Pharmaceutical cost control, the U.S. goes further and further

Irving Karonen
7 min readMay 14, 2023

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Cracks are appearing in the “paradise” of pharmaceuticals.

Over the past year, the relationship between U.S. drug companies and regulation has become increasingly tense. The Inflation Reduction Act of 2022 was introduced, accelerating price reductions for drugs such as insulin.

The bill affects not only insulin and other drugs but also the future of many drug companies. That’s why Pfizer took the plunge and bought Seagen for $43 billion.

But the regulation wasn’t happy. On the one hand, for insulin and other drugs to reduce the price of the degree of dissatisfaction, on the one hand, and continue to pass new bills to pressure drug companies.

On April 11, the U.S. Senate Health, Education, Labor and Pensions (HELP) Committee passed four new bills aimed at controlling the trend of rising drug prices by promoting generic competition and reducing the “benefits” of pharmacy benefit managers.

This not only signals the arrival of a new round of storms; it also signals that the U.S. pharmaceutical cost control efforts are continuing to increase.

The middleman “price difference” to move the cake

Why are drug prices high in the United States? One of the core factors is the formation of a joint camp of “pharmaceutical manufacturers + wholesalers + PBMs” under the free pricing law, which monopolizes the distribution of drugs and influences drug prices.

Specifically, drug distribution in the United States is upstream of drug companies, midstream of wholesalers, and downstream of pharmacies. The PBM (Pharmaceutical Benefits Management) is not in the distribution chain, but it has many powers such as reviewing doctors’ prescriptions, formulating prescription sets, and negotiating drug prices. According to EVERSANA data, in 2017, the top three PBMs influenced 73% of prescription drug sales across the United States.

PBMs, as private organizations, have profit as their main purpose. With such strong power, PBMs are a natural target for drug companies to curry favour with. In exchange for a place on the formulary for a drug, drug companies will give the PBM and the insurance company some benefit in the form of a direct discount or rebate.

The direct discount is not difficult to understand, is to reduce the price of drugs; the rebate is in the purchase of drugs, the PBM will receive a rebate from the drug company, and the money between the PBM and the insurance company divided.

In this regard, the U.S. regulation is also well known. At a meeting the other day, lawmakers directly proposed that drug companies earned $10 billion when PBMs also earned away $2.7 billion.

There is no doubt that this will push up the final price of prescription drugs. So, the Pharmacy Benefit Manager Reform Act (S. 1339)” was passed.

The bill hits the nail on the head.

First, “discounts” are no longer allowed to exist. The bill prohibits insurers from charging beneficiaries or any entity that provides PBM services “more than the price paid to the pharmacy” for prescription drugs.

Second, rebates would still be allowed but would need to be strictly monitored by regulators. The bill strengthens oversight of PBMs by requiring them to submit different reports at different frequencies, including a list of covered drugs, the total amount of rebates and discounts used for the drugs and obtained, and an explanation of their benefit design and other similar information.

Obviously, the cheese of PBMs will be greatly impacted.

Increasing the intensity of competition among pharmaceutical companies

At the same time, the HELP Committee passed three other bills:

The Ensuring Timeline Access to Generics Act (S. 1067), the Expanding Access to Low-Cost Generics Act (S. 1114), and the RARE Act (S. 1214).

The purpose of all three of these bills is to reduce prices by increasing competition among drug companies.

The Ensuring Timeline Access to Generics Act (S. 1067), the Expanding Access to Low-Cost Generics Act (S. 1114), the Ensuring Timeline Access to Generics Act (S. 1067), and the Expanding Access to Low-Cost Generics Act (S. 1114) are aimed at generic drugs.

The purpose of the Ensuring Timeline Access to Generics Act (S. 1067) is to end the practice of pharmaceutical companies filing petitions to delay the introduction of generic drugs.

In order to delay the launch of generic drugs, originator drug companies often file citizen petitions to delay the approval of generic competitors and extend their patent protection.

This legislation ensures that the FDA has the ability to deny citizen petitions; it also establishes a time limit for processing citizen petitions, thereby ensuring that drug companies can take advantage of the review time loophole to delay the launch of generic drugs.

The Expanding Access to Low-Cost Generics Act (S. 1114), on the other hand, made corresponding changes to the 180-day exclusivity period for the first generic drugs.

In the U.S., to encourage generic drugs to be marketed, the first generic drug to be marketed is given a 180-day exclusivity period after its launch. During the exclusivity period, other generic drugs cannot be marketed, giving the first generic drug enough time to earn profits.

However, the originator drug company will usually use bullying to get the first generic drug company to slow down the pace of launch in order to delay the competitive situation. This phenomenon is called “parking”.

The Expanding Access to Low-Cost Generics Act (S. 1114) was introduced to address this problem. The Act provides that

If the first filer does not market after a specified period of time, the non-first-filing generic company is allowed 180 days of market exclusivity.

Clearly, the bill hopes to accelerate the entry of generics into the market by changing the landscape of interest.

The RARE Act (S. 1214), on the other hand, is aimed at rare disease drugs. In the U.S., a number of incentives, including a seven-year exclusivity period, have been set up to encourage rare disease drug development.

The problem, however, is that pharmaceutical companies often seek the broadest possible scope of orphan drug designation, but focus their clinical studies on only the narrowest group of patients to support approval. In this way, drug companies can ensure that their interests are maximized.

For example, a drug company’s A drug is the first to get orphan drug status in the rare B disease group over 30 years of age for this indication, but the drug company usually believes that B disease is not allowed to market other new drugs with the same mechanism.

The RARE Act (S. 1214), on the other hand, provides that exclusivity applies only to approved indications. Obviously, this move will also accelerate the entry of competitors and thus affect the price of the drug.

Going further and further down the road of cost control

The U.S. is going further and further down the road of controlling pharmaceutical costs.

Last year, the U.S. passed the “The Inflation Reduction Act of 2022” hoping to achieve healthcare cost control through a combination of “negotiated price reductions” and “price increases not to exceed inflation”. The Inflation Reduction Act of 2022 hopes to achieve the goal of controlling health insurance premiums through a combination of “negotiated price reductions” and “price increases not to exceed inflation.

The Inflation Reduction Act of 2022 mainly targets “old drugs”: small molecule drugs that have been on the market for 7 years without the impact of generic drugs (similar drugs), or large molecule drugs that have been on the market for 11 years.

The difference in time between the two is also due to the difference in the difficulty of developing large and small-molecule drugs. But in general, the longer the time on the market, the greater the negotiated price reduction. Specifically, there are three types:

Innovative drugs with an approval period of fewer than 12 years, where the upper limit of the negotiated price is 75% of the average price;

Innovative drugs with 12–16 years of approval, for which the upper limit of the negotiated price is 65% of the average price

For innovative drugs approved more than 16 years ago, the upper limit of the negotiated price is 40% of the average price.

This also means that small-molecule drugs and large-molecule drugs will be freely priced in the Medicare healthcare system for up to 9 and 13 years.

The first price reductions have already occurred in 2023, with insulin taking the brunt of the price cuts.

On March 1 of this year, Eli Lilly announced price reductions across the board for insulin drugs in the United States. Branded insulins Humalog and Humulin, which sell well worldwide, were reduced in price by 70%, and the price of non-branded lysergic acid insulin injection (100 U/mL) will drop to an all-time low of $25 per bottle.

Lilly’s insulin price cut is clearly not the end of the story, because outside of Lilly, there are two other giants in the U.S. insulin market, Sanofi and Novo Nordisk.

On March 6, U.S. Senator Bernie Sanders sent separate letters to both companies, “I urge you to join Eli Lilly in significantly reducing the price your company charges for insulin and ensuring that all Americans can purchase this life-saving drug,” Sanders wrote, “I look forward to hearing from you as you take the steps to do so.”

There was “surrender” by allies on the same front, followed by pressure from government officials. In this situation, Novo Nordisk and Sanofi also had to make a quick decision to reduce prices.

On March 14, Novo Nordisk said that from January 2024, the brand NovoLog and NovoLog Mix 70/30 insulin products will be reduced by 75% in price, and Novolin and Levemir products by 65% in price.

Two days later, Sanofi said it was reducing the price of its best-selling glargine insulin by 78 per cent starting in January 2024 and setting a $35 commercial insurance cap on Lantus out-of-pocket costs for all patients.

The problem of high-priced insulin, which has plagued U.S. patients for years, is thus solved. Obviously, the U.S. government is serious about pharmaceutical cost control.

The high price of drugs in the United States of America has its own history of national conditions. So, under a series of reforms by the U.S. government, will the American people really be able to use inexpensive drugs at good prices?

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Irving Karonen

Web3 enthusiast, Entrepreneur, Scientist, and Financial Engineer. Sharing Frontlines of Innovation and Investments. Biz: irving.karonen@gmail.com