The recent JAMA Network Open study “Estimated Sustainable Cost-Based Prices for Diabetes Medicines” offers a fascinating yet fundamentally flawed depiction of how drug prices should be set. The authors naively suggest that medicine prices should be based on manufacturing costs plus a residual, ignoring the complex pricing realities of the pharmaceutical industry and the critical role of intellectual property protection.
The study’s recommendations, which include undermining IP protections, importing medicines from foreign countries, requiring price controls and instituting compulsory licensing, could severely diminish access to insulin and other diabetes treatments. While the goal of making medications more affordable is commendable, these strategies would undermine the very incentives that drive life-saving innovation.
Developing a drug is an arduous, expensive and risky undertaking. A 2022 World Health Organization study estimated that the average cost to create a drug ranges from $43.4 million to $4.2 billion. Pharmaceutical companies rely on IP property protections afforded by patents and exclusivity periods to recoup their substantial investments. These protections are essential for fostering innovation, leading to significant advancements in crucial medicines.
If policymakers disregard IP rights, investment in future treatments will be chilled, ultimately harming patients. Ironically, the study’s authors concur that the price of such medicines remains high in countries that have traditionally undermined IP laws.
Furthermore, the study needs to account for the numerous costs beyond manufacturing that affect drug pricing. Prices for biopharmaceuticals reflect extensive research and development costs, including all the failures and successes, with most projects ending in failure. These costs encompass post-approval R&D, utilization management, rebates provided to government programs, pharmacy benefit managers (PBMs), insurers, fees collected by PBMs, and restricted utilization due to prior authorization or step therapy. Additionally, mandatory Medicaid rebates, 340B pricing, Inflation Reduction Act price setting, and patient assistance programs all contribute to the final price of a medicine.
The current drug pricing model is convoluted, primarily due to the outsized influence of PBMs. These middlemen have introduced schemes such as rebate contracting, opaque fee schedules, and the acquisition of specialty pharmacies to control dispensing. As a result, PBMs often reap greater financial rewards than the drug manufacturers themselves, driving up the list prices of medications to maintain their profit margins.
Biopharmaceutical executives must be transparent about how PBM practices influence drug prices. Their reluctance to do so stems from a misplaced belief that transparency might provoke a backlash from PBMs. This groupthink, perpetuated by leaders who transitioned from PBMs to biopharmaceutical companies, mistakenly views PBMs as customers rather than the middlemen they are. The real customers are patients, employers and governments.
There are already avenues for patients to receive weight-loss medicines for less than $200 per month. In addition, generic and biosimilar introduction in the near future is already poised to increase competition and enhance affordability. This competition, which drives costs down, is made possible by the current IP system, where 91 percent of all prescriptions in the United States are filled as generic drugs.
As we aim to expand access to essential biopharmaceutical breakthroughs, policymakers must stop contemplating simplistic policy solutions like compulsory licensing and aggressive price controls. Instead, they should explore solutions that improve affordability without compromising the IP system, critical in bringing forth life-saving medicines for patients. In addition, when low-quality studies are published by supposedly reputable journals, it allows intentionally naive politicians to use this information to mislead the public. Finally, until we address the byzantine drug pricing model, where middlemen benefit more than innovators, the discussion about drug pricing will remain superficial and unproductive.
Protecting incentives for innovation while ensuring affordability is a delicate balance. However, it is one that we must strive to achieve to continue making progress in diabetes care and beyond. It’s high time we shift the conversation toward transparency and realign our understanding of the drug-pricing ecosystem. Only then can we hope to create a fair, sustainable and genuinely beneficial system for patients who depend on these medicines.
