Tying Medicare Part B Drug Prices to International Reference Pricing Will Devastate R&D

Duane Schulthess, MBA; Daniel Gassull, PhD; Steven Maisel, FCA

First published 26 November 2019

Abstract

According to Secretary Azar of Health and Human Services, implementing international reference pricing (IPI) in Medicare Part B will have minimal impacts. He has stated, “These savings, while substantial for American patients and taxpayers, cannot possibly pull out more than 1 percent of R&D.” As companies traditionally spend 20% of free cash flow on R&D, we have measured the IPI impact according to industry standard metrics. The potential negative impacts of the international reference pricing plan, as it is currently structured, are numerous. Companies are likely to avoid developing Medicare Bart B physician-administered drugs in the future if it comes to fruition. Further, if distributing in any of the included countries in the benchmarking exercise that traditionally have prices far below that of the United States has the impact of creating lower US prices where the industry currently derives more than 80% of their global profit, companies will simply not seek market access in those benchmarked countries and patients in those countries will not receive the medicines they need. The idea that companies will be able to unilaterally raise prices in Europe defies logic and practice. Many countries in the EU have been threatening IP rights under the TRIPS clauses of the WTO for several years because of their belief that pharmaceutical pricing is unacceptably high right now, without the IPI. Harnessing real-world evidence would allow for increased competition by faster time to market. One wonders why an approach encompassing the improved time to market was not considered, as the reference pricing proposal as it stands now, ultimately, will reduce R&D budgets, impair the overall investment climate, and deprive patients the new medicines.