Unintended Consequences of MFN
Thanks to John O’Brien and NPC, I had the privilege of recently participating on a panel at the AVBCC meeting in NYC with Beth Hamilton from Astra Zeneca. The panel was a discussion of ex-U.S. drug access and pricing and how it could impact MFN in the U.S. I wanted to share with you just a few of my comments:
Why is MFN an inappropriate or difficult comparison?
First of all, it’s important to recognize that pharmaceutical costs are not driving the gap between U.S. and ex-U.S. healthcare costs. While it is true that the US has the highest healthcare costs as a percentage of GDP among all OECD countries, as we have discussed in previous posts, U.S. pharmaceutical spending as a percentage of total HC spending is one of the lowest of all OECD countries. Lower than Canada, UK, Australia, France, Germany or Japan. What’s driving the difference in healthcare spending between the U.S. and other OECD countries is inpatient and outpatient healthcare costs and administrative costs, which account for 76% and 15% of the total gap in the total healthcare costs between the U.S. and OCED countries. Pharmaceuticals only account for 10% of the difference.
Treating the ROW as a singular entity is a gross oversimplification. The ROW is made up of a variety of different access and payment systems. China is very different than Japan, and the EU is made up of cost benefit, budget impact, and HTA markets each of which price and value drugs very differently.
MFN is easy to game by simply increasing ex-U.S. lists prices and making net pricing confidential. The previous trend toward increased net price transparency in the EU has already begun to reverse itself. In addition, MFN will also increase ex-U.S. drug pricing and further lower access to innovative new medicines in counties who are already experiencing significant delays.
GDP, which is used to adjust pharmaceutical costs between countries, is defined as the total market value of all goods and services produced by a country, not just healthcare. As such, it poorly represents the differences in healthcare or pharmaceutical costs between countries. Instead, a far more accurate adjustment for MFN would be made on a per capita healthcare expenditure basis, which better reflects the differences in non-pharmaceutical healthcare cost offsets that are used in OECD countries for determining the value of a drug.
Ex-U.S. healthcare systems are single payer systems without the need for additional payments to middlemen or providers or additional mandatory government discounts such as 340B and Medicaid BP that are often required in the U.S. Hence, comparisons of ex-U.S. to U.S. drug prices that do not adjust for these additional U.S. drug payments again are inaccurate and overestimate the true the differences in pharmaceutical costs between the U.S. and OECD countries.
If the U.S. adopts OECD drug pricing, what might they also consciously or unconsciously inherit?
The lower WTP thresholds of other OECD countries. The U.S. WTP varies from $50-100K per QALY, New Zealand’s is $12K, Canada is $26K, the UK and Spain are ~$30K, and China is $35-40K depending upon if the disease is chronic, rare, or life threatening.
The higher value evidentiary standards of the reference countries. As manufacturers have pushed to increase the speed and lower the cost of drug development, they have focused on developing only the minimal evidence necessary to simply meet FDA standards for approval and licensing. This has meant a significant increase in the use of accelerated approvals (up from 10% to 25% over the last two decades), the use of primary surrogate endpoints (up from 40% to 95% over the last two decades), and the failure to provide PRO and QoL data at launch. This in turn has caused ex-U.S. coverage and access organizations to raise their evidentiary bar for access and pricing to a point where they are now substantially higher than what is required for regulatory approval at the FDA or EMA. For example, the use of ASMR-5 and No Added Benefit ratings in France and Germany have doubled since 2020, and many surrogate endpoints that are acceptable in the U.S. are not considered valid in many OECD countries.
Delays in access to innovative drug therapies. The result of higher value evidentiary standards in the ROW than the evidentiary standards for regulatory approval, coupled with study designs that are focused on only meeting the minimal evidentiary standards for U.S. FDA approval and licensing is that most countries outside of the U.S. deny or delay access to innovative new medicines. While denying or delaying access to new medicines is a common practice outside the U.S., in comparison, in its long history, Medicare has only refused to allow coverage for a drug product once (Aduhelm, which was only approved for use in Medicare as part of a clinical trial). Data from EFPIA has shown that the median time to gain access post EMA approval varies from 320 days for all drug therapies to 650 days for oncology products, and another 2015 study demonstrated that of all the drugs approved by the FDA and EMA in 2012 that three years later 90% of them were available in the U.S. compared to less than 40%, on average, in Europe.
Some of the other characteristics of OECD countries that the U.S. will unconsciously adopt includes, but is not limited to:
Parallel trade. It is not uncommon for drug distributers in a country with low pricing to export their drug into countries with higher payment systems. It is the primary reason why pharma companies that get substantially lower prices in France than in Germany will withdraw their product from the market in France. If the U.S. is to get the lowest price of all OECD countries, then it is logical to assume that distributers will shift the product out of the U.S. to other OECD countries thereby resulting in drug shortages, the entry of counterfeit drugs, and mislabeled drug product.
The development of private black markets where individuals with higher incomes can immediately access new innovative drug products while the general population will need to wait years.
Incentivize the shift of drug R&D out of the U.S. to foreign countries. Many OECD countries (UK, Italy, Spain etc) have profit controls that reduce the price of a product based on an agreed upon annual budget or that have claw backs should the total drug spend exceed the country’s designated drug budget. In these cases, the degree of a specific company’s penalty is directly related to the level of investment that company makes in drug R&D and manufacturing in their country. So, for example if Italy had the lowest OECD drug price and was thereby setting the U.S. MFN price, the pharma company could increase its R&D investment in Italy and thereby increase the drug’s price in Italy, which in turn would increase its U.S. price.
A slower speed and higher cost of drug development. If MFN becomes the norm, drug manufacturers will soon recognize that they must meet the higher value evidentiary standards of other OECD countries to gain optimal U.S. drug pricing. That means a lower use of unvalidated surrogate endpoints and PFS in drug trials, and increased use of OS, the addition of PRO and QoL endpoints to all trials, the adoption of comparators that are reflective of not just the standard of care in the U.S. but also those of foreign countries, the collection of the additional data necessary to establish the true benefit horizon for the drug, etc. All of these actions would lengthen the time and increase the cost of drug development.
In conclusion, If the U.S. is to adopt drug pricing from OECD countries, then it may unconsciously also be adopting the lower WTP thresholds of other OECD countries, the higher value evidentiary standards of other OECD countries, and the delays in access innovative new medicines that are commonly seen in other OECD countries. As an alternative, the U.S. should look to outcome or value based drug pricing systems, but first must shift from a system of intermediary profiteering (which is not seen in other OECD countries) to one that focuses solely on lower drug costs to patients by first ensuring that patients are charged based on the net, not the list, price of their drug (a practice that is common in all OECD countries).
Hopefully this discussion has helped you to better understand the potential issues associated with the proposed U.S. MFN drug pricing system. For more details, please contact either me or Rita Numerof.
As a foot note, the best attended session at AVBCC was Mark Cuban. Before you react by discounting the insights of an entrepreneurial celebrity, I want to tell you that Mark has an outstanding understanding of the complexities and inappropriate incentives often seen in the U.S. healthcare system. He is focused on the patient, is committed to eliminating intermediary profiteering from the U.S. healthcare system, and may have the degree of national recognition required to move this effort forward. I encourage you to follow Mark on his journey to disrupt the U.S. healthcare system.