NAS Report: Consumer Access to Affordable Medicines Is a Public Health Imperative

A new report from the National Academy of Sciences, Engineering, and Medicine calls for big changes in how US pharmaceuticals are priced, promoted, and sold so that treatments are more affordable and equally available to all Americans, as market mechanisms that would usually moderate prices have been blunted or eliminated.

The report, “Making Medicines Affordable: A National Imperative,” recommends that steps be taken to address market failures that are “currently permeating” the biopharmaceutical sector: a lack of competition due to distortions in the application of patent protections; the imbalance between the negotiating power of suppliers and purchasers; and the convoluted structure of the supply chain. The report seeks methods to improve the affordability of prescription drugs without discouraging the development of new and more effective drugs for the future.

Among the report’s recommendations are the following:

• The US government should negotiate drug prices with manufacturers, deny tax deductions for drug advertising aimed at consumers, and set annual limits on out-of-pocket drug costs for Medicare beneficiaries.
• Congress should allow Medicare to negotiate prices with drugmakers and change the law to make it easier for states to deny coverage of drugs when less costly drugs provide similar clinical benefits.
• To ensure greater transparency about the financial flow and profit margins in the biopharmaceutical supply chain, the government should require drug companies to issue annual public reports showing list prices for their drugs, amounts of rebates and discounts, and the average net price of each drug sold.
• Health insurance companies should also be required to disclose what they pay for prescription drugs, and the Federal Trade Commission (FTC) should use this information to identify and address anticompetitive practices.
• The Justice Department and FTC should vigorously deter brand-name drug companies from paying other manufacturers to delay marketing generic drugs and biosimilars.

The report was written by a panel of physicians, attorneys, economists, and former corporate leaders and insurance and pharmaceutical company executives who worked together to produce the independent, objective analysis. Two members of the panel filed dissenting views, as did pharma industry group Pharmaceutical Research and Manufacturers of America (PhRMA), which called the report a rehash of outdated ideas that would severely restrict patient access to innovative treatment.

The report acknowledges the biopharmaceutical sector’s success over the past several decades in developing and delivering effective drugs for improving health, combatting disease, and helping to make many health conditions previously thought to be untreatable now manageable or cured. But it decried the high and increasing costs of prescription drugs, coupled with broader trends in overall healthcare expenditures as unsustainable to society as a whole. “There is a critical need for policy changes that will ensure the availability and affordability of medicines for patients who need them,” the report notes. “There is little value in new drugs that patients cannot afford—and there is no value in drugs that do not exist. Thus, there is a fundamental tension between ensuring the availability of new drugs in the future and ensuring the affordability of those drugs that exist today.”

The report details the factors that increase the cost of drugs for patients, including:

• High launch prices, with the price of the drug often increasing even further over time
• Inadequate competition when market exclusivity ends
• Unequal bargaining power between buyers and sellers
• The interaction of market power, health insurance, and the lack of effective incentives for controlling product prices
• Insurance benefit designs that have high patient cost-sharing provisions
• Inadequate performance of patient assistance and other public programs that should make medicines more affordable for patients
• A lack of available information about choices regarding medicines

The report also said that patients’ share of drug costs should be calculated as a fraction of the net purchase price of drugs, after rebates and discounts, rather than from list prices, to help reduce the financial burden on patients who need costly pharmaceuticals. In addition, the Justice Department and FTC should discourage direct-to-consumer advertising of prescription drugs, said the report, and discourage direct financial incentives for patients. The agencies should make sure that tax credits and incentives for development of drugs for rare diseases not be extended to widely sold drugs, and should further restrict drug company sales representatives from visiting physicians and providing free samples and other inducements.