Non-binding Guidance: Continued Global Pressure on Drug Pricing & Reimbursement and the Next Frontiers for Effective Market Access

October 13, 2022
22:24 minutes

Following the recent publication relating to continued global pressure on drug pricing, this episode of Ropes & Gray’s podcast series Non-binding Guidance focuses on the significant changes to global business and legal environments for drug pricing brought about by the COVID-19 pandemic and the impacts on the pharmaceutical supply chain and patient access to innovative cutting-edge therapies. Hear from Ropes & Gray’s head of European life sciences practice Lincoln Tsang and health care partner Margaux Hall as they discuss the trend of rising health care drug costs in the U.S. and the UK, significant implications of the Inflation Reduction Act and similar drug pricing policy in the countries outside the U.S., the increasing role of real-world evidence in decision making, and impacts from these changes across the U.S., Europe and worldwide.


Lincoln Tsang Lincoln Tsang: Welcome to Non-binding Guidance, a podcast series from Ropes & Gray focused on current trends in regulatory law, as well as other important developments affecting the life sciences industry. I'm Lincoln Tsang, a partner based in London and head of the European life sciences practice group. I'm joined by my colleague, Margaux Hall, a partner in our health care practice based in Washington, D.C., and a leading lawyer in drug pricing, market access and reimbursement. Today, we will focus on the significant changes to the business and legal environments for drug pricing brought about by the COVID-19 pandemic and the manner in which COVID-19 has impacted the pharmaceutical supply chain and patient access to innovative cutting-edge preventive and therapeutic drugs and biologicals.

Pricing and patient access to affordable drugs have been the subject of international attention recently as a significant portion of health care costs is spent on drugs. Many of these drugs are highly innovative targeted or individualized therapies, including those based on advanced therapies, as well as drug-device combinations where the costs of research and development as well as manufacture are high. Some products are manufactured based on a specific patient’s genetic or biological profile and have utility only on an individual patient basis. The overall health care costs are predicted to increase in the coming years. Margaux, can you provide additional overview on this growing trend?

Margaux HallMargaux Hall: Sure—and thank you, Lincoln. Health care costs do continue to increase on a global level, although it’s difficult to analyze cost data from the most recent few years in light of COVID-19 and the dramatic way in which it’s impacted all of health care, including by creating this large volume of deferred care. Nonetheless, if you look specifically at drugs, they remain a key component in overall health care spend. One IQVIA report from 2021 found that total drug spend in 11 major international markets averaged 15% of total health care costs—countries’ individual spend rates on drugs ranged from 9–20% of those individual countries’ total health care costs.

Drug list prices continue to increase, but I want to caution that the list price needs to be taken in context. In the United States, for instance, many drugs are subject to significant discounts and price concessions off of that list price. As a result, if you look at net prices for drugs, net drug prices actually have gone down in the U.S. in recent years. There was a recent study of brand name drugs across 10 large manufacturers that found that, for the year 2021, the average list price changes were +3.5%, but the average net price changes were -1.0%. We are seeing net prices of drugs come down slightly in the United States, notwithstanding the fact that you do see list prices increasing. At the same time, there remains a laser focus on list price, and I think that’s likely because it’s the published price, and therefore is the price that’s visible to the market. Net pricing figures are generally proprietary and confidential, and are subject to significant efforts to ensure that the confidentiality is maintained—as a result, for the general market, it’s harder to understand the net pricing trends.

Why do we see list prices increasing? Many reasons have been offered, including inflation, costs of sourcing high-quality materials, and the high costs of development and production of new cutting-edge therapies. There is also speculation that some of the very same legislative changes that are attempting to address drug pricing may actually have the unintended consequence of leading to higher list prices—if that’s true, that would be a very important take-away and cautionary note for policy making in this space. Nonetheless, given the widely held perception that drug prices are already too high, any trend of rising list prices, especially since those list prices are visible to the market, will become an increasingly hard pill to swallow for health care systems.

All of these concerns are only amplified by the COVID-19 pandemic, and I think that’s such an important dimension of this overall analysis. Lincoln, we’re now into the third year of the COVID-19 pandemic. How has this pandemic impacted the life sciences and health care industry sectors in general?

Lincoln Tsang: Thank you, Margaux, for this important question. The COVID pandemic has shifted the general dynamics of health care access and funding. During the pandemic, there was a significant drop in patient volumes to avoid COVID spread in hospitals and to alleviate pressure on secondary care so that resources could be deployed more effectively in managing COVID admissions. Deferral of medical care has now been recognized to lead to higher health care costs and unhealthier outcomes for many patients. In many developed economies, excess deaths have been observed as a result of delayed in early diagnosis and medical interventions for certain diseases and conditions such as cancers. The scientific community now believes almost all outbreaks leave behind a proportion of patients who remain chronically unwell with symptom patterns similar to long COVID—this is what is generally known as the “long tail” of epidemics. New emerging Omicron subvariants are causing concerns in many countries that have called for new bivalent vaccines and antiviral agents to be developed, approved for access with ambitious timetables. The return of some care deferred during the pandemic, the ongoing costs of COVID-19 as well as the pandemic’s long tail will likely increase utilization and health care. The COVID-19 pandemic has caused a significant deterioration in public finances, adding to pre-existing strains from long-term structural challenges, including population ageing, climate change, rising inequality, digitalisation and automation. Governments and payers start focusing on managing the long-term health of public finances by containing health care costs. In addition, COVID has posed significant challenges for supply chains globally. Lockdowns slowed and even temporarily stopped the flow of raw materials and finished products, disrupted manufacturing and release of products. Health care providers and industry have invested immensely in developing predictive models, such as AI and robotic process automation to address supply chain.

Margaux, I understand that there are a number of legislative and policy initiatives to reform drug pricing and transparency in the United States. It strikes me that there is an overall drive for direct government involvement in price negotiations for federal health care programs. Could you share with us your insights?

Margaux Hall: There has been that direct drive, and it preceded this dramatic pandemic and all of the tremendous market changes that you just described.  It continues now, and recently we’ve seen the results of that drive in the form of new federal law in the United States. The newly-enacted Inflation Reduction Act is the most significant drug pricing legislation in recent memory, and it will have significant implications for the life sciences and health care sectors for years to come. It’s a wide-ranging new law—President Joe Biden signed it into law on August 16 – and it allocates billions of dollars of investment to a wide variety of different areas: it adopts climate and energy policies, it extends temporary subsidies for health insurance purchased through an Affordable Care Act marketplace plan, and it implements a new corporate minimum tax rate, among other items.

But some of the law's most significant provisions, and certainly some of the provisions that are garnering the most attention, are its drug pricing reforms. The statute’s drug price negotiation program perhaps has received the most attention among the law’s drug pricing reforms. For the first time, the Medicare program in the United States will have the authority to directly negotiate prices with pharmaceutical manufacturers for high-spend Medicare drugs.

Starting in 2026 for retail community pharmacy drugs—then two years later for physician-administered drugs—a new cohort of drugs each year will become subject to a negotiated price, or what the statute refers to as the “maximum fair price.” The United States Department of Health and Human Services will annually select among those 50 drugs that have the highest Medicare spend over the prior 12 months, to begin the negotiation process. This detailed negotiation process ultimately results in an identified negotiated price that takes effect about two years later.

Although the law has framed this as a “negotiation,” the maximum fair price effectively operates as a price control. To drive manufacturers to the negotiating table and compel them to agree to these maximum fair prices, the statute imposes substantial excise taxes, in addition to sizeable new civil monetary penalties. So if a manufacturer refuses to negotiate, or refuses to agree to the maximum fair price, that manufacturer has to pay excise taxes that can equal up to 1,900% of the selected drug's price. That’s up to 1,900% of that drug’s price for each unit sold during the period of noncompliance. Otherwise, the manufacturer risks having to terminate its various government agreements, thereby losing all benefits of participation in those programs for its entire portfolio. In the United States, where federal health care programs are an important force in the market, those consequences could be financially devastating. As a result, it’s somewhat hard to think of these negotiations as “voluntary” in the truest, most ordinary meaning of that term.

This negotiation program is expected to result in significant savings to the Medicare program. The Congressional Budget Office projected that negotiation will save the government roughly $100 billion over 10 years. In that, there are a lot of assumptions underlying those projections in terms of how the market might respond, and the pharmaceutical industry itself has said these negotiations are going to curb investment in research and development, resulting in fewer treatments that come to market and fewer indications for existing drugs. This is all hotly contested -- the extent of reduced innovation, whether any of those reductions are worth it in order to obtain the negotiated prices, and the spill-over effects in the market.

In the United States, this is a new development since the government has not historically negotiated prices for the Medicare program—it has historically been a free market approach for purposes of that program. But I realize that in some other countries, this type and level of government negotiation is more commonplace. Lincoln, can you share some thoughts on the European developments in this arena?

Lincoln Tsang: Sure. Governments in Europe have increasingly voiced their concern about high costs restricting access to potentially effective novel medicines. Most recently, the World Health Organization (WHO) urges greater transparency in drug pricing, particularly in relation to preventive and active treatments for COVID. The over-arching goal for the governments and payers is to ensure equitable and sustainable access to safe, effective and affordable medicines and medical technologies. Payers now recognize that costly medicines are a growing challenge for national budgets as well as for patients. The European payers are concerned that despite rapid pace in innovation, many patients do not benefit from innovative medicines because they are either unaffordable or unavailable. Policy is now being developed by the European Commission seeking to address this particular concern by encouraging greater cooperation on pricing and reimbursement through exchange of information; by improving transparency, such as guidelines on how to calculate the R&D costs of medicines in determining drug pricing. There is a greater impetus to rely on HTA health technology assessment as a tool to support the clinical added value and cost-effectiveness of new technology as compared with a standard of care. In the UK, for example, the health economic analysis has been robustly applied by the HTAs to scrutinize the value for money of medicine and MedTech prices. In addition, in order to strike a right balance between supporting innovation, helping to get the most cost-effective medicines to patients expeditiously and ensuring predictability on spend for the National Health Service, a voluntary scheme is agreed between industry and government that the amount of money the NHS spends on branded products is controlled or the industry refund it. This means that the branded products bill will not grow by more than an agreed percentage, 2%, in any of the next five years.

Margaux, there is a great deal of discussion on use of real-world evidence in assessing therapeutic effects and value. What is the experience that you have in the United States?

Margaux Hall: On this side of the pond, there is certainly a growing desire to look at that universe of data that is generated in the real world after commercialization and launch of a product. I think there’s increasing recognition among many stakeholders that there is a stark contrast between, on the one hand, the volumes of data that are collected and analyzed for purposes of regulatory submission when a biopharmaceutical manufacturer is seeking approval of a new drug or biologic, and then, on the other hand, the evidence collection that takes place once a product’s available on the market. That gap results in a loss of learning—of what works, what doesn’t work, and potential new indications—and you can think of a variety of stakeholders that could have real value in having access to that real-world evidence. Payers might want the data to help inform their access and formulary decisions, or to inform the terms under which they’ll reimburse drugs. Real-world evidence also can be of great value to spur future research and development. But in order for this type of evidence to be useful to this broad universe of stakeholders, we need to somehow align the formats for data collection and come up with a framework for enabling appropriate data sharing—and those efforts will raise legal and business challenges. Not withstanding that, I think it’s time to roll up our sleeves and start tackling those challenges head-on—I think there’s increasing interest in doing so, and I think that momentum will bear fruit.  That is my prediction for real world evidence in the years to come. What’s happening in this space in Europe, Lincoln? Are you ahead of us on real-world evidence collection and analytics?

Lincoln Tsang: It’s an interesting question you raised. Over here, there has been significant interest in filling the gaps left by randomized controlled trials with data generated from alternative diversified sources. Real-world evidence has been favored as an alternative data source because it describes in broad terms data generated in real-time from a whole range of different sources, including electronic health records, patient registries and patient-generated data. With the advent of artificial intelligence (AI) and machine learning, the datasets that these sources generate can be subject to sophisticated analysis to understand more about the drug utilization in the real world. In 2021, the EU adopted a regulation on health technology assessment (HTA), which aims at improving the availability of innovative technologies, such as medicines and medical technologies. The regulation focuses on clinical assessments, which are typically based on global evidence. The regulation also provides the legislative platform to facilitate information sharing of registries of real-world evidence to reduce uncertainty on clinical effectiveness.

Margaux, earlier on, we discussed transparency in drug pricing. Many jurisdictions across the globe, particularly in Europe, employ a system known as “international reference pricing” as a way to harmonize and contain drug prices. It is known that IRP is not without issues because prices used in different markets may not be comparable due to geographical differences in the disease burden, approved indications, uptake, financial resources, etc. Foreign prices may not necessarily take into account different legislative and enabling environments for innovation. What is your experience in international reference price in the United States?

Margaux Hall: This is an interesting issue that, for the time being, has become a bit less pressing. Earlier regulatory and legislative proposals for direct government negotiation of drugs in the Medicare program featured some form of international reference pricing. Multiple stakeholders—pharmaceutical manufacturers, health care providers, patients and others—objected to those international reference pricing proposals for reasons among the ones you just highlighted for all of us. Interestingly, what we have now, the IRA, does not benchmark against international prices and, instead, looks to discounts that are made available in connection with the Department of Veterans Affairs as one benchmark. So for now, in the United States, we’re not looking at government negotiation of price ceilings in a way that would take into account foreign prices. I think that’s probably welcome news in some regards, but maybe a bit of cold comfort to biopharmaceutical manufacturers given that there is a lot to otherwise dislike in this new federal statute.

Lincoln Tsang: Thank you, Margaux, for sharing your thoughts. There are a number of takeaways from today’s discussions. Although there are uncertainties in the future and a COVID endemic world, a few things seem predictable. The role of governments in the development and procurement of preventive agents and drugs is likely to increase, creating new government pricing pressures, even in markets like in the United States. Those pricing pressures will however need to be balanced against the continuing desire to safeguard a system to promote and incentivize medical advances and innovation. The role of the real-world evidence in informing cost-effectiveness will likely expand. There will likely be a closer focus on patients’ experience in determining the market access, which is often shaped by cost-effectiveness and affordability. Addressing patient access challenges strikes me as the next frontier to ensure that next-generation, targeted or personalized therapies are adopted for clinical use.

That’s all the time we have for today’s episode, and we want to thank you all for listening. For more information about our practice and other topics of interest, please visit our FDA regulatory and life sciences practice pages at You can listen to Non-binding Guidance and other RopesTalk podcasts in our podcast newsroom on our website, or you can subscribe wherever you listen to podcasts, including on Apple, Google and Spotify. Thanks again for listening.