PPI President Will Marshall and Senior Policy Fellow Crystal Swann sit down with Rep. Marilyn Strickland (WA-10), a former Mayor of Tacoma, and Sly James, former Mayor of Kansas City.
They discuss a new “metro-federalism” – the role of local leaders in effectively deploying the public resources provided by Congress in the American Rescue Plan Act, and how mayors will support the Biden Administration’s COVID-19 relief and recovery goals – often as Republican-controlled state legislatures are hostile to the new Democratic administration.
The leaders also discussed the American Jobs Plan, the Biden Administration’s next phase of the Build Back Better agenda, which will invest billions in traditional and human infrastructure so we can get every American – including women – back to work and back on track.
The White House is currently considering whether to support a push to suspend drug companies’ patent rights to their Covid-19 vaccines. This is a delicate issue that requires policymakers to balance the importance of incentivizing medical R&D in the future against the need for a rapid vaccine rollout around the world — especially in developing nations. We need more manufacturing firepower, and the US can best unleash it by coordinating a global technology transfer through the purchase of the intellectual property and the creation of incentives for producers to share their know-how with the rest of the world.
The legal proceedings around this issue were triggered in October 2020, when India and South Africa circulated a World Trade Organization Trade-Related Aspects on IP Rights (TRIPS) petition calling for the intellectual property protections on Covid-19 vaccines to be suspended for the remainder of the pandemic. The movement has quickly gained momentum since.
More than 100 countries have signed on to the motion, some out of narrow concern with the pace of vaccine distribution in their country and others as a protest vote against a global IP regime they believe favors rich countries. But because WTO motions like this require unanimous approval from all members, the currently opposed group, which includes the US, EU, and the UK (not coincidentally the nations where the vaccine developers are located), is able to block the motion. In the last week or two, a group of House Democrats, with the support of Bernie Sanders and Speaker Nancy Pelosi, have started lobbying the Biden administration to switch course and support the motion.
The case for suspension:
The pro-suspension side is relatively straightforward. While wealthy countries have been able to receive quick access to the vaccine (indeed, near-miraculous progress compared to the normal vaccine creation timeline), deployment has been sluggish around the rest of the world and especially in developing nations. This is both a moral and a public health issue. It’s bad for people to die simply because they live in a country with fewer scientific resources. And the longer the virus hangs around, the higher the risk of a significant mutation that could restart the whole pandemic.
It’s difficult to project vaccine production timelines exactly, but a commonestimate from experts seems to be that many low-income countries won’t be fully vaccinated before the end of 2022. Others are more pessimistic, predicting immunity as late as 2024. Either way, that’s still quite a while away, and plenty of time for new Covid variants to emerge. Already we’ve seen the B.1.351 variant from South Africa poke holes in our defenses as it appears the AstraZeneca vaccine is significantly less effective against this strain. The Pfizer and Moderna vaccines still appear to offer good protection, but even they may see a small drop in effectiveness.
We can always create new vaccines or new booster shots to help address new variants, but the distribution map is going to be similarly skewed towards rich countries. A cycle in which rich countries continue to get vaccines (and booster shots) first but neglect to accelerate production sufficiently to cover poorer nations in time to prevent mutations is both patently unfair and self-destructive. We are in a race against time, and the costs of accelerating global vaccine production are measured in the billions whereas the benefits of reaching global immunity a few months earlier are measured in the trillions.
The World Health Organization and pharmaceutical companies have responded to this situation through the creation of COVAX, a pool of pledged vaccines specifically to help vaccinate low-income nations. This is an important program and the recent Biden investment of 4 billion dollars to the fund should be applauded. But the scope is still lacking in the necessary ambition. The aim of the program is to supply vaccines to help participating counties vaccinate only 20% of their population.
Ultimately, we need to be producing more vaccines in less time. One way of achieving that is to make it easier for competing vaccine manufacturers to get in on the action. Specifically, if there is latent vaccine manufacturing capacity (more on this controversial point later), we could pull out all the stops by suspending the intellectual property protections. This should help speed the vaccination efforts around the world, and if the latent manufacturing capacity is located in the Global South, it could make the future waves of vaccine booster shots more equitably distributed given the apparent home-market bias of current producers.
This last point connects to a larger question around self-sufficiency and national sovereignty in vaccine and pharmaceutical production. Much of this conversation is informed by the context of the HIV/AIDS epidemic of the 1990s to early 2000s which ravaged countries across Africa while the US and other wealthy nations were able to mitigate the damage using antiretroviral treatments. A combination of strict IP enforcement, a lack of foreign aid, and inadequate manufacturing capacity lead to millions of deaths that potentially could have been prevented. In 2003, the US created PEPFAR, an extremely successful public health campaign that was able to make massive dents in the crisis by sharing medicine and technical support with partner countries. To counter the concern that IP issues would hamstring future public health responses, the WTO signed the Doha Declaration which created rules around compulsory licensing of medical technology in the event of a public health emergency (but which advocates say are insufficient for this present situation). Given this history, developing nations are understandably skeptical of the idea that they should wait around for Western pharmaceutical companies to produce enough vaccines for them and would like to develop their own manufacturing capacity.
Finally, advocates for suspension typically point out that many of the pharmaceutical companies received R&D funding from the federal government and/or large market commitments through Operation Warp Speed, which guaranteed them some baseline level of confidence and profitability. Furthermore, the mRNA vaccines themselves are partially the result of decades of public investment in science, and indeed the National Institutes of Health may own some parts of the relevant IP in the case of Moderna. If you are inclined to believe that pharma R&D is mostly free-riding on the hard work of basic science, then this is a pretty clear-cut case for suspending the IP.
In short, we’re not safe from Covid until we are all safe. So let’s tear down any red tape or barriers that may be slowing the production and deployment of vaccines around the world.
The case against suspension:
On the anti-suspension side, there is the argument that these new vaccines (especially the new mRNA vaccines) required billions of dollars and decades of uncertain private investment to reach the technical breakthroughs that have given us a chance to end this pandemic. Yes, basic science work funded by the government helped a lot and established a strong foundation for much of this work. But enterprising individuals with a profit motive played just as large a role. Katalin Karikó, the Hungarian scientist who helped pioneer mRNA vaccines spent most of the 1990s receiving rejection letters for government grants and ultimately turned to the private sector where she co-founded her own company in 2006.
But even if all the basic research were federally funded, the argument for suspension would still create incentive issues. Operationalization and commercialization of scientific breakthroughs are essential and still cost a lot of money. There are a whole series of difficult engineering, logistics, and optimization problems that have to be solved when taking a complex biological product like a vaccine from research to reality. They do not pop out into the world fully formed from a peer-reviewed publication in Science. And it’s no accident that the countries with the most well-developed biotechnology and pharmaceutical clusters are the ones that produced these wonders.
Where most public health interventions failed miserably, the pharmaceutical companies worked around the clock to develop, test, and roll out a whole new genre of vaccine in record-breaking time and at high private cost. To expropriate the intellectual property that makes the whole investment pipeline worth it in the first place is to place future R&D investments under a great shadow. This is, unfortunately, unlikely to be the last global pandemic we face. And we got lucky that Covid-19 has a relatively low fatality rate and that we were able to so easily target its spike protein. To ensure that our biotechnology clusters are investing in R&D for new vaccine and therapeutic techniques for the future, we have to align incentives and make it profitable for them to throw billions of dollars at the problem years before it may ever appear.
Furthermore, all the focus on intellectual property conceals the point that the formalized information that can be written in a patent application isn’t that useful in isolation. Moderna actually pledged in October that they would not be enforcing the IP rights related to their Covid vaccine. And the underlying spike-encoding sequence was recently published online by Stanford researchers. However, no new Moderna knock-offs have sprung up since their October announcement. Why? Because the company has refrained from sharing any details about the manufacturing or design process, which indicates the underlying technical expertise and production process knowledge are just as important.
As Rachel Silverman from the Center for Global Development notes:
Observing their contents is insufficient to allow for imitation. Instead, to produce the vaccine, manufacturers need access to the developer’s “soft” IP — the proprietary recipe, cell lines, manufacturing processes and so forth. While some of this information is confidentially submitted to regulators and might theoretically be released in an extraordinary situation (though not without legal challenge), manufacturers are at an enormous disadvantage without the originator’s cooperation to help them set up their process and kick-start production. Even with the nonconsensual release of the soft IP held by the regulator, the process of trial and error would cause long delays in a best-case scenario. Most likely, the effort would end in expensive failure.
Typically this kind of soft IP is transmitted to the new company in a technology transfer process that happens during a licensing deal. Process experts from the licensing firm will sometimes travel to the facilities of the licensee and oversee operations for the first several batches to help convey the sort of tacit knowledge that is difficult to transmit unless you have physically done the operation yourself. In exchange, the licensing company will get a cut of the revenue from each dose, typically 5-10%. However, even when these licensing deals are in place, it’s easy for the new firm to make critical mistakes because the margins for error are razor-thin.
All this means that if the TRIPS proposal were passed in isolation, it would likely lead to little appreciable change in vaccine production unless it was paired with significant incentives for the manufacturers to play ball on the more formalized technology transfer process.
The open question: is there latent capacity?
Does this mean we are already at the frontier of vaccine production and there’s nothing more to be done? I doubt it.
In some sense, the easiest thing to do would be to plow many billions more into programs like COVAX, which reserves vaccine doses for developing nations. That would be good, but it may just extend the length of vaccine production rather than increase the rate of production. Maybe we could specifically help pay for existing vaccine manufacturers to scale up their capacity even more? This too, would be worthwhile. After all, it’s difficult to imagine having too much vaccine capacity (from a social welfare perspective). But even here, building new factories and machines can take months or years, and it would be nice to have something that works more quickly. Secondarily, this solution will only continue to concentrate vaccine production in existing firms and in rich nations, which undermines the self-sufficiency concern that helped fuel this debate.
The main advantage that some version of IP suspension offers is activating manufacturing capacity that already exists but isn’t currently being deployed. But how much latent capacity is there actually?
Especially for the mRNA vaccines of Pfizer and Moderna, it appears that the production bottlenecks are quite severe. A great piece by Derek Lowe outlines how specialized the supply chains and manufacturing processes for mRNA vaccines are, especially in their use of lipid nanoparticles. Lowe argues that only a handful of firms globally could have jumped in and started making mRNA vaccines immediately, and it seems likely that all of them already have.
However, this may be too fatalistic about the supply elasticity over a slightly longer time horizon. Production bottlenecks can ease over time with enough investment and learning by doing. Due to the massive social and economic costs we face during each additional day of this pandemic, even a slight increase in production can justify a significant price tag.
It seems more plausible, however, [I have no special expertise in vaccine manufacturing, so take this for what you will] that there is latent capacity using the more traditional adenoviral vector vaccines like Johnson & Johnson and AstraZeneca. Because adenoviral vector vaccines have the advantage of having simply existed for longer, more vaccine manufacturers around the world have the capacity to produce them than can produce mRNA vaccines right now. The related supply chains are more mature as well, which means a sudden surge in demand can be better accommodated. We saw this play out with the Serum Institute of India, the world’s largest vaccine manufacturer, which opted to take a voluntary licensing deal to manufacture the AstraZeneca vaccine at scale.
There may also exist capacity that is not exactly latent, but is not being used very efficiently. If an opportunity presented itself, we could see some vaccine manufacturers who are currently pursuing vaccine trials that will otherwise be late to the game drop their research trials and focus on producing known (and already approved) vaccines. Sanofi and GlaxoSmithKline, for example, began a phase 2 clinical trial in February that (if everything goes right) will finally be ready in Q4 of this year. There’s no particular reason to think this new vaccine will be better than the existing offerings. It’s more likely that they are pursuing this line because they know the vaccine rollout around the world will be slow and they want to have proprietary IP to offer. While both Sanofi and GSK have signed deals to help manufacture other vaccines in the meantime, these are quite limited and the companies are likely saving capacity so they can rapidly retool if their own trials are promising. But it would certainly be more socially valuable if we could encourage them to drop these trials and fully ramp up the production of proven vaccines right now. There are also companies like Merck that appear to be mostly sitting out the Covid vaccine rush altogether after their own efforts failed.
The case for buyouts:
The economist Michael Kremer wrote a paper in 1997 formalizing the idea of using patent buyouts as a way of maintaining strong incentives for innovation while still getting crucial information into the public domain ASAP. Essentially, a government could offer to pay the present value of the expected future revenue stream that would result from the temporary monopoly that a patent grants. While the patent-owning company or individual should be indifferent to the outcome, the general public could receive more value from having unabridged access to the information and the ability to modify it without permission before the patent expired. In these cases, a patent buyout can clearly improve outcomes for everyone, and Kremer notes that pharmaceuticals may be a particularly appropriate case.
Patent buyouts present at least a theoretical solution to the problem of maximizing the number of players that can legally produce vaccines while maintaining strong incentives for innovation in the future. Of course, in this situation it’s only partly about the intellectual property and partly about the manufacturing know-how that has to be transferred, which means we need a broader conception here — a full stack “technology buyout” which includes both the IP and the promise to transfer process knowledge.
Essentially, the US government (or conceivably a set of governments, but that would take longer to negotiate) could offer a lump sum payment to the accepting firm or firms to write down as much about the scientific and production process as can be made explicit and then make it publicly available. There could then be additional payments made for the sharing of tacit knowledge and aid in setting up the manufacturing operations either on an individual factory level, or on a per vaccine dose administered basis. The advantage of additional payments of a per vaccine dose administered basis is that it properly aligns incentives for the firm(s) sharing technology to maximize their impact by transferring to partners that can actually get shots into arms as quickly as possible and to make sure they do a good job.
To make this concrete and put some back-of-the-envelope numbers on this, I would suggest the initial lump sum payment to make the IP public would be in the range of $10-20 billion, and the additional per dose administered prize would be in the realm of $0.50 – $2. Assuming this program was able to administer vaccines for an additional 4 billion people (8 billion doses) across the developing world, we are talking in the range of $36 billion dollars.
And we should in some sense actively try to overpay. In unique situations like this, we should err on the side of overcompensating and risking some economic rents rather than inadvertently under compensating and hurting the long-term incentives for innovation. The most important thing here is that we do not kill the goose that lays the golden egg. In any event, we should be willing to pay an order of magnitude more than $36 billion to definitively end Covid, so this program should be a bargain under a wide range of potential cost assumptions. One estimate from a group of economists and public health officials ballparks the global cost of the pandemic at around $1 trillion per month.
Some readers may note that “payments for each vaccine dose administered” sounds very similar to the voluntary licensing agreements that manufacturers around the world have already signed. And they are correct, it’s a closely related mechanism. Indeed, commentators like Rachel Silverman (quoted above) have actually suggested that the best way forward may be having the federal government use its political leverage to lean on US pharmaceutical companies to accept more licensing deals with manufacturers in developing countries. Which raises the question, why bother doing the additional lump sum buyout to make the information public? Shouldn’t we concentrate all our efforts on encouraging licensing?
I would differentiate the technology buyout I’m suggesting from voluntary licensing on a few dimensions:
First, buying out the IP may be a determining factor for encouraging large, mature manufacturers like GSK and Sanofi to abandon their own duplicative vaccine trials and go full steam towards producing existing vaccines as it removes any competitive disadvantage in paying the licensing fee.
Second, because these voluntary licensing deals are typically assigned as a percentage of the dose cost, it creates an incentive for licensing firms to prioritize deals that will charge a higher price to the buying local governments where this may not be optimal. If the US government is instead paying for each dose administered in these developing nations, then the transferring firm(s) should be neutral with regard to the sale price.
Third, this structure allows the federal government to selectively overpay on a per dose basis if the US firm is genuinely helping a developing nation jumpstart new manufacturing capacity as opposed to helping an existing manufacturer retool.
Fourth, individual countries and foreign manufacturers know better their own capacity than US government officials or even US firms do, so opening up the IP could help identify latent manufacturing opportunities more effectively than a top down approach.
Fifth, opening up the IP at least gives every nation the ability to try and make their own vaccine if they so wish, which helps address the self-sufficiency concerns.
A buyout also presents several key advantages when compared to IP suspension as well, even putting the incentive issues aside.
First, speed. Even if the US were to reverse course and support the WTO proposal, it would take quite a bit of time to negotiate and wrangle all the other countries to the table. Remember, the proposal has to be supported unanimously, so there is no guarantee that the EU, UK, Australia, and other opposed nations will reverse course just because the US does. A buyout, in contrast, can be done unilaterally by the US (at least for the US based vaccine firms).
Second, in the unfortunate event that a new variant of Covid requires a booster shot, a buyout ensures the incentive to quickly create a solution (so that the new booster shot can also get bought out). Under the WTO petition, the IP suspension would remain in play for the duration of the crisis, which would reduce the urgency and resources that pharma companies are willing to throw at the problem, given fewer opportunities to recoup costs.
Building for the long term
Finally, there is the issue of whether a technology buyout would be better suited for the mRNA vaccines of Modena and Pfizer or for an adenoviral vector vaccine like Johnson & Johnson. To answer that we have to ask a more fundamental question: what is it we are trying to achieve here? There is likely more short term capacity to scale adenoviral vector vaccines, so if we are narrowly trying to get the world vaccinated against Covid-19 as quickly as humanly possible, then a technology buyout for the J&J vaccine probably makes the most sense.
But if we have a larger vision of using this crisis as an opportunity to bootstrap new, flexible vaccine manufacturing capacity around the world for the future, then mRNA vaccines have a host of advantages that will make them the better long-term pick. Of course, we can try to do both to take advantage of the distinct advantages of each vaccine type, but it helps to have a longer term anchor goal to build towards.
A few points in favor of the future oriented approach. First, hoping the adenoviral vector vaccines hold up long enough against possible variants is a significant risk. As alluded to earlier, the mRNA vaccines appear to be more resilient to the recent Covid variants and are significantly easier to modify in the event a new variant arrives that our current vaccines can’t handle.
Second, there have been a series of exciting news developments in the last few months indicating that mRNA vaccines could unlock a much broader wave of medical improvements, including possible vaccines for multiple sclerosis, some forms of cancer, malaria, and HIV. All of which means mRNA is likely to be a more general purpose vaccine technology and makes it almost impossible to imagine having overbuilt capacity at this point.
Third, separate from the supply chain issues, new mRNA facilities are actually much cheaper to build and operate than traditional vaccine factories. From an article in the Journal of Advanced Manufacturing and Processing:
Based on our techno‐economic assessment, the RNA vaccine production process can be two to three orders of magnitude smaller than conventional vaccine production processes in terms of facility scale, and can be constructed in less than half the time with 1/20 to 1/35 of the upfront capital investment… It therefore presents a strong advantage of requiring small‐scale, high‐capacity facilities, which can be constructed more rapidly and could make wide use of single‐use disposable equipment. Due to its small scale, the RNA vaccine drug substance production process could be placed in a small part of an existing conventional vaccine facility, for example in a room, and still produce more doses worth of drug substance than the entire original conventional vaccine production facility.
Fourth, we should view this as an opportunity to build good will around the developing world. The total US foreign aid budget was around $40 billion in 2019, right in the range of what we are proposing here. I’m inclined to believe sharing new, highly effective technology around the world during this unique crisis would generate a significantly higher return diplomatically than the projects we usually get with this scale of funds. Already we’ve seen China and Russia attempt to leverage their vaccine exports for diplomatic purposes. Indeed, another lens you could use for this would be as a kind of liberal counter-weight to the Belt and Road initiative that has helped China make inroads across Africa. Instead of physical infrastructure investment, the US would be helping them with technological infrastructure investment.
Finally, it is in the long-term interest of all of humanity to have a developed and coordinated ability to respond to new diseases around the world. Viruses don’t respect national borders and the risk of a global pandemic has only increased over time as our world has become more interconnected. This capacity inherently needs to be distributed around the world for it to be maximally effective, so we may as well start building it out now. On the high-end of effectiveness, this capacity to rapidly create and distribute new mRNA vaccines could help us eliminate much of the long term risk of bioweapons and natural pandemics. That is the true goal worth aspiring toward here.
Conclusion
The world needs more vaccines and we need them quickly. It seems unlikely that suspending the IP rights will do much to accelerate production in isolation and it could significantly diminish the incentives for investing in the future. On the other hand, a full technology buyout — which includes the IP rights and incentives to work with foreign manufacturers — could simultaneously activate any latent capacity that may exist while also giving the developing world an opportunity to bootstrap their own vaccine manufacturing capabilities with the help of American know-how.
The US should be aiming not only to vaccinate the entire world, but to teach the world how to make vaccines. As the famous saying goes: give the world vaccines and you stop one pandemic, teach the world how to manufacture mRNA vaccines and you stop pandemics forever.
Bera: It doesn’t do us any good if you give someone health insurance coverage, but you can’t afford to use it.
On this week’s PPI Podcast, Arielle Kane, PPI’s Director of Health Care sits down with Rep. Ami Bera, M.D. (CA-7), a leader of the New Democrat Coalition. They discuss National Public Health Week, the critical funding within the American Rescue Plan Act, and the state of health care after the COVID-19 pandemic.
“We’ve got to do a better job providing services and managing the health of those 20 percent [of Americans] with chronic conditions to both better manage their disease but also prevent some of those conditions. I think if we’re able to do some of that – and that’s something the New Democrat Coalition has worked on through various venues – we can start to bend the cost curve down,” said Rep. Ami Bera on the podcast.
Representative Bera also discussed the intersection of health care and infrastructure, and the work Congress and the Biden Administration is doing to improve access to care for all Americans:
“We’ve seen with the pandemic things like telehealth, telemedicine, have really been impactful in helping care for patients who may not have wanted to leave their home – and rightfully so – in the middle of a pandemic. That’s something that we should keep in place. But you can’t do telemedicine or telehealth if you don’t have broadband access – or it’s very hard to do. So let’s get that access out to those communities. That will help us solve some of the issues of lack of specialty care if you’re in a small rural community…” said Rep. Bera.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
On this week’s PPI Podcast, Arielle Kane, PPI’s Director of Health Care sits down with Rep. Ami Bera (CA-7), a leader of the New Democrat Coalition. They discuss National Public Health Week, the critical funding within the American Rescue Plan Act, and the state of health care after the COVID-19 pandemic. Representative Bera also discussed the intersection of health care and infrastructure, and the work Congress and the Biden Administration is doing to improve access to care for all Americans.
Arielle Kane, PPI’s Director of Health Care sits down with Rep. Ami Bera (CA-7), a leader of the New Democrat Coalition. They discuss National Public Health Week, the critical funding within the American Rescue Plan Act, and the state of health care after the COVID-19 pandemic. Representative Bera also discussed the intersection of health care and infrastructure, and the work Congress and the Biden Administration is doing to improve access to care for all Americans.
Today, the Progressive Policy Institute (PPI) announced that Dr. Robert Popovian will join PPI as a Senior Fellow for Health Policy.
“The Progressive Policy Institute is thrilled to welcome Robert Popovian and looks forward to benefiting from having one of the country’s greatest thought leaders on health policy on our team. Throughout his career, Robert has led the conversation around the intersection of biopharmaceuticals, state and federal policy, and health economics. He will help PPI advance our mission of political innovation and forward-thinking policy in this timely and rapidly evolving area,” said Will Marshall, President of the Progressive Policy Institute.
“I am thrilled to be joining PPI as a Senior Fellow; PPI has an unprecedented track record of advocating for cutting-edge healthcare care policy solutions that help reduce unnecessary spending while preserving patient access, principles that are important to me as a healthcare professional and an economist,” said Dr. Robert Popovian.
Dr. Robert Popovian has a distinguished career in health policy and is a national thought leader on biopharmaceuticals and the health care industry. In addition to his work with PPI, he is the Founder of the strategic consulting firm Conquest Advisors. He previously served as Vice President, U.S. Government Relations at Pfizer. He is also a recognized authority on health economics, policy, government relations, medical affairs, and strategic planning.
He is a frequent contributor to a variety of medical sources and media publications, including the Clinical Economics and Outcomes Research, The Oncologist, Journal of Vaccines and Vaccinations, Health Science Journal, USA Today, Managed Healthcare Executive and Morning Consult.
Dr. Popovian completed his Doctorate in Pharmacy and Master of Science in Pharmaceutical Economics and Policy degrees at the University of Southern California with honors. He has also completed a residency in Pharmacy Practice/Adult Internal Medicine and Infectious Diseases at the Los Angeles County-USC Hospital and a fellowship in Pharmaceutical Economics and Policy at USC.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
Read more about PPI’s work on health care policy here.
Washington, D.C. – Today, Congress passed the Biden Administration’s American Rescue Plan Act, a $1.9 trillion emergency pandemic relief package that will help ramp up COVID-19 vaccine production and distribution, support small businesses and workers, and provide the necessary resources to safely reopen schools and communities.
Will Marshall, President of the Progressive Policy Institute (PPI), released the following statement:
“Passage of the American Rescue Plan is a landmark achievement for President Biden and the new Democratic Congress – one that gives us reason to hope our government may not be broken after all.
It’s not a perfect bill, but after a long, grinding year of sickness, economic privation and social isolation, this isn’t the time to make the perfect the enemy of the good. Policy disagreements aside, President Biden has rightly gauged the magnitude of the nation’s health and economic emergency and responded resolutely. His decision to “go big” was right, as was his desire to avoid vilifying his political opponents and deepening the nation’s paralyzing cultural rifts.
That’s the way our democracy is supposed to work.
By clearing his first big hurdle, President Biden has dealt himself a strong political hand for the next one: Winning passage of his coming “Build Back Better” plan for building a more just, clean and resilient U.S. economy.”
The Progressive Policy Institute is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
Among the lesser reported elements of the Covid-19 relief bill making its way through Congress this month are several improvements to Medicaid to bolster health insurance coverage for low-income individuals. One specific provision would allow states to extend Medicaid coverage to women for up to a full year after giving birth. Newborns in the U.S. are currently covered for up to twelve months. We’ve supported this critical expansion in the past, citing evidence that the U.S. maternal mortality rate has shamefully risen to be the highest among high-income countries.
According to the Centers for Disease Control (CDC), for 2018, the maternal mortality rate was 17.4 per 100,000 live births in the United States. The rate of deaths for Black women is over twice that figure.
Under current law, Medicaid is only required to cover new mothers for 60 days postpartum, despite the fact that approximately 13 percent of maternal deaths occur six or more weeks after a woman gives birth and Medicaid covers over 40 percent of all births in our country. States that have expanded Medicaid under the Affordable Care Act (ACA) allow eligible women to stay on the program after childbirth. But roughly a dozen states have rejected to expand Medicaid and the one-year expansion for new moms would help women living in these states.
The expansion will help address a widespread societal inequity when it comes to access to health care. Low income and women of color are disproportionately more likely to die from childbirth and pregnancy-related complications. Yet, these deaths are not inevitable. A 2018 report found that over 60 percent of pregnancy-related deaths are preventable. A few years ago, California started collecting data on maternal deaths and reviewing the clinical failures that led to fatalities. As a result, the state was able to produce evidence-based checklists and training programs to help clinicians address two lethal conditions: high blood pressure and hemorrhage. Now, its maternal death rate is a quarter of the United States as a whole.
Pregnancy and postpartum are an incredibly vulnerable period in any woman’s life. We should be supporting new mothers, and one way is by giving them the health coverage necessary to navigate postpartum care and complications. We applaud Congress, including Rep. Robin Kelly (D-Ill.) who is among those spearheading this effort, for their action to address this key inequity in healthcare access for new mothers and we look forward to seeing it enacted along with Covid relief next month.
The United States broke records with the swift development and distribution of new Covid-19 vaccines, but after the Trump administration’s hydroxychloroquine debacle, the focus on treatments was pushed to the side. President Biden has acknowledged that even with the new vaccines, the Covid-19 pandemic will likely linger throughout the year. To save lives, we’ll need to increase access to evidence-based treatments by educating the public, restructuring treatment facilities to handle Covid-positive patients, and helping patients navigate the health care system. Federal leadership will be essential to meet these goals.
President Biden has spent the first few weeks of his presidency ramping up Covid-19 response efforts. He signed an executive order requiring mask-wearing in all federal buildings, called for a $1.9 trillion economic recovery package, and pushed to increase vaccinations to 1.5 million per day. But one thing he hasn’t drawn a lot of attention to is treating patients with Covid-19 infections.
Even as new cases have plummeted in recent weeks, more than 1,000 Americans per day are dying from Covid-19. And because the country isn’t likely to return to ‘normal’ until the end of the year, it’s important to not lose sight of the important role effective Covid-19 treatments can play in reducing unnecessary deaths. Two drugmakers – Eli Lilly and Regeneron – have developed monoclonal antibody therapies that lessen the effects of Covid-19 on high-risk patients. Increasing access to these treatments will save lives.
Next week at his State of the Union address, President Biden will emphasize his Covid-19 recovery plan. He should use the bully pulpit of the presidency to emphasize that evidence-based therapies are available to people who get infected.
Recent research from Baylor University Medical Center published in the Journal of the American Medical Association found that monoclonal antibodies reduced hospitalizations among high-risk Covid-19 patients. However, to be effective, it was important that these high-risk patients – those over 65 or with obesity or diabetes or immunocompromised – received the therapy early in the course of their illness. This means that doctors need to be aware of and prescribe the treatment and patients need access to infusion facilities since the drugs are delivered intravenously within the first 10 days of symptoms.
Yet uptake of these effective therapies remains low. There are four main hurdles:
With everchanging clinical guidelines for Covid-19, many physicians aren’t aware of the efficacy of these new treatments and thus aren’t prescribing them to patients
Stand-alone infusion centers require referrals from physicians and may be hesitant to accept Covid-positive patients
Hospitals are overburdened with critically ill Covid-19 patients and vaccination efforts and haven’t set up out-patient infusion centers where patients can easily be treated
It’s difficult to identify and treat patients within the 10-day window from the onset of symptoms
There are steps the new administration can take to improve access to these therapies which will in-turn save lives and lessen the impact of the pandemic.
First, the Centers for Disease Control and Prevention (CDC) should work with state licensing boards to ensure the timely dissemination of clinical information to providers on the ground. Because guidelines are evolving as we learn more about Covid-19, it’s important that there are clear communication channels to get information to individual providers across all states. While it makes sense for the CDC to act as a central gathering place of information, providers should not have to be checking the CDC website daily in order to stay up to date.
Second, infusion centers need to adapt to Covid-19. Given the importance of receiving treatments within 10 days of the onset of symptoms, infusion centers need to update their practices to expedite the treatment process. That might mean working to build relationships with individual providers so that they know where to refer Covid-positive patients and changing their protocols to accept walk-ins without appointments. They also need to make sure they have the infrastructure needed to treat Covid positive patients and keep them separate from patients receiving other types of infusions.
Third, as daily cases have dropped, hospitals should shift their focus from treating Covid-19 inpatients patients to helping treat Covid-19 patients in the outpatient setting. Typically, hospital infusion centers are for administering cancer drugs. Restructuring infusion facilities so that they can be safe for Covid-positive patients and cancer patients will be an important step to getting more people treatment.
Finally, contact tracing, testing and diagnosing Covid-19 patients in a timely fashion remains as important as ever. Patients need to know they are Covid-19 positive within a few days in order to be able to benefit from monoclonal antibody therapies. Continued investment in contact tracing and testing will make fast diagnoses possible. But after a patient receives a positive Covid-19 test either from a doctor’s office, public testing site, or a pharmacy, there needs to be a pipeline to a care provider and treatment, if needed. Monoclonal antibody therapies require a prescription and a referral and often patients will have to drive to an infusion site. Making sure the patient is easily transferred between care sites will be vital to timely access to treatment.
There is no question that the pandemic is improving. But with President Biden’s admission that Covid-19 is likely to drag on in the coming months, it is vital that people know more about treatment opportunities. Monoclonal antibody therapies are out there and should be available to everyone — not just the well-informed health care consumer or the elites. The president has made effective use of his bully pulpit to encourage mask-wearing and vaccinations. He should do the same with Covid-19 therapies.
From May 2019 to May 2020 theCDC reported over 81,000 overdose deaths from opioids in the United States, the biggest annual death toll to date. In a belated effort to mitigate the crisis, the Trump administration changed regulations to make it easier to access the opioid treatment drug buprenorphine in the waning days of his presidency. But the new Biden administration has reversed those changes because of legal concerns over the way the Trump administration implemented the policy.
The Trump changes were released amidst the chaos of the Capitol insurrection. When Elinore McCance-Katz, the health and Human Services (HHS) assistant secretary for mental health and substance use, resigned in the aftermath of the riots, the White House quickly appointed a replacement who greenlighted new “clinical guidelines” that made it easier for physicians to prescribe buprenorphine. McCance-Katz had refused to push these changes forward during her tenure. McCance-Katz had favored more safeguards to prevent buprenorphine from being overprescribed in fear of the drug starting a new epidemic of its own.
Buprenorphine is one of three pharmacological treatments for opioid use disorders and is considered the easiest tolerated of the options. It has been shown to reduce overdose mortality by 50% and comes in a variety of forms, dissolvable films, and tablets being the most common. But stringent regulations make the drug difficult to get for people seeking opioid treatment.Under current law, doctors are required to complete special training and obtain an “X-waiver” license in order to prescribe buprenorphine. Only 5% of doctors in the country have the necessary waiver to prescribe it, and in rural areas, it’s even less.
The new guidelines allowed any physician with a Drug Enforcement Administration (DEA) prescriber license to prescribe buprenorphine. The drug is a narcotic that diminishes the symptoms of opioid withdrawal and is also safer, less addictive, and less likely to be misused. Despite its safety and efficacy, The federal government crafted these rules over two decades ago before the drug was approved by the Food and Drug Administration (FDA) to treat opioid use disorder in 2002. Ironically, opioids require no special training to be prescribed, unlike buprenorphine.
Many addiction researchers, physicians, and policy experts applauded the change in regulation. In the hasty process, however, the Trump administration did not obtain the necessary approval to change the regulations from the White House Office of Management and Budget (OMB).
Though the Trump administration may not have followed proper procedures, Biden’s decision to reverse its action sparked backlash from many policymakers and physicians who believe quick and drastic measures must be taken to ease the toll of the pandemic for people with substance use disorders.
Overdose deaths have been steadily rising in the past decades and the pandemic has significantly exacerbated the rate. Synthetic opioids are believed to be the main substance that accelerated the overdose death rate during the pandemic. TheCDC reported that two-thirds of opioid overdose deaths involve synthetic opioids.Experts estimate that the total economic burden of the crisis is over $78 million per year.
In addition to limited providers, people with substance use disorders often face other barriers to receiving treatment, especially in disadvantaged communities. These include lack of stable housing, health insurance, and stigma. COVID-19 intensified these problems by limiting in-person support groups, public transportation, and job security while increasing social isolation and stress.
Since buprenorphine is an opioid it does have the potential to be addictive. It is, however, safer and less addictive than the opioids that it is used to treat because of its pharmacological properties. It is also unlikely that the deregulation of this drug will lead to more opioid use disorders since it is only prescribed to treat opioid use disorders– unlike other opioids that are prescribed to alleviate pain. Ultimately the life-saving benefits that buprenorphine offers far outweigh the potential risks.
Although the legal concerns over the way the Trump Administration removed these regulations are legitimate, the longer it takes the Biden administration to ease the restrictions on buprenorphine – or find an equivalent treatment – the direr the situation will become.
As a part of launching his multifaceted Opioid Crisis plan, President Biden should take executive action to remove X-Waivers in a legally surefire and quick manner. While removing the waivers will not solve the crisis overnight, it is a step in the right direction to treat people with opioid use disorders and prevent the overdose death rate from rising further.
Four Ways the Pharma Sector is Performing Well, Four Big Problems, and Three Straightforward Solutions
In this paper we summarize the state of today’s pharma sector with four ways it is performing well and four big problems.
Then we propose three key policy proposals that the Biden Administration can use to address the problems:
A cap on out-of-pocket costs, including co-pays, similar to legislation proposedin 2018, should dramatically improve Americans’ experiences with drug pricing.
A shift to point-of sales rebates should benefit consumers and align their incentives with actual net prices.
Building on the successful rapid creation and testing of the Covid vaccines, President Biden should convene a high- level “Biopharma Regulatory Improvement Commission” to accelerate pharma innovation and deployment in order to boost health and cut costs.
EXECUTIVE SUMMARY
The U.S. pharmaceutical industry is one of the nation’s crown economic jewels. It is also one of its knottiest policy problems. The pandemic performance of U.S. pharma companies, working in concert with global partners, has been nothing less than outstanding. Producing multiple safe and efficacious vaccines in less than a year is a testament to the expertise and capabilities of the industry.
On the other hand, Americans have a deeply held distrust of the pharma industry. A Gallup survey taken in summer 2020 still showed the pharmaceutical industry at the bottom of the American approval list, ahead of only the federal government. True, that’s a gain over the previous year, when it was literally rock bottom, but it still isn’t good.
In this paper, we identify four ways that the U.S. pharma sector is performing well, and four big problems (Summary Table 1). Some of them are surprising, in a positive sense. For example, despite all of the headlines about cost pressures, overall spending on pharmaceuticals has been slowly dropping as a share of GDP. Pharma manufacturers revenues, net of discounts and rebates, fell from 1.75 percent of GDP in 2010 to 1.66 percent in 2019 (based on IQVIA Institute data). Also surprisingly, household out-of-pocket expenses for prescription drugs, including Part D premiums, fell from 0.36 percent of GDP in 2010 to 0.32 percent in 2019 (based on national health expenditures data from the Centers for Medicare and Medicaid).
On the negative side, a small portion of Americans have huge out-of-pocket prescription drug bills. In 2018, roughly 1 percent of Americans paid more than $2,000 in out-of- pocket drug expenses, not including Part D premiums (based on our analysis of Medical Panel Expenditure Survey data).
Equally worrisome, most Americans face sharply rising out-of-pocket drug costs as they age. This “prescription escalator”—the result of a steep age-usage curve and per-prescription copays— has the effect of increasing individual spending by 5-6 percent per year, even if underlying drug prices are flat.
How can President Joe Biden address these problems, while taking advantage of the good features of the U.S. system? To address the political and human toll of the current system of pharma insurance, Biden should support legislation to cap out-of-pocket drug payments. That’s the best way to control the low but real possibility of huge out-of-pocket payments. It’s also the best way to get a handle on the “prescription escalator”—the sharp rise in out-of- pocket payments as Americans age.
Second, Biden should preserve the recently finalized Medicare Part D Rebate Rule that replaces drug rebates with point-of-sale consumer discounts. Discounts paid directly to consumers at the point of sale, rather than rebates paid retrospectively to insurers or pharmacy benefit managers, would significantly lower out-of-pocket costs, clarify the true cost of prescription medications, and allow consumers and physicians to make better cost-benefit trade-offs. The would also be a good launching pad towards the introduction of new legislation to enact similar changes in the commercial market. Together, these changes would fix the opaque rebate system and could create the conditions for list prices to come down.
Third, Biden should take a page from the successful Covid vaccine effort. U.S. businesses and government agencies have spent almost $2 trillion since 1995 on biotech and other health-related R&D, and this knowledge was mobilized quickly to generate new vaccines and therapies. Still, in the normal course of business it would have taken years rather than months to bring the new technology to bear. What’s needed is a high-level “Biopharma Regulatory Improvement Commission” to identify the regulatory and financial impediments to faster useful biopharma innovation, without sacrificing safety at all.
INTRODUCTION
The U.S. pharmaceutical industry is one of the nation’s crown economic jewels. It is also one of knottiest policy problems faced by Washington. The pandemic performance of US. pharma companies, working in concert with global partners, has been nothing less than outstanding. The production of multiple safe and efficacious vaccines in less than a year is a testament to the expertise and capabilities of the industry.
On the other hand, Americans have a deeply held distrust of the pharma industry. A Gallup survey taken in summer 2020 still showed the pharmaceutical industry at the bottom of the American approval list, ahead of only the federal government. True, that’s a gain over the previous year, when it was literally rock bottom, but it still isn’t good.
President Joe Biden comes into office with a comprehensive plan for dealing with what he calls “runaway” drug prices, including establishing an independent review board to assess the value of new drugs, and limiting list price increases for all brand, biotech, and “abusively priced” generic drugs to the rate of inflation.
But Biden’s plan may be aiming at the wrong targets. The two best aggregate measures of the economic burden of pharma spending— overall net spending on pharmaceuticals as a share of GDP and household out-of-pocket drug spending, including Part D premiums, as a share of GDP—have been trending down, not up.
Proposals to restrain list prices are not likely to accelerate these aggregate declines. List prices are important, but because of rebates and discounts they do not directly correlate payments to manufacturers or with out-of-pocket spending by households.
While proposals to restrain list prices may be helpful for patients lacking insurance, and among those in plans with high deductibles and coinsurance, list prices do not typically reflect the price that most patients pay out of pocket due to the impact of rebates and discounts on plan benefit designs.
True, an increasing share of prescriptions are reimbursed by means of co-insurance, which apparently sets the out-of-pocket cost for a drug as a fixed percentage of the list price for that drug. But even then, remember that insurance companies control that apparently fixed percentage and can easily raise it any time they want. As a result, lowering the list price of a drug might or might not decrease the out-of-pocket cost, depending on how the insurance company adjusts the cost-sharing arrangements.
The real problem lies in the way the drug reimbursement system has evolved over the years, exposing Americans to co-pays that seemingly shift randomly from year to year, a small portion of Americans have huge out- of-pocket prescription drug bills, which is bad enough. Most Americans face sharply rising out-of-pocket drug costs as they age (“the prescription escalator”). In some ways the drip- drip of drug co-pays is a form of psychological torture.
To address the political and human toll of the current drug reimbursement system, Biden must support legislation to cap out-of-pocket drug payments. One model is the Capping Prescription Costs Act of 2018, introduced
by Sens. Elizabeth Warren (D-Mass.) and Ron Wyden (D-Ore.) which set caps for prescription drug copays at $250 per month for individuals and $500 per month for families. That’s the best way to control the low but real possibility of huge out-of-pocket payments. It’s also the best way to get a handle on the “prescription escalator”— the sharp rise in out-of-pocket payments as Americans age.
Equally important, Biden should support the implementation of the Medicare Part D rebate safe harbor final rule and propose follow-on legislation that would encourage point-of-sale discounts in the commercial market as well. These discounts would finally reach consumers directly (instead of insurers or pharmacy benefit managers). From an economic perspective, this approach has several virtues. It can lead to a substantial reduction in out-of-pocket costs at the point of sale, clarify the true cost of prescription medications, allow consumers and physicians to make better cost-benefit trade- offs. Importantly, it would ensure that patient coinsurance is based off of net prices (vs list prices), which is far easier for everyone to understand.
Finally, Biden should learn a lesson from the successful Covid vaccine effort. The mRNA vaccines from Pfizer and Moderna show
that with the right motivations, advanced biotechnology that might have otherwise languished on the shelf can innovate and createbeneficial medicines.
What we need now is a focused effort to get most useful drug innovations out of the almost $2 trillion that businesses and government agencies have spent in the U.S. on health- related R&D since 1995. With the successful Covid vaccine effort as a role model, what’s needed is a high-level “Biopharma Regulatory Improvement Commission” to identify the regulatory and financial impediments to useful innovation.
THE FACTS: HOW THE PHARMA SECTOR IS PERFORMING WELL
Before addressing policy changes, we must understand what’s working and what isn’t about the sprawling system of drug innovation, spending, and reimbursement. The common belief is that drug spending is out of control. But a reality-based analysis, based on solid statistics, paints a very different picture.
Let’s briefly go through each of these:
» Positive Fact #1:
Overall net spending on pharmaceuticals has been slowly dropping as a share of gross domestic product (GDP).
Net spending on pharmaceuticals is defined as the net amount that drug manufacturers receive for their products, after accounting for rebates and other price concessions. The difference between drug spending calculated with list prices vs net prices is huge and growing. In 2019, for example, the IQVIA Institute estimated that the net revenue received by manufacturers of $356 billion was 47 percent below drug spending valued at list prices, $671 billion. By comparison, this gap between net revenues and spending valued at list prices was only about 37 percent in 2014 and 34 percent in 2010.
Net revenues as a share of gross domestic product (GDP) are a good measure of the burden of pharmaceutical spending on the overall economy, representing the amount paid to manufacturers. Since 2010, net manufacturer revenue has increased by 36 percent, compared to a 48 percent increase in overall gross domestic product. As a result, net manufacturer revenue as a share of GDP fell from 1.75 percent of GDP in 2010 to 1.66 percent in 2019.
What this information tells us is that the overall burden of drug spending on the economy— consumers, private companies, government, hospitals, insurance companies, wholesalers, pharmacy benefit managers—has been falling slightly. But analyzing the impact on any particular market participant is very difficult, because the discounts and rebates are so opaque.
» Positive Fact #2:
The combination of Medicare Part D and the Affordable Care Act (ACA) has slightly reduced household out-of-pocket (OOP) expenses for prescription drugs as a share of GDP.
You wouldn’t know it from all the Congressional hearings that feature Americans having trouble paying for drugs. But on average, the drug cost burden on households has been falling over time, measured as a share of household income or GDP. That’s true, even if we include Medicare Part D premiums when calculating out-of-pocket spending, since from the perspective of Part D participants their premiums also come out of their pockets.
Based on the latest CMS data, released in December 2019, household out-of-pocket expenses for prescription drugs, including Part D premiums, fell from 0.36 percent of GDP in 2010 to 0.32 percent in 2019. Other data sources, such as the Consumer Expenditure Survey from the Bureau of Labor Statistics, show roughly the same pattern.
These figures measure the average burden on households. As we will see later, there are outliers who have to pay much more. But at least the aggregate data is positive.
» Positive Fact #3:
Pharma industry spending on R&D has slightly risen as a share of GDP.
One of the great paradoxes of the U.S. health care system is the poor perception many Americans have of the pharmaceutical industry. Nevertheless, pharma companies have been taking on more of the financial burden and risk-taking associated with drug research and development over the past decade, even while public sector funding has stagnated. Since 2010, federal and state spending on health-related R&D, mostly through NIH, has only risen by 7 percent, from $35.2 billion in 2010 to $37.6 billion in 2019.
The pharma industry spending on R&D items such as pre-clinical drug development and clinical trials has skyrocketed, from $57.3 billion in 2010 to $89.8 billion in 2019, according to figures from the Bureau of Economic Analysis (BEA). This corresponds to an increase of 57 percent, faster than the 48 percent gain in GDP over the same period. As a result, pharma industry spending on R&D rose from 0.38 percent of GDP in 2010 to 0.42 percent in 2019 (based on BEA data).
» Positive Fact #4:
The U.S. pharma industry was able to develop safe and efficacious vaccines within a year
Using a variety of different approaches, pharma firms in the United States and around the world were able to create safe and effective vaccines in less than a year. First out of the gate were Pfizer and Moderna with their mRNA-based vaccine technologies, never before successfully used for a vaccine. However, other vaccines using more familiar technologies are not far behind.
But the big advantage of mRNA vaccine technology is that it can be quickly adjusted to new variants of Covid. Moreover, now that the technology has been shown to be effective, it has the potential to quickly create vaccines against other viral scourges, such as influenza and HIV. So the silver lining from the Covid cloud is that it may have opened up new avenues for dealing with disease.
WHERE THE PROBLEMS ARE
We certainly don’t want to leave the impression that the pharma sector and pharma pricing are free of blame. An honest approach also tells us where four big problems are, as shown in Table 2.
» Negative Fact #1:
A small portion of Americans have huge out-of-pocket prescription drug bills.
One staple of the drug price debate are congressional hearings that highlight heartbreaking stories of people who can’t afford to pay for their medicines. Are these people reflective of a broader problem?
The answer is yes and no. In fact, our analysis of 2018 MEPS data suggests that over 3 million Americans paid more than $2000 in out-of- pocket drug expenses in 2018, not including Part D premiums. That’s about 1 percent of the population, but it’s still an unacceptably high number that need to be addressed by policymakers.
Consider the high cost of insulin, a product with huge rebates. Indeed, rebates for insulin products often reach as much as 70 percent of the list price, so the net price after rebates is much lower than the list price. However, those rebates are typically paid to the health insurance company or the prescription benefit managers (PBM), rather than to the consumer.
As a result, patient coinsurance is often based on the list price, while high manufacturer rebates are collected by insurers. At the same time, benefit designs that place even higher out-of-pocket burdens on patients continue to grow, exacerbating affordability challenges for patients.
» Negative Fact #2:
Most Americans face sharply rising out-of- pocket drug costs as they age.
In addition to the small but significant fraction of the population with high out-of-pocket costs, the widespread anger of Americans at drug companies is fueled by what we call the “prescription escalator.”
It turns out that the use of medicines can rise steeply as people age. For example, in 2018, individuals between the ages of 35 and 44 filled an average of 7.2 prescriptions, including refills, compared to an average of 12.2 prescriptions for those between the ages of 45 and 54 and 18.1 prescriptions for those between the ages of 55 and 64. This 150 percent increase in the number of prescriptions as people age corresponds to an equivalent rise in prescription drug spending, since the structure of health insurance generally charges co-pays for each prescription. This “prescription escalator”—the result of a steep age-usage curve and per-prescription copays—has the effect of increasing the typical individual’s spending by 5-6 percent per year, even if underlying drug prices are flat.
Indeed, even if underlying drug prices are flat, most Americans see their drug spending rise year after year much faster than other types of medical spending. As a result, the share of out- of-pocket spending going to drugs increases as Americans age, making it seem like drug costs are more of a burden.
» Negative Fact #3:
The complicated and opaque system of rebates and discounts means that costs to patients and providers are only tenuously connected to list prices.
We have decent measures of how much consumers pay for drugs through various surveys. We also have good measures of how much pharma manufacturers receive in net revenues, because that number is reported on financial statements. But the flows of money back and forth through PBMs, insurance companies, and hospitals are much more opaque. The rebates and discounts are not simply a percentage of the price. Sometimes they are tied to volume, sometimes to the efficaciousness of the drug, and sometimes they are mandated by law. Much of the time, they are not public.
However, it’s clear that list prices bear only the slightest resemblance to the actual net costs. On an aggregate level, between 2014 and 2019 spending at list prices rose at an annual rate of 7.1 percent, far faster than GDP growth. Meanwhile, actual net outlays by payers only rose at a 4.1 percent annual rate, equal to the rate of GDP growth (based on data from the IQVIA Institute).
The lack of connection between list and net prices makes it very hard for consumers, doctors and policymakers to understand the true cost of drugs.
» Negative Fact #4:
Misaligned regulatory and financial incentives may be holding back pharmaceutical innovation.
Before the Covid pandemic, there was a sense among economists that the enormous spending on biopharma basic and applied research had underperformed. The promise of biotech had been cheaper, faster drug development and a raft of new cures. Instead, the cost of drug development had soared, and only 14 percent of drugs that enter clinical trials get approved.
There are three leading hypotheses, all of which may have some degree of truth:
The intricacies of medicine and the human body are more complicated than first thought.
The desire for profits could be diverting biopharma firms from truly important drug development.
Excessive or misdirected regulation could be raising drug development costs and slowing down biotech innovation.
Facing pressure from the pandemic, regulators and manufacturers were able to work together to greatly accelerate the pace of Covid-19 vaccine development, innovating to bring new technologies into the market without compromising drug safety and efficacy testing. Companies developed vaccines and tested them, even while building manufacturing facilities. The government issued fixed-price contracts for millions of doses to transfer risk to Washington, which could bear it.
As everyone knows, the process produced several successful vaccines. This implies that the full capabilities of private and public R&D are not being utilized in the current regulatory and financial structure.
IMPLICATIONS FOR POLICY
Americans deal with a very complicated reimbursement scheme for drugs, where the list price has very little connection with either the net price that manufacturers receive, or the out-of-pocket expenses paid by patients. Some out-of-pocket costs are set as a percentage of the list price in terms of co-insurance, but that’s variable as well, since the insurance companies can adjust the co-insurance percentage when they set up their plans each year.
To meaningfully improve prescription drug affordability, President Biden should pursue reform of plan benefit designs that directly reduces out-of-pocket costs for consumer. Capping out-of-pocket costs, for example, is both relatively simple and delivers significant political bang for the buck.
One particular model is the Capping Prescription Costs Act of 2018, introduced by Sens. Elizabeth Warren (D-Mass.) and Ron Wyden (D-Ore.) which set caps for prescription drug copays at $250 per month for individuals and $500 per month for families. That’s the best way to control the low but real possibility of huge out-of-pocket payments. It’s also the best way to get a handle on the “prescription escalator”—the sharp rise in out-of-pocket payments as Americans age.
How expensive would this or a similar program be? Suppose our target was to hold annual out-of-pocket costs down to $2000 per year for individuals. Based on our analysis of 2018 MEPS data, that cap would cost $2.4 billion annually for people 65 and over, less than 3 percent of total expenditures by Medicare Part D, the prescription drug benefit program, net of rebates.
As a complementary effort, President Biden should preserve the recently finalized Medicare Part D Rebate Rule that replaces drug rebates with point of sale consumer discounts. Such discounts would be paid directly to consumers rather than to insurers or pharmacy benefit managers. Such a program would have several effects. First of all, the rebates on expensive drugs would actually benefit the patients taking those drugs. That’s what Americans really want.
Point-of-sale consumer discounts would also clarify the true cost of prescription medications and allows consumers and physicians to make better cost-benefit trade-offs. And it would largely address the problems associated with the disconnect between list and net prices. An opaque system does not foster good decision- making. Finally, the Medicare Part D Rebate Rule could also serve as a launching pad towards similar legislation in the commercial market.
Finally, Biden should help regulators and companies learn the right lesson from the successful Covid vaccine effort. The biopharma sector had an enormous stockpile of knowledge and manufacturing know-how that mobilized quickly to generate new vaccines and therapies. The government supported the effort with funding and fixed-price contracts to buy hundreds of millions of doses of the still-yet unproven vaccines. While there are issues with distribution, the development and production worked as well as could be expected.
Still, under the usual regulatory framework and business decision-making it would have taken years rather than months to bring the new technology to bear. The FDA has its usual step-by-step procedures which tend to discourage disruptive but potentially beneficial innovations. Pharmaceutical manufacturers, which invest huge amounts in R&D, are naturally attuned to the regulators and the need to focus on drugs that will get through the approval process.
Biden should appoint a high-level “Biopharma Regulatory Improvement Commission” to identify the regulatory and financial impediments to faster useful biopharma innovation. PPI has in the past proposed a new approach to improve regulations without sacrificing consumer and worker protection. Such legislation has been introduced several times in Congress.
What Biden needs now, though, is a commission that is narrowly focused on finding a way to accelerate biopharma innovation, without sacrificing an ounce of safety. At the end of the day, the best way to reduce the cost of medications may be to improve the ease of innovation.
The advisers of President-elect Joe Biden have been developing plans to speed up COVID-19 vaccine distribution. One idea the transition team has announced is to release available doses immediately rather than holding back half to ensure second doses are available. While this could potentially delay some people from getting a second dose, the risk is worth it.
Americans have been warned this summer there will be a vaccine shortage. Health care officials were instructed to abide by a strict prioritization schedule and this created a “shortage mentality” that’s slowed the distribution of available vaccines. Of the 30.6 million doses of coronavirus vaccine distributed to health care facilities thus far, an abysmal 36 percent — about 11.1 million — have been administered. Releasing all available doses will help expedite this process.
To meet his goal of administering 100 million vaccine doses in his first 100 days in office, Biden will need to do more than releasing all available doses. Hospitals are already overwhelmed with a surge in coronavirus cases and have limited capacity to administer vaccines. With little federal support, overworked and under-resourced public health departments have been slow to deliver vaccines.
Ending the Covid-19 pandemic in the United States will require a large-scale vaccination effort. The good news is, vaccine makers have developed a vaccine in record time – almost exactly one year after the virus was first discovered, vaccines will start to become available. This is because of the hard work of researchers who have studied coronaviruses since the emergence of SARS nearly two decades ago. Prior to 2020, the fastest development of a vaccine was for Mumps and took four years.
But developing the vaccine is just the first challenge. Because some of the vaccine candidates for Covid-19 require multiple doses, successful vaccination of the population requires manufacturing and distributing more than 600 million vaccines and making sure the majority of Americans are able and willing to receive it.
Now the challenge will be prioritizing who gets the vaccine in a strategic and fair way. At the beginning, when there is limited supply, it makes sense to have a centralized advisory body prioritizing where and who should get the vaccine. The Centers for Disease Control and Prevention’s (CDC) Advisory Committee on Immunization Practices (ACIP) is providing guidance on how to prioritize the limited supply.
However, to be most effective states will need more than just general guidance. ACIP needs to collect real-world data and then use that data to provide recommendations of which vaccine works best for whom in what circumstances. Because there is public distrust of the vaccine, providing updated data and recommendations will be key to building trust and increasing compliance. Finally, states need additional funding to distribute and track the initial limited vaccine supply for the greatest societal benefit.
A crucial question is: who should get the vaccine first? Last week the Centers for Disease Control and Prevention (CDC) recommended that nursing home residents and health care workers should be first in line. Intuitively, this makes sense. Nursing home and long-term care residents have borne the brunt of the pandemic and account for nearly 40 percent of all deaths. Depending on supply, it may make sense to break health care workers down into sub-categories and give the vaccine to those most likely to treat patients with the virus first, hence leaving them more susceptible to transmission.
Though the federal government has ordered and paid for millions of doses of these vaccines, it is leaving the bulk of the distribution work to the states. Governors will be working with vaccine manufacturers and health care providers to distribute and manage the inoculation effort, but states are not always effective at large-scale vaccination efforts. In the 2009 H1N1 outbreak, states vaccinated only 23 percent of the adult population. Although the low rate was partially because of supply shortages early on, less than a quarter of the population is still a dismal vaccination rate. We cannot risk a similar outcome with a virus that is much more infectious and deadly.
Beyond the initial guidance to vaccinate health care workers and nursing home residents first, order of inoculation has been left up to state policymakers. These will be hard decisions to make and governors deserve clear federal guidance and real-world data analysis so they can make informed, timely decisions. Failure to provide this guidance leaves the results of the vaccination effort up to chance, with wide discrepancies across states.
Even after state policymakers establish prioritized groups for vaccination, they have to figure out how to distribute the doses, a veritable logistics nightmare. All of this is complicated by the different handling requirements of the four vaccine candidates likely to be approved.
The Pfizer vaccine is unusually difficult to ship and store: It requires two doses 21 days apart and needs to be stored at -100° Fahrenheit. Its distribution is currently in dry ice-packed boxes holding 1,000 to 5,000 doses, though it’s trying to make smaller distributions available. The boxes will stay cold enough to store the vaccine for up to 10 days unopened but once opened, they can only be stored for five days if not opened more than twice a day.
Moderna’s vaccine, based on similar technology as the Pfizer vaccine, has to be stored at -4 degrees, but can be refrigerated for up to 30 days. It also requires two doses, four weeks apart.
The Oxford/AstraZeneca vaccine can be refrigerated at 36 to 46 degrees Fahrenheit for up to six months. This vaccine is more traditional and uses a weakened version of the virus to stimulate an immune response. While the data is still forthcoming, it looks to be at least 70 percent effective in preventing Covid-19 infections.
Johnson & Johnson is also in the final stages of a vaccine trial for a traditional “viral vector” vaccine, like AstraZeneca. However, its vaccine will only require one dose and can be stored for up to two years at -4° Fahrenheit. Further, once ready to go to health care providers, it will be stable at 35.6° to 46.4° Fahrenheit for up to three months.
These differences might mean that the Pfizer vaccine should go to large health care facilities with the capacity to store large doses of vaccines at -100 degrees while the Johnson & Johnson vaccine should go to health care clinics that serve vulnerable populations less likely to be able to come in for a second dose.
Even with well-thought out logistical planning and decisions, distribution and public campaigns to vaccinate people will not be cheap. State budgets are already strained from economic downturn and will need financial assistance to effectively distribute the vaccine to all corners of the country.
Once manufacturing has caught up with demand, centralized distribution efforts may no longer be necessary. But overtime, real-world data could show there are further differences across the vaccines. One of them may be particularly effective in people with compromised immune systems who cannot handle flu-like symptoms that may accompany inoculation. Similarly, one might work better among school children. It is vital that ACIP collect the data and make medical recommendations based on new information as it is available.
Though the end of shelter-at-home orders, shuttered restaurants, and children “learning” at home, may be near, the coronavirus will likely be around for years to come. We don’t know how long immunity from these vaccines will last, and like the flu, the virus could mutate and keep circling the globe.
Each of the forthcoming vaccines will have their own strengths and weaknesses. It will be important to continue to collect real world data so that scientific recommendations can evolve with the information that we have.
A lot of attention and a bevy of proposals have focused on the rising cost of drugs, among all Americans, including older adults covered by Medicare.
But are these costs really rising as fast as people think? Or is the concern over drug spending due to something I call the prescription escalator?
The U.S. Bureau of Labor Statistics reported in September that the average spending by senior households for prescription and nonprescription drugs dropped in 2019 for the second straight year. In fact, households headed by Americans age 65 and older devoted only 1.5% of their total household outlays to out-of-pocket spending on drugs in 2019, the lowest level in at least 20 years.
Taking a broader look at Americans of all ages, average out-of-pocket drug spending in 2019 came to $486 per household, close to the amount spent in 2014. The long-term trend is that out-of-pocket drug spending is a falling share of household budgets.
If it’s not out-of-pocket spending, perhaps the cost of paying for essential medicines is putting an increasing burden on the economy. List prices are certainly rising. The IQVIA Institute calculates that spending for pharmaceuticals, taking list prices at face value, went up by $194 billion between 2014 and 2019. But after taking rebates and discounts into account, the report showed that net revenues to manufacturers rose by only $56 billion, or 19%, over the same stretch.
So many of the good health-care proposals that President-elect Joe Biden made during his campaign — to expand insurance subsidies, lower the Medicare eligibility age, create a national public insurance option — now appear difficult to achieve unless his party can, against the odds, take control of the U.S. Senate after two special elections in January. Even if Republicans hold that chamber, however, there is one important health-care policy change that should still be possible: a ban on surprise medical bills.
These infamous bills are the ones a patient receives from emergency room doctors, anesthesiologists, ambulance companies and other care providers outside the patient’s insurance network. They can come from out-of-network hospitals or from independent providers or laboratories working at an in-network hospital.
One-sixth of hospital visits are estimated to result in such a surprise charge. During the pandemic, some patients have received bills amounting to more than $1,900 for a simple Covid test. Others have recovered from a coronavirus infection only to learn they owe hundreds of thousands dollars.
In Congress, Democrats and Republicans alike have voiced outrage at this practice and called for protecting patients from it through legislation. Last year, Congress came close to reaching a deal that would have outlawed the practice. The bipartisan bill would have capped charges at a “benchmark” price tied to average regional in-network rates. But some lawmakers disagreed with the strategy and the deal fell apart. However, some of those who declined to support the deal were voted out of office in the recent election, and this brings new hope that another agreement can be reached.
Millions of Americans suffer from poor oral health with decaying teeth, gum disease and chronic tooth pain. Poor oral health can limit a person’s employment opportunities, increase the risk of certain cancers, cardiovascular disease, Alzheimer’s disease, premature births and lead to unnecessary emergency department (ED) visits.
Poor oral health can be a result of limited access to preventive dental health sources, among other causes. However, there are a variety of confounding factors that limit access to timely oral health care, including:
• Limited insurance coverage
• Provider shortages, particularly in rural areas
• Cultural barriers
These problems are not distributed evenly. In the U.S., if you live in a rural area, you are less likely to have dental insuranceand access to a dentist, and more likely to have tooth loss.
Oral health is a vital component of overall health status. It is vital that people have access to regular dental care to learn good oral hygiene and to treat problems early. This paper will explore barriers to care and potential policy levers to address them.
INTRODUCTION
According to one study, toothaches were the number one avoidable reason for visiting the emergency department (ED). In some instances, patients leave dental issues untreated until they experience so much pain that they visit the ED, desperate for treatment. But EDs are poorly equipped to treat dental conditions and usually simply offer pain medications or antibiotics and refer patients to dental providers in the community.
LIMITED COVERAGE
Cost is the number one reason people cite for forgoing dental care. More than 114 million Americans lack dental health coverage, roughly four times the number of people who lack regular health insurance. And that number has likely grown considering the 5.4 million people who have lost their insurance during the pandemic. People without dental coverage include almost two-thirds of Medicare enrollees, roughly 10 percent of children and 33.6 percent of adults under the age of 64. But even among those who have dental coverage, it can be a bit of a misnomer. Most plans only cover $750 to $1,500 of care per year, requiring patients to pay for additional care out of pocket. While only a small percentage of people exceed this amount each year, a crown can run as high as $2,500, which can surpass even an insured person’s coverage.
Though we know that dental coverage is a vital first step to getting people dental care, expanding coverage does not fully solve the issue. The data shows that in states that expanded dental coverage to adults with Medicaid, emergency dental visits remained high, even in urban areas with numerous dentists. This suggests there are other barriers, besides coverage, to accessing care.
Dental care has long been perceived as secondary to medical care. Traditional Medicare does not cover preventive dental services and Medicaid is not required to cover dental benefits for adults (though 35 states provide some dental benefits to adults). The perception that dental care is secondary trickles down to even those with coverage. Many people with dental insurance don’t use their benefits until they are in pain.
PROVIDER SHORTAGES
Poor oral health is not distributed evenly: rural residents are twice as likely to have none of their natural teeth remaining when compared to urban residents. This is because, in some areas of the United States, even if you have dental coverage, you may be hard pressed to find a dentist or a dentist that takes your insurance. While there may not be a shortage of dentists
in the United States as a whole, they are poorly distributed – and rural areas often do not receive the resources they need to address oral health challenges. As dental students graduate with more and more student loan debt, many move to urban centers to set up their practices because they will have more privately-insured patients. Thus, there are some rural areas where, even if you did have health insurance that covered oralhealth services, it may be challenging to find anearby dentist to serve you. In remote areas with small populations and more people on public health insurance, it can be hard for a dental practice to survive.
To help address this challenge, the Health Resources and Services Administration (HRSA) created the health provider shortage area (HPSA) designation to allocate resources tounderserved areas. Specifically, students thatchose to practice in HPSAs are eligible for loan repayment and scholarships. Today, more than 30 federal programs23 allocate resources based on HPSA designations and many states use thedefinition for state funding as well.
However, due to the way the agency defines dental health shortage areas, shortages and other barriers to accessing care may be overstated. This means that providers across the nation are forced to compete for limited resources. The program received 7,000 applications in the last cycle and could only award funding to 40 percent of the applicants.
Dental health shortage areas are rated on a point system, 0-26. The higher the score, the greater the level of need in an area. However, certain factors may skew the rating, including the fact that a point is added if an area’s fluoridation rate is in the bottom quartile for the nation, region or state. HRSA estimates that one dentist is needed for every 5,000 people (or 4,000 people in very high need areas). Narrowing the factorsthat allow an area to be classified as a HPSA willhelp ensure that limited funds get where they are needed most.
Other barriers to care also tend to be under-reported. Many Medicaid-insured adults report trouble finding a dentist that will accept their Medicaid coverage because of their state’s low reimbursement rates. While there might be community health centers that are happy to treat Medicaid covered patients, they could have limited availability for appointments and many private practice dentists might limit the number of Medicaid patients they accept. Without assistance navigating the health system, these patients might not get the care they need.
It’s important to consider these comprehensive barriers to accessing care in rural areas rather than just looking at the number of dentists in an area.
CULTURAL BARRIERS
Because oral health has long been separated from physical health, some people view it as secondary, and often need help navigating the existing resources and overcoming individual barriers to care. For example, a lack of awareness of dental benefits, how to find a quality dentist and oral health literacy all prevent people from seeking treatment.
States have long acted as the “laboratories of democracy” piloting innovative policy solutions, that if proven successful, can be scaled. Oral health is no different. The federal government has an opportunity to learn from the states and increase access to dental health services.
POLICY SOLUTIONS
Expand coverage and increase reimbursement.
Medicaid covers dental benefits for children, but states are not required to cover dental services for adults. If Medicaid took the $520 million that it spends annually on dental ED visits and invested it in upfront oral health services, it would cover roughly one million dental visits. Though all states cover eligible children through Medicaid, coverage for adults is less consistent. Some states cover preventive services for adults, but many only cover emergency dental services. All states should expand Medicaid to cover all low-income adults and cover dental services for adults recognizing that the upfront investment improves health and reduces unnecessary emergency room expenditures.
But Medicaid coverage isn’t the only thing limiting access. On average, state Medicaid programs reimburse dentists 40 to 50
percent of what private insurance pays. The low rates limit the number of Medicaid patients that dentists will accept. Increasing reimbursement, particularly in underserved areas with high numbers of Medicaid enrollees, would encourage more dentists to see Medicaid patients.
States should also consider programs that would help people above the Medicaid income threshold afford dental health benefits. The ACA does not require compliant health plans cover dental and many people — particularly those below 300 percent of the federal poverty level — may not be able to afford dental benefits without government subsidies.
Traditional Medicare should also cover preventive dental services rather than forcing patients to buy secondary Medigap plans to get dental benefits. Almost two-thirds of Medicare enrollees don’t have dental coverage. There are a variety of conditions that are more likely with old age including edentulism – where a person has no natural teeth. Fifteen percent of seniors are edentulous and it is more likely among older and poorer seniors. Periodontal disease is the most common cause of tooth loss and can be prevented with proper preventive care. Expanding Medicare coverage of dental care can improve the overall health of seniors, particularly among long-income seniors with limited resources to spend on dental care.
Redefine Health Professional Shortage Areas.
According to the GAO, in 2005 more than 30 programs used federal health professional shortage areas (HPSA) designations to allocated funding and resources. But as discussed above, the scoring mechanism might not be the most accurate way to decide what is or isn’t a shortage area. Furthermore, HRSA has long used county boundaries to measure provider shortage areas, which can create artificial borders and over estimate the number of people living in shortage areas. Using geo-analysis to calculate the prevalence of dentists is more accurate than using county boundaries.
For these reasons and many more, HRSA is currently accepting ideas on how to best update the health professional shortage area (HPSA) designation. The revised HPSA criteria should be formulated in a way that directs limited resources to the most underserved rural areas and considers all barriers to care.
Address provider shortages in underserved areas.
There are a number of policy initiatives to address provider shortages. Thirty-three states and the District of Columbia provide dental loan repayment to encourage graduating dental students to practice underserved areas. But these programs are slow to address current shortages. In some very remote areas, such as Alaska, where it would take years to recruit dentists to small, isolated communities, policymakers created a two-year training program for “dental health therapists” to help fill in provider gaps. But before more states create these new programs, they need to accurately understand the barriers to access care within their borders. As part of the process of reevaluating the criteria to establish a HPSA, HRSA should use a new methodology to address provider shortages in underserved areas. Rather than simply increasing funding to loan repayment programs, while important, the government needs to better understand and address barriers to clinicians providing care in underserved communities.
Address individual barriers through community outreach and education.
Oftentimes, communities don’t need more dentists to address access to care issues, but instead need greater resources to help people with finding and navigating the existing oral health resources and navigating individual barriers to care. Roughly 80 percent of community health center clinics offer free or discounted dental services to people who need them. Unfortunately, many potential patients often don’t know that dental care is readily available at these facilities and delay care until they experience so much pain that they end up at the ED.
States have developed pilots with a new type of health worker: a community dental health coordinator (CDHC). Community dental health coordinators help patients better access dental care and navigate the health care system. Based on the community health worker model, where workers help patients bridge the gap between clinical and community services, CDHCs provide community-based prevention, care coordination and patient navigation to connect people with available services in their community. They can work for health centers, private dental practices and schools to better connect patients with the care they need. They may be able to perform some preventive services such as sealants and fluoride applications, as their state licensing laws allow, but they are not mid-level providers and must work under the supervision of a dentist.
CONCLUSION
This paper outlines the three main barriers to accessing dental care – coverage, dentist shortages and cultural barriers to oral health. There are a variety of ways to address these barriers, but an effective strategy will attempt to address all three. Expanding dental health coverage and increasing reimbursement –particularly in rural areas is a needed first step to improving oral health. HRSA needs to better define dental health professional shortage areas so that limited resources are appropriately targeted to underserved areas. Furthermore, the federal government needs to better understand the dental health workforce and how to better reach underserved populations. Finally, focusing on cultural barriers to care can be a cost-effective way to increase access and improve outcomes.
