Pharma leaders: support the social contract on drug prices

When I was 13 years old, my doctor told me I had Crohn’s disease, a painful gastrointestinal condition that swells the intestines and threatens the digestive tract. Breakthrough treatments like Remicade, Enbrel, and Humira were still decades away, so the diagnosis cost me my colon.

My surgeries and the lifelong challenges — and triumphs — that came with them inform my vantage point in the simmering drug pricing debate. I believe in the social contract that drug companies, mine included, have a duty to responsibly set list prices so patients can access needed medicines. And I think it’s time for industry leaders to exert more pressure on colleagues who violate that contract.

I also believe in a strong patent system to protect investment, not just in medical innovation but also in equally strong generic and biosimilar competition when intellectual property rights expire, making medicines more affordable.

Biomedical innovation is currently being jeopardized by a well-publicized minority of bad actors, drug companies that exorbitantly jack up prices on generic and branded drugs because they can and/or create frivolous patent extensions that game the system and prolong exclusivity for years or decades. Not all price increases are exorbitant, nor are all patent extensions frivolous, but the behavior of a few is laying waste to the reputation of the entire pharmaceutical industry at the worst possible time: as the genomic medicine revolution begins to deliver a new era of previously unimaginable cures.

The innovative medicines barreling down the development pipeline conjure images of Bones in the “Star Trek” sick bay. Gene therapy, cell therapy, CAR-T, and immuno-oncology don’t just treat fatal diseases but potentially cure them. The next decade will unleash the most astonishing medical breakthroughs in human history, unless our leaders in Washington embrace short-sighted drug policies that kill innovation in the cradle.

And consider this problem: Four of this year’s Fortune 10 companies — UnitedHealth Group, McKesson, CVS Health, and AmerisourceBergen — are middlemen in the U.S. drug distribution system. These companies are health insurers, wholesalers, and pharmacy benefit managers — all-powerful wardens of American medicine that determine which drugs can be accessed by which patients and for how much. PBMs don’t innovate a whit of health care for anyone, so why is their revenue higher than GE, Google, and Verizon’s? What service do they provide to merit such largesse?

Last year in the Rose Garden, President Trump was on the right track when he called out the least transparent players in the pharmaceutical value chain, pharmacy benefit managers, for their excesses. The president promised to end “the dishonest double-dealing that allows the middleman to pocket rebates and discounts that should be passed on to consumers and patients.”

The administration proposed a rebate rule that would require Medicare Advantage insurers and the PBMs they own or hire to pass on manufacturer rebates directly to patients. Doing so would reduce the actual costs that beneficiaries pay at the pharmacy counter. The president received glowing reviews in the media and the patient advocacy community for the move, and rightfully so.

But the president abruptly rescinded that rule this month after relying on a dubious Congressional Budget Office report that predicted additional government costs because insurers would respond by raising premiums. Trump was pilloried for the reversal in the press and the patient community, and rightfully so.

So we’re back to the status quo. Insurers and pharmacy benefit managers can continue to pocket rebates from drug manufacturers without sharing savings, and patients still struggle with high drug bills.

How did we get here? Pharmacy benefit managers were conceived to negotiate lower prices in the pharma value chain, but rebate abuse has become so widespread and profitable that the middlemen routinely abdicate this responsibility to lower list prices and co-pays for patients.

Insurers and PBMs trade prime placement in formularies — sanctioned lists that specify which medicines are covered by which plans — for higher rebate checks from drug makers that don’t get passed on to patients. The more inflated a drug’s list price, the larger the rebate. This issue is seldom discussed publicly by biopharma executives, because three mega-PBMs control 76% of the market and can crush emerging drug companies by restricting the availability of their products.

The perverse incentives in our system harm patients in two ways. First, patients’ share of a drug’s cost is typically calculated as a percentage of a drug’s list price, which PBMs work to keep artificially high. Higher profits for middlemen are being generated by raising costs on patients. Second, patients want the best therapies to be on their insurance formulary, not medicines tied to the biggest cash payouts to PBMs.

Now that the rebate rule has been rescinded, things could get really scary. The administration is pivoting to ideas guaranteed to send biotech investors running for the exits: importing foreign drug prices and maybe even foreign drugs themselves.

Benchmarking drug prices to single-payer health care systems in Europe and importing drugs made for foreign markets represent a startling embrace of socialism from a president running a reelection campaign premised on its evils. Every Food and Drug Administration commissioner in the last two decades — including Trump’s — has said that importing foreign drugs threatens the safety of patients and should not be certified.

The president still has time to reject those who are telling him that government price-setting and corporate welfare for insurers are good for patients and good for his bid for reelection. Neither is true.

It’s also not true that people who run biopharma companies care only about profits. My company has yet to earn a dollar in profit, but every member of my team cares deeply about innovating on behalf of patients. Some of us are patients. And all members of the health care network — innovators, payers, caregivers, and lawmakers — owe it to our patients, our customers, our shareholders, and our constituents to abide by the social contract to provide affordable access to our innovations. If we don’t, politicians from both parties may do it in ways that harm patients and innovators alike.

Paul J. Hastings is president and CEO of Nkarta Therapeutics in South San Francisco; a board member of Viacyte; and vice chair of BIO as well as chair of its Patient Advocacy Committee. The views here are his own and do not necessarily represent those of the companies and organizations with which he is affiliated.