Medicare Sows Industry Confusion that will Lead to Fewer New Drugs
By Wolfgang Klietmann
Medicare just named the first 10 medicines subject to government price controls under the Inflation Reduction Act.
Much of the list was a surprise, creating deep uncertainty in the life-sciences industry. As the Centers for Medicare & Medicaid Services implements the new rules, it must do so with more transparency. Otherwise, it will jeopardize drug development for years to come at the expense of patients.
Passed last year, the IRA empowers Medicare to set prices for prescription medicines. CMS, which oversees Medicare, first published guidance on how it would implement the new system in March. The agency says it recognizes the "complexity" of drug pricing. Yet it gave the public just 30 days to respond.
Experts and patient advocates scrambled to submit more than 7,500 comments before the deadline. Many of them castigated CMS for providing so few details on how price controls would work, and for trying to ban pharmaceutical companies from speaking about the price "negotiation" process.
The gist was that CMS would choose the highest-expenditure, brand-name drugs that don't face current or imminent competition from generic or biosimilar products. The agency also said it would exempt certain drugs. Small-molecule drugs (usually pills) would be exempt for nine years after coming to market, and biologic drugs (usually infusions or injections) for 13.
That narrowed the options to what analysts considered 10 likely drugs for the first round of price controls, which will go into effect in 2026. But when Medicare published its list at the end of August, some unexpected medicines made the cut.
Three of them -- Stelara, for Crohn's disease, Entresto, for heart failure, and Enbrel, for rheumatoid arthritis -- are set to face competition from generics or biosimilars in the near future. It's unclear why Medicare chose these medicines when their prices will likely come down without government interference.
Through agencies like CMS, the federal government is the largest U.S. drug purchaser. What it does has an enormous impact throughout the life sciences. And right now, Medicare's lack of transparency is sowing massive turbulence. This will impact research and development on lifesaving drugs.
Nurturing a single medicine all the way from initial discovery to pharmacy counter can often take a decade and cost up to $2 billion. Most efforts fail, with just 12% of drugs that enter clinical trials ever receiving FDA approval. Pharmaceutical companies and investors can take such risks because a success gives them a chance to recoup their investments. But they don't do so without calculating potential returns.
Medicare's opaque decision-making has made those calculations significantly harder. Several pharmaceutical firms, including Novartis, Genentech, and Lilly, have already indicated that unknowns about IRA implementation are affecting decisions on research and development.
As the government forces companies into a more conservative approach, fewer new drugs will be developed. Patients will lose.
CMS has an opportunity to help them. If the agency is going to impose price controls -- which, to be clear, it should not -- it needs to act in a predictable, transparent fashion.
Dr. Wolfgang Klietmann is a former clinical pathologist and medical microbiologist at Harvard Medical School. This piece originally ran in the Boston Herald.
