other manufacturers to delay the marketing of lower-cost generic drugs and copycat versions of biotechnology drugs.
The panel said Congress should eliminate the tax deduction that drug companies take for the cost of advertising prescription drugs to consumers. And it said drug companies “should adopt industry codes of conduct that reduce or eliminate direct-to-consumer advertising of prescription drugs.”
Moreover, it said, the government should limit manufacturers’ ability to give away coupons that reduce consumers’ out-of-pocket costs for brand-name prescription drugs. “Drug manufacturers tend to use coupons to promote the use of branded expensive products when less expensive alternatives are available,” it said.
The panel said Congress should establish limits on the total annual out-of-pocket drug costs of Medicare beneficiaries, so they would not have to spend more than the current “out-of-pocket threshold” of about $5,000 a year. Patients now may spend more than that if they use multiple high-cost brand-name drugs or specialty drugs.
The panel said tax credits and other financial incentives for the development of drugs to treat rare diseases should not be extended to “widely sold drugs.” Dozens of widely used medicines have won designation as “orphan drugs.” Indeed, the report said, “Some drugs receiving orphan drug status have, in fact, become ‘blockbuster’ successes, with over $1 billion in annual sales.”
In addition, the panel said that doctors and hospitals should tighten restrictions on visits to offices and clinics by drug company sales representatives. They should curb “the acceptance and use of free drug samples” and “other inducements” provided by drugmakers, it said.
At a congressional hearing Wednesday, Sen. Tim Kaine, D-Va., suggested some patients were being held hostage by drug companies, and the report expressed a similar concern, saying: “Patients who depend on unique lifesaving drugs are especially vulnerable. If they cannot survive or maintain a tolerable quality of life without drug therapy, they arguably have no meaningful choice but to pay whatever price is demanded.”