It is “completely unrealistic” to expect any meaningful result from legislation authorising direct US government pricing negotiations with pharmaceutical companies but, if Congress chooses to pursue these options, they will carry very high price tags, both political and monetary, the US Senate has been warned.

“The economic distortions resulting from restricting market access for drugs in Medicare could not only lead to increased overall Medicare spending but would likely spark a political backlash on a scale not seen since senior citizens forced Congress to repeal the 1987 Medicare Catastrophic Coverage Act,” Edmund Haislmaier, research fellow at conservative think tank The Heritage Foundation, told a Senate Finance Committee hearing last week, held to discuss negotiation of drug prices for the Medicare prescription drug benefit.

This backlash will occur “when those seeking treatments for their, or a loved one’s, illness figure out that Congress has destroyed the incentives for researchers to develop the cures they seek,” Mr Haislmaier forecast. The precedent for this would be the pressure from AIDS activists that led Congress to reform the Food and Drug Administration’s approval process and speed to market life-saving drugs for HIV, he added.

Richard Frank, Professor of Health Economics at Harvard University, warned the panel that any proposal to alter approaches to setting prices for prescription drugs must recognise the threat posed to R&D incentives and the industry’s ability to attract capital if prices are set too low - or even if there is merely a threat that they may be set too low.

Pharmaceutical R&D has produced enormous economic value in recent decades, and clinically important unique drugs are those for which it is most beneficial for society to offer the largest rewards to prescription drug manufacturers, said Prof Franks.

As a first step toward establishing a better balance between control of Medicare spending and protection of R&D incentives, he proposed that manufacturers should be required to sell drugs that will be used by people who are dually eligible for Medicare and Medicaid to prescription drug plans at a price approximating Medicaid prices, eg. average manufacturer price minus 17%. “This step would return the balance between government budgets and…R&D incentives to its pre-January 2006 level, a situation that appeared acceptable to all parties,” he said. The impact on Medicare spending of such a step would also likely be significant, he forecast.

Prices of unique drugs “should be monitored”

However, Prof Frank acknowledged that the pricing of unique prescription drugs represents a particularly difficult challenge, given that focusing cost-control efforts on treatments that might represent major gains over current therapy could threaten precisely the R&D that should be most encouraged. Therefore, he suggested, the Centers for Medicare and Medicaid Services and Congress should carefully monitor the prices of unique drugs. If any problems should arise over their pricing, the government should be prepared to intervene and put into place temporary “administered” prices for such drugs which would preserve R&D incentives, recognize the health benefits produced by unique products and limit payments for them by the Medicare program.

While such action need not be taken right away, it is important for CMS and Congress to be vigilant of these prices and to have a plan ready, Prof Franks stressed.

Johns Hopkins University professor Gerard Anderson told the panel there is evidence that Medicare plans are paying higher prices for certain drugs than are being paid for them by the Veterans’ Administration, the Medicaid program and the Canadian government. Therefore, Congress should require the Health and Human Services Secretary to collect price data on every drug and then compare the lowest private sector price to the prices paid, using this information to determine where negotiation might be needed. Congress should also repeal the current ban on pricing negotiation by the HHS Secretary, said Prof Anderson; the Secretary should be able to use such powers in circumstances where Medicare plans cannot get reasonable prices, he concluded. By Lynne Taylor