The Congressional Budget Office last week endorsed drug industry claims that government-negotiated pharmaceutical prices will harm innovation. While it dialed back its prior estimates of that alleged harm, its latest study will no doubt be cited by industry and Congressional opponents seeking to scuttle Democratic Party efforts to give the government negotiating rights.
The study is an update of the CBO’s 2019 report, which claimed lower prices from negotiations would lead to 8 fewer drug approvals in the first decade, a 3% reduction, and 30 fewer drugs over the next decade, a 10% reduction. The new report reduced those estimates to two fewer drug approvals in the first decade and 23 in the succeeding decade.
One could argue that either scenario would be a relatively small price to pay given all the benefits — both medical and financial — that would accrue to patients from lower prices. That’s a discussion for another day. Let’s look at the underlying premise.
Both CBO studies rely on the long-running research project of Joseph DiMasi and colleagues at the Tufts Center for the Study of Drug Development. Their latest estimate, which came out a half decade ago, claimed it costs $2.6 billion to develop a single drug. That’s 3 1/2 times what they said it cost to develop a new drug in their original study, which was published in 2003. I used that $800 million pricetag in the title of the book I published in 2004 (still in print!) seeking to debunk that figure.
There have been several studies in recent years backing my claims that DiMasi wildly overstated his case. A 2017 study that looked at cancer drugs (among the most pricey in medicine) pegged the median cost at $648 million — less than one-fourth the Tufts claim. A more recent study that looked at 63 of the 355 new therapeutic drugs and biologic agents approved by the Food and Drug Administration between 2009 and 2018 estimated the median cost at slightly under $1 billion — again, far below the Tufts estimate.
I wrote a commentary for JAMA Internal Medicine in 2017 reviewing the flaws in the Tufts methodology:
It failed to take the medical value of new drugs into account by failing to differentiate between new products that were truly innovative and those that merely replicated drugs already on the market (so-called “me-too” drugs);
It relied on industry-funded data about costs, which DiMasi and colleagues refused to make public;
It arbitrarily inflated total spending on R&D by treating it like an investment rather than a current cost; annual R&D spending is not only 100% deductible from drug industry revenue, it gets subsidized by the government with R&D tax credits; and
It ignored that portion of R&D spent on spent on seeding trials, which are thinly disguised marketing efforts where drug companies pay doctors to enroll patients in confirmatory studies that never get submitted to the FDA.
Even though the more recent studies also ignored the value of new medications and treated R&D like an investment, they came up with far lower costs. It’s not hard to understand why. The Tufts study looked only at the largest pharmaceutical companies. The newer studies included the smaller biotechnology companies, often spun out from National Institutes of Health-funded research, that have been responsible for most of the innovation coming out of industry labs in recent decades.
For some reason, the CBO ignored these more recent studies, which suggests its team either did a poor job reviewing the literature or approached the topic with preconceived blinders. The CBO authors also included DiMasi among the people they thanked for reviewing the manuscript.
That’s a clear conflict of interest. Any reputable medical journal seeking peer reviewers would immediately disqualify someone whose prior research was the subject of the study in hand, especially, as was the case here, when that prior research was funded by corporations with a stake in the outcome.