The coming battle over drug price negotiations
An arena where so far silent HHS Secretary Xavier Becerra can still make his mark
I can’t recall a Health and Human Services secretary who has had a lower public profile in his or her first 18 months in office than Xavier Becerra, the former California attorney general.
In part that is structural. While nominally in charge of a $2.7 trillion agency budget (only slightly less than the entire gross domestic product of France, the world’s seventh largest economy), most of that money is earmarked for obligatory spending on Medicare, Medicaid, children’s health insurance and subsidized individual insurance plans.
The rest of the spending is vested in science-based agencies like the National Institutes of Health, the Centers for Disease Control and Prevention and the Food and Drug Administration. The HHS secretary, even one well-versed in the bureaucratic intricacies of these agencies’ responsibilities, has limited authority to influence their actions.
But those realities are common to all HHS secretaries, not just Becerra. The ones who make their mark on the nation’s health, and whom history remembers for good or ill, are those that come into the office with a mission, or, have a mission thrust upon them.
The Obama administration’s two HHS secretaries, former Kansas governor Kathleen Sebelius and the long-time non-profit foundation executive Sylvia Burwell, fall into the first category. They were intimately involved in passage of the insurance expansion in the Affordable Care Act and successfully managed its implementation (after the initial stumble with the rollout of the exchanges).
Former drug industry executive Alex Azar, who ran HHS for most of the Trump administration, is an example of the latter. History will not judge his tenure kindly. During the first year of the COVID-19 pandemic, Trump’s last year in office, he failed to mount a coordinated response by the department’s 13 agencies, failed to counter the president’s unscientific pronouncements, and wound up ceding his leadership role to a White House task force run by Vice President Mike Pence.
The first year of Becerra’s tenure suffered from that legacy. Joe Biden’s White House maintained close control over the ongoing COVID response by appointing management consultant Jeff Zients as the Covid czar. A serial entrepreneur who ran the well-respected Advisory Board in Washington, Zients rolled out the vaccination campaign, which, again with a few hiccups, was relatively successful given the politics-driven opposition in many communities across the U.S.
Earlier this year, to help restore public trust in agencies that were offering unclear and sometimes contradictory messaging, the president replaced Zients with Dr. Ashish Jha, the dean of Brown University’s School of Public Health. A frequent talking head on cable news shows who pushed a more aggressive response to the pandemic, Jha was chosen for his communications skills. He, not Becerra, has become the public face for the nation’s ongoing COVID-19 response as we head into a winter where, should there be another wave, the government will confront a citizenry that, based on current masking behavior in large public gatherings, clearly has moved on.
Opportunity knocks
But Becerra has just been given a golden opportunity to make his mark. It will take a strong hand at HHS to effectively implement the drug price controls in the Inflation Reduction Act, which were vehemently opposed by a pharmaceutical industry. Individual firms and the industry’s small army of lobbyists are likely to continue that opposition through the rulemaking process and in the courts over the next two years.
The government’s push to lower drug prices has two components. First, the law finally gives the Centers for Medicare and Medicaid Services the right to negotiate drug prices. Unfortunately, it is limited to 10 of the most expensive drugs it buys by 2026 and grows to only 20 drugs by 2029.
But that’s a start, the proverbial camel’s nose inside Big Pharma’s tent. To make it work, the agency will need to assemble a crack team of lawyers and economists capable of countering assertions made by their industry counterparts, who will undoubtedly deploy the tired arguments that their sky-high prices are necessary to fund research on new drugs and are justified by the value they bring to patients.
Neither assertion is true for reasons that I won’t go into here. But the arcane nature of those debates and the fact that the negotiations will take place out of the public eye creates the perfect environment for government negotiators to be unduly influenced by the industry’s hired hands.
It is called agency capture in the economics literature. It’s Becerra’s job to make sure that doesn’t happen.
The second major drug price control provision in the IRA gives the government the right to claw back annual price increases on existing drugs that exceed the general rate of inflation. This is crucial in an era when the average launch price for new drugs has reached $250,000 a year.
Implementing this provision will require a rulemaking process. Drug makers will use the public comment period and behind-the-scenes lobbying to point out the many other players (pharmacies, pharmacy benefit managers, hospital chains) who profit from high drug prices and weigh in with every objection imaginable. Even at the conclusion of the process, the clawback rule is likely to wind up in court.
He’s done it before
Becerra, an attorney who won a major victory over California hospital system Sutter Health in an antitrust case, has shown the fortitude to buck industry in court in the past. At the annual HLTH conference in Las Vegas yesterday (I was invited to attend to receive a lifetime achievement award; thanks!), he vowed to “aggressively move forward” on both fronts, cautioning “the people we’re trying to regulate push back, too.”
That’s true and they do it with a lot of high-priced and high-powered lawyers. This is a situation where strong leadership matters. Here’s hoping this is one arena where we will be hearing a lot more from HHS Secretary Becerra over the next two years.