Thread by @JohnArnoldFndtn

[THREAD]
Since the House pharma bill was introduced, pharma and allies have been incessant with their talking points that the bill would devastate the industry, weaken its ability to develop new drugs, and harm health. After look into it, my conclusion is: Wrong, Wrong, & Wrong.

The components are largely drawn from the bipartisan Senate bill improving competition and a price inflation cap + a derivation of Trump’s idea to price drugs off an int’l benchmark (though through negotiation vs reference pricing) + a $2,000 out of pocket cap for seniors.

The CBO scored this bill as saving the gov’t $345 billion with the tradeoff that a small # of fewer drugs will be brought to market. Opponents of the bill cite this latter component as the fundamental critique of the bill. Below I dig into the weeds about the costs and benefits.

CBO projects 10 year savings at $345 billion, but this average is low. The bill doesn’t take effect until '23, and then ramps up slowly. The savings in ’27 is $73 bln, in ’28 is $93 bln, in ’29 $74 bln. The steady state savings isn’t $34 bln/yr. It’s closer to $75 bln.

The primary tradeoff is there is less incentive for drug development. Notwithstanding the industry’s claims that this bill will decimate the industry, it’s a very small effect. IQVIA projects global pharma spend to be $1.7 trillion in ’27 and escalating 4-5% a year.

A $75 bln annual reduction in revenue in $1.7 tln industry is a decline of 4%. Or to put another way: lowering America’s drug costs by $75 bln a year would not cause a year on year decrease in the industry’s revenues; they’d merely be flat for one year then continue increasing.

Does anyone really believe forgoing 1 year’s revenue increase will decimate the industry? It is a great talking point to scare people, but it will have a negligible effect on the industry.

Granted, if you decrease incentives, there might be less investment & fewer drugs. The CBO projects a reduction in 8-15 drugs at the end of 10 years. Let’s take the average and call it 12. For reference, the FDA has approved about 1600 drugs total and about 30 new ones each year.

Adding in 30 per year for the next 10 years, by 2029 there will be about 1900 drugs approved by the FDA. If this bill passes, there will be 12 fewer, or <1% of total drugs or 4% of new drugs.

Huge incentives will still exist to develop blockbuster drugs. Again, global pharma revs are predicted to be $1.7 tln in '29 vs $1.2 tln in '18. That’s a lot more incentive than exists today. There will still be enormous profits for pharma companies that develop novel treatments.

Still concerned? The 12 drugs are likely to be “me-too” drugs that are minimally better than existing drugs, like a drug that extends life for a month longer than existing treatments. These are the types of drugs that fare worst in international value pricing benchmarks.

Also important to acknowledge that quantity is not quality. Paying for value is likely to steer pharma R&D away from the incremental drugs that will fare badly & more to novel drugs. Thus it’s possible we have fewer drugs but BETTER overall health because of better incentives.

Even more important, the drug bill decreases the out of pocket costs to consumers. The bill creates a $2,000 OOP cap for seniors vs $5100 + 5% thereafter today. 29% of Americans report not taking their medications as prescribed at some point in the past year because of cost.

From CBO: “Lower prices would increase use of drugs and improve people’s health.” Yes, lower prices might lead to 12 fewer (low value) medications, but low prices increase adherence. Thus lower prices likely improves health, as effect of better adherence>12 marginal drugs.

So we will have <1% fewer drugs, likely of minimal efficacy, but Medicare will save about $75 bln a year starting in 2027. Huge numbers associated with federal spending are somewhat abstract. So I did back-of-the-envelope math to show what America could do with those savings.

Pass the House drug bill and we could do any of the following:
Provide 10 million more people health insurance through the ACA
Hire 200,000 more primary care physicians.
Increase the budget of the NIH by 150%.
Increase federal funding for mental health & drug abuse by 700%

Could also spend that $ outside of healthcare:
Fund 8.8 million additional housing vouchers.
Give $25,000 raise to every public school teacher.
Double the # of police officers.
Fund free college tuition for everyone.
Almost double the EITC.
Cut everyone’s federal income tax by 3%

Life has tradeoffs. A dollar spent on pharmaceuticals can be used elsewhere. The current system is unfair to Americans, creates poor incentives, causes nonadherence, and arguably takes resources that could be used more effectively elsewhere in healthcare or social services.

American taxpayers fund the basic science that leads to development of almost all drugs. In return, pharma charges us 2x the prices of our economic peers. Americans should be paying LESS than our peers for the same medications given we paid for the basic science R&D.

But Pelosi’s drug bill & Trump’s IPI proposal don't even go that far. They both allow the industry to charge Americans the highest prices in the world, but just ask that they charge us only 20% more than other 1st world countries rather than 100% more. Pharma calls that radical.

Above analysis only looks at House bill from Medicare’s perspective. The bill would lower costs for everyone. I could do another thread from the consumer’s perspective: how the current system bankrupts the sick, the tradeoffs associated with high OOP, & the costs of nonadherence.

Do not fall for the pharma industry’s talking points. They are scare tactics designed to maintain status quo. I know it's hard for Congress to stand up to the pharma lobby, but we must demand courage from our electeds. The time to pass comprehensive legislation is now.
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