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As we all sit around and wait for IRA price controls to be announced, it’s worth clicking over to this great piece from 2021 by venture capitalist Peter Kolchinsky**. It’s titled, “When drug prices are a Trojan Horse for other costs, we all lose,” and it discusses what happened when the breakthrough HIV med Truvada went generic.
We usually think of medicines going generic as a good thing. What was once expensive becomes far less so, dropping prices for consumers and creating space for investments in newer technologies. Everyone wins.
Almost everyone.
As Peter points out, the 340B program creates some weird economics. 340B grantees can generate revenue by getting a high-priced drug at a bargain-basement price and then turning around to grab reimbursement at high levels.
When those rebates go away — such as when a drug goes generic — the revenue stream crashes, leading to all sorts of bad consequences. In the case of Truvada, it meant that HIV clinics across the country had to pull back on the services they provided, as documented by NBC News.
That’s an Alice in Wonderland kind of upside-down outcome for what is otherwise the system working perfectly to deliver lower prices. The services available to our most vulnerable should not be dependent on high prices somewhere else in the system.
Anyway: this is on my mind because, sometime in the next couple of weeks, we’ll find out how much cheaper the government will make the first 10 drugs selected for price controls.
When those prices go into effect in 16 months, the Truvada phenomenon will kick in again. Billions of dollars of revenues linked to that fundamental buy-low, sell-high 340B arbitrage will vanish.
And community health centers will have to deal with that loss, perhaps by cutting services, perhaps by steering patients away from priced-controlled medicines to higher-priced drugs where they can still enjoy that arbitrage.
My point here is not to be anti-IRA or anti-340B, but rather to make the more basic point that the health care system is never going to function optimally until we decide what we want to pay for … and develop sensible and sustainable ways to pay for it.
That’s not remotely what we have now.
We all want HIV clinics to be healthy and fully funded. We want safety net providers to know they can keep their doors. But making the success of those organizations dependent on entirely disconnected variables — like the price of medicines — puts those services at risk and, worse, bakes in perverse incentives to do the wrong thing.
I recognize that this kind of ranting isn’t going to change things, not in the short run, anyway. But there’s probably no such thing as too much attention around the unintended consequences of our janky health care system.
** Thanks for RA Capital’s Chris Morrison for flagging this in the context of the IRA.
The U.S. Chamber of Commerce lawsuit over the IRA got tossed by the district court judge overseeing the case. This was a weird case that came down to whether the Chamber had standing to sue (the judge ruled that it did not) rather than any of the actual legal arguments. While that doesn’t mean that the road ahead for industry isn’t going to be tough here, it does mean that this case isn’t particularly representative of anything.
So Sen. Warren et al are stirring the pot again on march-in rights, asking the Biden administration when it is going to finalize rules that would allow march-in to be weaponized around drug pricing. I have zero inside information here, but this feels like a place where the administration is trying not to rock the boat during election season, especially given that the academic community was getting pretty vocal in its concerns. Reuters had once suggested that we could have action in early June, but it’s been crickets since then. Open to theories on what’s going on.
Axios made an effort to explore the forces that might force down the prices of obesity medicines, including generic introduction and price competition from new entrants, but it’s generally too skeptical. Prices will come down. It’s already happening, and it’s something that is only likely to accelerate. I could write a thousand more words on that, but you probably know the argument and — hey — it’s Friday.
I worry that this Washington Post story — about Orchard’s Libmeldy gene therapy — entirely misses the point. The price of the therapy, even at $4.25 million, is not really an issue. It’s essentially cost-effective, and with no more than a few dozen kids eligible each year, it’s not even remotely close to a budget buster. Orchard is never going to make much profit here; they’re essentially acting as a charity. There are real challenges to make gene therapies a success, but I don’t see how lower prices are going to help that.
This is a nice Endpoints Q-and-A with PhRMA CEO Steve Ubl. I particularly liked his pushback on the idea that the first set of price-controlled meds is no big deal. Just because companies and Wall Street have prepared for and accounted for the very real impacts doesn’t mean that those impacts don’t exist.
Medicare geeks, rejoice! There’s a fascinating new HHS OIG report that at what the government pays for Stelara in Part B versus Part D. Turns out the latter is a lot more expensive. The STAT coverage highlights the difference in how those prices are set — “average sales price” as compared with Part D plan negotiation — but I’d love to see a even more comprehensive explainer.
Stateline has a good overview on what’s going on in Oklahoma with PBMs. The state wants to amp up its regulation of PBMs. PBMs sued, suggesting that federal ERISA law trumps the state law. The PBMs have the upper hand right now, but Oklahoma is pushing the Supreme Court to take the case.
Header image by Feliphe Schiarolli on Unsplash.
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