On Tuesday, President Joe Biden signed the Inflation Reduction Act into law. Democratic lawmakers promise that the “historic” law will lower the cost of prescription drugs by, for the first time, granting the secretary of health and human services the power to negotiate prescription drug prices for Medicare patients.
This achievement reflects 20 years of work by advocates who have labored to close a loophole in the Medicare Modernization Act of 2003, which set up a pharmaceutical benefit for seniors with no direct functional basis for limiting costs. It also reflects a new political reality in which drug companies’ most potent political threat - warning that any attempt to lower drug prices would stifle innovation - may no longer hold the same kind of traction it has for more than a half-century. In recent polls, most Americans, including 90% of registered Republicans, no longer believe that measures to reduce the cost of drugs will prevent the development of lifesaving medicines.
Yet, if the industry’s best defense against measures to lower prescription drug prices has weakened, so too has the range of tools wielded to cut those costs narrowed. Nothing makes that clearer than how different the act is from the first big push to address the rising price of prescription drugs by Sen. Estes Kefauver, D-Tenn., in the 1950s and 1960s. No one who wants to be taken seriously in Washington in 2022 could even whisper aloud about tying the length of pharmaceutical patents to their comparative efficacy as the centrist Kefauver did in the early 1960s.
Kefauver was the first legislator to draw attention to the “administered prices” of the pharmaceutical industry. As head of the Senate subcommittee on antitrust and monopoly, Kefauver insisted there was no clearer abuse of pricing power in the American marketplace than the monopoly practices of brand-name pharmaceutical firms. Drugmakers preyed on patients who, as “captive consumers,” needed to purchase the medicines prescribed for them. Manufacturers also wielded the patent system and the approval mechanisms of the Food and Drug Administration as a shield to guarantee whatever high prices they chose.
Kefauver held two years of televised hearings vividly detailing the industry’s manipulative marketing and pricing strategies - inflaming a public already fuming over the soaring costs of prescription drugs.
He also proposed a solution: limiting the spurious use of marketing exclusivities by pharmaceutical firms, tying the approval of new drugs to the demonstration of superior value and reducing the duration of drug patents. He argued that pharmaceuticals were simply too vital to Americans’ health and welfare to be universally protected by 17-year patents, and calculated that manufacturers should be able to recoup the true investment in research and development in a shorter period - possibly as short as three years. Under Kefauver’s bill, drug manufacturers would receive patents and other market exclusivities only if they demonstrated that their new products were substantially more effective than existing medicines. The senator pointed to countries like Norway and the United Kingdom in which approval, reimbursement and access were connected in a system that guaranteed the quality and relative value of therapeutics, while maintaining accessibility for all citizens.
An alarmed pharmaceutical industry launched a nationwide public relations and advertising blitz. The American Pharmaceutical Manufacturer’s Association smeared Kefauver’s efforts as “merely another proposal to kill the goose that lays the golden eggs of progress,” and the group and its allies attacked Kefauver’s proposal as a system of socialized medicine - a loaded term during a Cold War moment when voters equated socialized anything with the decidedly un-American Soviet Union. To a Cold War liberal like Kefauver, the comparison was out of line. The senator retorted that the drug manufacturers were the ones receiving handouts from the federal government in this case - all he proposed was to remove the barriers to a free and competitive marketplace.
Kefauver, however, had badly misjudged the interests of the U.S. regulators who wanted no part of tying patents to comparative efficacy. In the end, the senator’s own party ended up undercutting his efforts, when the Kennedy administration proposed a narrower bill that established proof of efficacy as a part of the drug approval process.
As a result, the drug law that bears Kefauver’s name - the 1962 Kefauver-Harris amendments to the Food, Drug, and Cosmetics Act - paradoxically helped to uncouple the purchasing power of the federal government from its role in propping up patent monopolies. Kefauver’s hearings ended up setting the stage for the opposite of what he wanted to achieve: extended federal monopoly protection as an essential, almost naturalized feature of U.S. drug policy.
After 1962, the FDA’s new sequence of clinical trials increased the time and expense involved in bringing a new drug to market. This added more weight to industry arguments that pharmaceutical firms needed to make higher profits, charge higher prices - and even receive longer patent protections - for investment in innovation to continue. These claims became accepted in federal law in 1984, when the Hatch-Waxman Act extended the patent life of prescription drugs by up to five years.
Every decade since, Kefauver has seen prominent Senate investigations into the pricing practices of the pharmaceutical industry. All have generated outrage, yet none have altered the fundamentals of a system that uncouples the technical aspects of drug approval from the value decisions of purchasing, coverage and pricing.
Over the same time period, the federal government has gradually taken on a much larger role paying for pharmaceuticals. When Congress enacted Medicare in 1965, surprisingly it was Senate Republicans who insisted the federal program include some form of outpatient drug benefit. Yet cost concerns kept the proposal out of the final bill. President Lyndon B. Johnson instead established a Task Force on Prescription Drugs Under Medicare in 1967, but the Nixon administration subsequently ignored its recommendations in the early 1970s.
In 1988, a Democratic Congress approved - and then repealed - the Medicare Catastrophic Coverage Act, which included a prescription drug benefit, as outraged seniors protested over potential increased fees. President Bill Clinton’s failed effort in 1993 and 1994 to institute universal health care - including universal prescription coverage - again drew attention to the high cost of prescription drugs.
Then in 2003, a Republican Congress and President George W. Bush finally delivered a prescription drug benefit for seniors. But many immediately observed that the big winners weren’t seniors, but pharmaceutical companies, because the bill gave them millions of new consumers, without the government directly administering the benefit or having any mechanism to control drug prices.
The measure embodied the half-century trajectory away from Kefauver’s vision of coupling drug approval with pricing and reimbursement. And its critics have proved correct. Since the Medicare prescription drug benefit began in 2006, Part D spending on pharmaceuticals has become the fastest-growing outlay of health-care expenditures, swelling from a negligible amount in 2005 to 18% of total U.S. pharmaceutical spending by the end of its first year and 30% by 2017 - totaling a projected $111 billion in 2022. It has also helped enable the lopsided rise of a new cadre of untenably expensive drugs. A mere 11% of the prescriptions filled now generate a whopping 60% of this spending.
The Inflation Reduction Act aims to change this. The law will allow the secretary of Health and Human Services to negotiate lower prices for the top 10 drugs by sales volume in 2026. Those negotiations are estimated to save the government nearly $100 billion dollars by 2031. But while this is a stunning accomplishment for legislation deemed dead in the water just a few weeks ago, it is also a limited achievement. The law limits negotiations to 10 drugs in the first year, up to a total of 70 drugs by 2029, depending on how it is implemented. But it does not apply to any newly-approved drugs during their first nine to 13 years of market exclusivity. And manufacturers have proved adept at gaming previous legislation, abusing the Hatch-Waxman Act to create “pay-for-delay” monopolies after patents expire, and to distort the goals of the Orphan Drug Act by charging higher prices for blockbuster drugs. They will no doubt work swiftly to short-circuit the Inflation Reduction Act, too.
Tuesday’s action is a vital first step in breaking down barriers that have prevented the federal government from achieving the price reductions that come with purchasing power. But it is only a first step. It will take sustained attention to growing the space for price negotiation for this measure to ensure long-term, sustained savings on essential medicines for America’s seniors. Even then, it can only do a fraction of what Kefauver envisioned in the late 1950s - most crucially, demanding a demonstration of value if manufacturers want a monopoly on producing a drug. Only by recapturing this element of Kefauver’s forgotten agenda can we hope to stem the untenable increase in pharmaceutical costs that threaten us all.
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