Baker’s Orwellian drug pricing policy

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This op-ed by William Smith appeared in Commonwealth Magazine on February 3, 2019.

THE BAKER ADMINISTRATION recently released its budget proposal for one of their most high-profile issues: drug prices in the Medicaid program. To the surprise of many in the biopharmaceutical industry, there are some promising initiatives in the proposal from an administration that is thought to be hostile to the industry on drug prices.

By far the most important provision in the proposal is the governor’s request for the authority to negotiate so-called “supplemental rebate payments” that are “based upon the value, efficacy or outcomes of the drug.” This is an extremely promising development for the Massachusetts biotechnology industry, which is churning out many new drugs for rare and life-threatening diseases that have very high price tags.

This provision would allow the state to make payments to these companies based upon how well the drug is performing, not an all-or-nothing payment. If a drug fails to perform adequately, funds could be “rebated back” to the state from the company.

These value-based payment arrangements are one of the most promising reimbursement ideas for life-saving drugs that would not otherwise make it to patients without creative payment models. If this provision is enacted, life sciences companies in Massachusetts that are marketing expensive new therapies should be lining up at the door of MassHealth to offer creative value-based contracts, or they may find themselves on the short end of a very difficult negotiation with the state, for reasons that are explained below.

The second promising development in the governor’s budget is its failure to recommend hiring the Institute for Clinical and Economic Review (ICER) to assemble the MassHealth formulary. While ICER has been marketing itself to state Medicaid programs, the ICER methodology represents a cost effectiveness model that would straightjacket the state into valuing all drugs, whether for childhood cancer or for arthritis, through the same lens.

Formulary decisions in MassHealth are, no doubt, very challenging given the vulnerability of the patient population. For that very reason, the state needs flexibility in deciding those treatments that are most valuable to certain types of patients, not an abstract model that tends to treat all patients the same.

Unfortunately, there is one terrible provision in the governor’s budget. When MassHealth cannot settle on a price for a particular drug with its manufacturer, the governor will recommend that such company be referred to the state Health Policy Commission for what is certain to be a Star Chamber-type hearing on the “manufacturer’s justification for the pricing.” Any drug that costs more than $25,000 per year or costs the MassHealth program more than $10 million annually could be swept into this political circus in which the commission could fine the company $500,000 for its failure to provide relevant documents about its pricing in a timely way.

After an inflammatory referral from the administration, would one expect the commission to coolly and calmly examine the company’s pricing model and render a measured decision? Of course not. The entire high-profile exercise is designed to shame and humiliate any company that disagrees with MassHealth about the value of its drug and to set perjury traps for its executives.

To make matters worse, if, after a series of public hearings, the commission concludes that the “pricing of the drug is unreasonable or excessive,” the company will be referred to the “office of the attorney general for appropriate action” under the Commonwealth’s consumer protection laws.

Again, is the state attorney general likely to take a measured and judicious approach to a company that has been previously condemned by two other state bodies? Unlikely.

Moreover, to refer a company to law enforcement authorities because you disagree with their pricing is nothing less than the criminalization of a policy dispute, a tactic not appropriate for business negotiations in Massachusetts. In fact, many of the companies in danger of this Orwellian treatment are hometown companies based in Cambridge and Boston, the worldwide home to rare disease discoveries.

The Legislature should act swiftly to provide the governor the authority to negotiate value-based contracts for companies discovering important new therapies.  However, they should leave the intimidation tactics to more loathsome regimes.


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