As the Biden administration calls for more-expansive drug pricing controls, it’s important to reflect on how we’re arriving at expected outcomes.
Pictured: Collage of woman and financial elements/Taylor Tieden for BioSpace
The federal government could save $25 billion in 2031 from the Inflation Reduction Act (IRA) that aims to reduce prescription drug spending, but an estimated 15 new drugs, or about 1% of total number of expected approvals, may fail to hit the market over the next 30 years as a result of reduced revenue for the biopharma industry.
That’s according to the Congressional Budget Office (CBO), which is charged with the daunting task of estimating the budgetary impact and other economic consequences of federal legislative proposals for Congress. But other estimates differ substantially from the CBO’s projection of how many fewer drugs would be developed as a result—up to 135 fewer new drugs by 2039—and this loss of new therapeutics is expected to have a far larger negative impact on health than the entire COVID pandemic.
How did CBO analysts arrive at those figures? With market-altering legislation on the line, including President Joe Biden’s call to more than double the number of drugs subject to price negotiation, we need to take a closer look at how we forecast the outcome. A widely reported estimate such as the one provided by the CBO gives the public and policymakers the impression of false precision when there should be a greater emphasis on the uncertainty in the estimate.
As economists in the biopharma industry, we appreciate that investors and biopharmaceutical companies make investment decisions on clinical programs based on their expectation of the price and number of people who will use the medicine during a period of patent protection. We consult regularly with a number of biopharmaceutical companies as well as professional and industry associations, many of which have sought to block the IRA’s implementation. Significantly changing that expectation with a policy change as large as the IRA will have consequences on clinical trials and access to medicines that are not well understood.
We need to do a proper job of investigating how investors are reacting, and policymakers should be acknowledging the uncertainty around the potential impact on drug development before expanding the policy. The investment of billions of dollars in developing medicines—and the curative and health benefits they provide—is at stake.
How Can We Better Predict Policy Outcomes?
CBO estimates are often developed in short timeframes and draw from published studies. Constructing a forecasting model, even with peer-reviewed content, still leaves sizeable room for error. Moreover, there are uncertain and fluctuating factors such as insurance coverage, outbreaks of disease and drug patent expirations that must be considered.
The CBO has, for good reason, recently called for more evidence on the implications of policies such as the IRA that could change the expected market size on drug development as it looks to inform future estimates—for example, if Biden’s call to expand the IRA makes it into proposed legislation. The CBO has done the right thing by calling for more data and research. But in reality, more time is needed to truly see how these policies will unfold and their effect on clinical trials for new medicines or new indications. The CBO is typically asked to develop estimates for Congress in short order, with a staff that hasn’t changed size in years and with their regular work ongoing.
Assessing the potential impact of policy such as price negotiation in Medicare could be a multi-year initiative for academic institutions, think tanks and PhDs-in-the-making. The federal government should be in the business of supporting multiple evaluations of its policies and can do so by making federal data more accessible and by seeking advisors with relevant expertise on the impact of these policies, particularly prior to considering their expansion.
Medicines and vaccines can save lives, reduce human suffering and contribute to economic productivity and U.S. health security. Investments in biopharmaceutical research and development contributed to U.S. leadership in treatments and cures for conditions including HIV, cancer, hepatitis C and COVID-19. There is too much at stake to not seek better evidence to inform future policy on biopharma regulation.
Kirsten Axelsen is a biopharmaceutical consultant as well as a visiting scholar with the American Enterprise Institute and policy advisor to DLA Piper and Charles River Associates. Louis Garrison is professor emeritus at the University of Washington School of Pharmacy as well as visiting senior fellow at the Office of Health Economics in London. Both consult regularly with a number of biopharmaceutical companies as well as professional and industry associations. They received no financial support to prepare this opinion article; the views expressed here are their own.
