Cost Curve is off tomorrow. Time for a breather.
Robert Kennedy Jr.’s nomination as HHS secretary is headed to the Senate floor. The group overseeing the process — the Senate Finance Committee — voted in favor of advancing the nomination. It was 14 Republican votes for, 13 Democratic votes against. The assumption is that the full Senate confirms Kennedy.
The only possible holdout was Sen. Bill Cassidy, who got to “yes” after Kennedy and the White House made him a bunch of “serious commitments” around vaccines. (The commitments are detailed somewhat in this piece in The Hill.) Politico said that Sen. Thom Tillis, another Republican, said he hoped Kennedy “goes wild” (on everything but vaccines).
I stopped believing in “serious commitments” from nominees to senators around the same time I learned the truth about Santa Claus, but — hey! — hope springs eternal.
As I’ve mentioned before, nothing** has transpired in the past three months that has changed the basics on who Kennedy is or what it all means.
** Not entirely true. I’ve learned that Kennedy knows (or cares) a lot less about Medicare and Medicaid than I would have assumed back in November.
Baked into the IRA is a fascinating tradeoff. Under the changes to the Medicare Part D benefit, drug companies have to pick up 20% of the cost for patients who end up spending more than $2,000 a year on medicine.
Back in the pre-IRA days, manufacturers had to pony up 70% of the costs in the so-called donut hole, but once patients got to about $8,000 in costs, the drug company share dropped to zero.
That change has generally been seen as negative for drug companies (a “headwind” is the usual euphemism used with investors), but optimists have suggested that the dynamics of the market might contain a hidden benefit. With patient out-of-pockets capped at $2,000, it’s likely that more patients would take more medicines (especially higher-priced ones they may have otherwise forgone).
That would mean a boost in volume, perhaps even a boost so large that it swamped the obligation to eat 20% of the price in the “catastrophic” phase.
But all of this has been largely theoretical and analysts have found really hard to predict. That’s changing now, and one of the more illuminating elements of the 4Q24 earnings season — which will continue for the next couple of weeks — is companies giving a lot more granularity on the tradeoff.
The general upshot from the reports over the past few days: the redesign is going to cost money. A lot of money.
Here’s how it’s breaking down:
Pfizer was the first out of the gate here, announcing last month that the company will see about $500 million in extra revenue due to increased volume, balanced against $1.5 billion in lost revenue from that 20% responsibility. The company reiterated that math this week, affirming that it would be a $1 billion/1.6% hit.
AbbVie did Pfizer one better. In addition to quantifying the overall impact — $2 billion, or about 4% — the company broke out how much lower net revenues would be for most of its major products.
Johnson and Johnson’s number was exactly the same as AbbVie, warning of an “approximately $2 billion negative impact from Part D redesign.”
Merck said it would lose about $400 million this year due to benefit redesign, “primarily affecting Winrevair and our portfolio of small molecule oncology products, including Welireg, Lynparza, and Lenvima.”
Novartis played it coy, disclosing only that Part D represented a “modest headwind.”
Amgen said the changes were a wash. Per EVP Murdo Gordon: “The Part D redesign at a total portfolio level for us is relatively neutral.”
I may have missed a couple (I didn’t see anything on the Novo Nordisk or GSK calls today, for example), and I’m sure that the topic will come up in the earnings calls yet to come.
But it doesn’t take a lot of back-of-the-envelope math to assume that we’re talking about an industry-wide impact that could exceed $10 billion this year.
That’s um, a lot of money.
What’s noteworthy here is that you don’t see a lot of angry commentary from companies on this. Certainly, it’s a rare CEO who wouldn’t want to keep more gross revenue, but everyone seems to understand that this is a reasonable trade-off for expanding patient access, even if the volume increases don’t offset the larger discounts.
It’s not that companies are against any and all changes to the current system. They just want to see changes that make life better for patients … an outcome that is a lot less clear when we’re talking about, say, price controls.
There may be no more quixotic quest in health policy than the idea that states can control drug costs by importing medicines from Canada. And, yet (per Bloomberg Law) the ardor of states for such solutions is unquenched.
This is a great Ed Silverman STAT story about what happens when a rare disease drug shows promise in an off-label indication, hitting on the difficulty of garnering access or full-on development even for promising approaches.
I’m no cheerleader for health insurance companies, but this STAT op-ed spells out the paradox that undergirds insurance in this country: we deem health to be priceless but demand that prices be as low as possible. I’m not saying that insurance companies necessarily square that circle in a way that meets the public good, but damned if they don’t have to live in that contradiction with every decision.
I am, however, a cheerleader for the Leerink Center for Pharmacoeconomics’ effort to run generalized cost-effectiveness analyses on as many new drugs as they can. The latest effort concerns Yorvipath. The report offers a rosy take on the value of the medicine, but I view all of this work (like the work at ICER) as a great excuse to start a conversation. Don’t like the Leerink/ICER/whoever take on value? Show your math and let’s have a discussion.
NPC put out a couple of useful clip-and-save “Policy & Evidence Briefs,” which digest a lot of info into an easy-to-parse summary. Here’s one on the “Maximum Fair Price” explanations for the first set of drugs with IRA price controls. And here’s their take on insurance company efforts to roll back coverage of accelerated approval medicines.
Cost Curve is produced by Reid Strategic, a consultancy that helps companies and organizations in life sciences communicate more clearly and more loudly about issues of value, access, and pricing. We offer a range of services, from strategic planning to tactical execution, designed to shatter the complexity that hampers constructive conversations.
To learn more about how Reid Strategic can help you, email Brian Reid at brian@reidstrategic.com.
