Federal government should advise on drug negotiations, not run them
The $3.5 trillion economic reordering bill now moving through Congress contains a long-held Democratic goal—one that was even endorsed by President Trump several years ago—to empower the Department of Health and Human Services to negotiate lower drug prices.
Yet, prices are already negotiated by large and powerful health insurers. While the federal government is an even larger payer, it is far from clear that size is what matters in solving America’s drug pricing problem.
If reducing drug spending is the goal, a decent argument can be made that private negotiations between insurance companies and drugmakers have already achieved something close to stability. In Medicare, for example, patented drugs’ share of total Part D spending declined from 72% in 2017 to 70% in 2019.
What is not happening is the kind of holistic reckoning that can assess the value of new drugs to both patients and payers. Rather than set up a bureaucracy of government negotiators focused on prices, Congress should create an independent institute devoted to evaluating all the evidence on the effectiveness and long-term benefits of not only drugs, but also devices, procedures and any other innovations that end up on a medical bill.
A publicly funded Institute of Health Technology Assessment—filled with scientists, economists, physicians and other healthcare experts—could equip all parties with insights into effectiveness, cost and value. At least initially, it could operate without regulatory authority but would be designed to influence government decisions across a full array of technologies and healthcare services.
A joint panel from the USC Schaeffer Center for Health Policy & Economics and the Aspen Institute recently endorsed the idea of an Institute for Health Technology Assessment and made the following recommendations:
• The Institute should encourage continued privately funded assessments, and coordinate with them to reduce duplication of effort. It would also fund new research, especially into areas that remain poorly studied such as diagnostics, procedures and public health programs.
• Clinical results for health technologies being evaluated by the Institute should be accompanied with lists of all relevant costs and outcomes such as life years or quality-adjusted life years, leaving the economic evaluation to individual payers.
• To achieve political and public acceptance, the Institute should be operated with input from all key stakeholder groups, including patients.
• The Institute’s reports would be advisory at the outset, but the Centers for Medicare and Medicaid Services should be required to consider the findings of relevant reports in its coverage determinations for Medicare Parts A and B, and to explain what influence they had, if any.
HHS recently released its plan for addressing high drug prices. The proposal alludes to the goal of using fair prices in Medicare drug negotiations, but it does not define how a “fair” price would be set. Some have suggested using international reference prices or computing the cost of drug development. Yet neither approach would ensure that drug prices reflect the benefits they provide to patients, which is what ultimately matters. In contrast, a value assessment conducted by an Institute for Health Technology Assessment would enable fair pricing while rewarding both innovation and quality of care.
Rather than relying on policies that will further distort incentives in healthcare markets, it is time to start aligning health prices with value and innovation. A U.S. Institute of Health Technology Assessment could pave the way for rational long-term assessments of what the country needs in drug and technology development, and healthcare generally, and what to pay for it.