The deadly spread of Covid-19 around the world has highlighted the importance of innovation and cooperation between the various actors in the U.S. health care system. It has shown what can be achieved in an environment that rewards innovation and promotes scientific advances. But it has also exposed that the system does not work for everyone.
Now is the time to focus on how to preserve and grow what makes the U.S. research, innovation, and health care system strong, and how to address the shortfalls.
Early in the pandemic, drug manufacturers, like the one I lead, and PhRMA, the organization that represents them, understood that a focus on science and biomedical innovation would be the solution to combating it. Less than a year later, as we come to the end of 2020, one medicine has been approved to treat Covid-19 and others have been authorized for emergency use. Scores of late-stage clinical trials are exploring additional therapies and potential vaccines, and several have already delivered promising results.
These developments highlight how existing rewards for high-risk research and development have enabled the biopharmaceutical industry to redirect teams, pipelines, and investments to focus on Covid-19 while still developing and delivering the next generation of medicines for other diseases.
At the same time, the pandemic has highlighted disparities in access to treatments, and the economic fallout of the pandemic has shown the need for solutions that address the affordability of medicines.
To continue to advance science and ensure that it benefits every person in need, drug manufacturers must accelerate the development of new medicines, not only to address this and future pandemics but also to find new treatments — and hopefully cures — for other serious diseases. The biopharmaceutical industry is already at work on this, collaborating and working with urgency, and expects to invest close to $100 billion in research and development year over year. I am confident it can do so if innovation is valued and rewarded.
At the same time, the U.S. has a tremendous opportunity to realign incentives across the health care system to ensure that it works for everyone. This starts with recognizing parts of the current system in urgent need of repair, such as how out-of-pocket costs affect the affordability of medicines. Pragmatic steps can be taken now to improve this by examining where the dollars spent for innovation go and how insurance benefit design affects out-of-pocket costs for patients.
Conversations about affordability can be productive only if we consider the complexity of the U.S. health care system. Today, only about 50% of the dollars spent on medicines goes to the pharmaceutical companies that drive their development, with the balance going to third parties, such as pharmacy benefit managers. These organizations benefit from manufacturer discounts without passing them on to patients, which places an unsustainable financial burden on patients. Realigning these incentives is the starting point. This can be accomplished through rebate reform and a redesign of the 340B drug discount program, which requires drug manufacturers to provide discounts to select providers as a condition of Medicaid and Medicare reimbursement, so underserved communities see the savings.
In the U.S., how health insurance benefits are designed places a disproportionate burden on patients for out-of-pocket costs. Total hospital spending the U.S. is more than three times greater than spending on medicines, yet, in total, patients pay more out of pocket for medicines than for hospital services. The development of high-deductible plans is increasing patient cost at a pace that is significantly higher than the increase in pharmaceutical spending. In fact, while price increases for medicines overall are lower than ever and broadly aligned with inflation, the cost to patients has increased up to 50% in recent years.
A fundamental redesign of insurance benefits is needed, including reducing patient contributions for medicines, establishing an out-of-pocket maximum for medicines, and spreading the financial contribution of patients over a full year, not just over the first few months of the year.
Drug manufacturers must also continue to play a role in directly addressing affordability barriers. This means they must continue to balance pricing practices that reward high-risk innovation while putting in place access solutions that support patient affordability from start to finish. We will continue to explore flexible pricing mechanisms and pursue innovative contracting approaches with payers to ensure that patients have low out-of-pocket costs. Where possible, drug manufacturers are supporting patients directly through patient-assistance programs. While these targeted solutions are not a silver bullet, they are aimed at helping patients in need.
As we look toward the months ahead, new elected officials will take office in Washington, D.C., and statehouses across the country. There is no better time to refocus attention on areas that matter to patients and to reexamine and reaffirm America’s role as a global leader in delivering the next generation of medical innovation. Drug manufacturers and PhRMA do not plan to stand by. We will actively partner with patients and policymakers to ensure that affordability and innovation can live side by side in the United States. The future of our health, and America’s leadership in medicine development, depend on it.
Giovanni Caforio is the chairman and CEO of Bristol Myers Squibb and the outgoing chair of PhRMA for 2020.