I lastly bought round to watching a Cato Institute discussion board from Might during which Cato well being economist Michael Cannon discusses with well being economist Luca Maini of Harvard Medical College and well being economist Pragya Kakani of Cornell Medical College the results of Medicare worth negotiation on medicine. The discussion board is “At What Worth: Figuring out Pharmaceutical Costs in Medicare,” Might 22, 2024. (You may pay attention at 1.25 velocity.)
The underside line is that the negotiation will solely barely scale back the current worth of the income stream that goes to pharmaceutical firms and, subsequently, will solely barely scale back the invention and introduction of recent medicine.
The one who lays this out most clearly is Professor Kakani. Her presentation is third, and goes from 41:30 to 55:40.
Discover the necessities for a drug to be topic to Medicare negotiation. Kakani exhibits an attention-grabbing slide on that on the 46:49 level. The drug have to be a brand-name drug, it should give rise to greater than $200 million in annual Medicare expenditures, it have to be available on the market for at the very least 9 years (for small molecules) or 13 years (for biologics), and should face no competitors from generics or biosimilars. She additionally lays out 3 different classes which are exempt from worth negotiation.
Kakani exhibits that in regular state, solely $43 billion of Pharma’s $1.1 trillion (in 2022) can be on medicine topic to Medicare negotiation. (She assumes that the worth negotiation has been in place for years and thus will get to a gradual state.) That’s solely a 4% hit.
If the Inflation Discount Act (which launched worth negotiation) reduce the related drug costs by 50%, international revenues would fall by 2% (50% occasions 4%.)
She then takes an excessive case: a drug with excessive Medicare publicity (2/3 of income from the US vs. the precise common of 30 to 40%) and a 67% discount in costs because of negotiation (quite than the Congressional Price range Workplace’s estimate of fifty%.)
She then estimates that in current worth phrases, there can be an 11% drop in income. One motive is that the worth negotiation comes after the drug has been round for a very long time; the additional out in time, the decrease the loss to Pharma in current worth phrases. (She doesn’t state what rate of interest she makes use of.) All of the heavy lifting occurs by the 54:40 level.
At 1:07:00, Michael Cannon factors out that Sam Peltzman discovered within the early Nineteen Seventies that the 1962 regulation that required proof of efficacy decreased the stream of recent medicine by 60%. That means an concept: repeal the 1962 regulation and have the FDA certify security, not efficacy, because it did pre-1962 after which we’d have far more innovation on internet, even with the Medicare worth negotiation.
