Life Science Compliance Update

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December 08, 2017

Drug Pricing Report Released by NASEM

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The most recent example of drug marketing being caught in the crossfire of the drug pricing debate can be found in a report by the National Academies of Sciences, Engineering and Medicine, which included suppression of consumer marketing in a set of recommendations on how to lower the cost of prescription drugs for patients. One recommendation was that advertising costs should no longer be considered tax deductible as a business expense.

The report offers eight recommendations with twenty-seven different actions for their implementation (a sample of actions in each area appears below) to improve the affordability of prescription drugs without discouraging the development of new and more effective drugs for the future.

“Over the past several decades, the biopharmaceutical sector in the United States has been successful in developing and delivering effective drugs for improving health and fighting disease, and many medical conditions that were long deemed untreatable can now be cured or managed effectively,” said Norman Augustine, former chairman and CEO of Lockheed Martin Corp., former chairman of the National Academy of Engineering, and chair of the committee that conducted the study and wrote the report. “However, high and increasing costs of prescription drugs coupled with the broader trends in overall medical expenditures, which now equals 18 percent of the nation’s gross domestic product, are unsustainable to society as  whole. Our report seeks to address the market failures that currently permeate the biopharmaceutical sector, such as lack of competition due to distortions in the application of the patent protection process, the imbalance between the negotiating power of suppliers and purchasers, and the convoluted structure of the supply chain. Although changes within the current system will be demanding, they are likely to better serve the nation.”

One recommendation was that governmental purchasing power should be consolidated and applied to strengthen formulary design and improve drug valuation methods. The report recommends that to achieve that end, Congress modify current legislation to allow the United States Department of Health and Human Services (HHS) to directly negotiate prices with producers and suppliers of medicines, including acting on behalf of any relevant state agency that chooses to participate in the process. The report also recommends that Congress authorize HHS, related federal agencies, and associated private payers to expand flexibility in formulary design, including very selective exclusion of drugs, such as when less costly drugs provide similar clinical benefit.

As alluded to above, the report recommends that actions be taken with respect to marketing, including promoting the adoption of industry codes of conduct and discouraging direct-to-consumer advertising of prescription drugs as well as direct financial incentives for patients.

The report recommends,

Congress should disallow direct-to-consumer advertising of prescription drugs as a tax-deductible business expense. In addition, manufacturers and suppliers should adopt industry codes of conduct that reduce or eliminate direct-to-consumer advertising of prescription drugs and should increasingly support efforts to enhance public awareness of disease prevention and management. Clinicians, medical practices, and hospitals also should substantially tighten restrictions on pharmaceutical companies’ direct visits to clinicians, the acceptance and use of free drug samples, special payments, and other inducements paid by biopharmaceutical companies.

According to the New York Times, the “report is significant for several reasons,” including that a “respected national organization” has given a “searing critique of the way drugs are bought and sold.”

Two members of the panel that created the report filed dissents, including Dr. Michael Rosenblatt, who opined, “Allowing all government health plans to negotiate as a single block would establish a near monopoly” and could have a “devastating effect on long-term, high-risk investment” in drug research and development.”

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