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ICYMI: John Lechleiter: An Empty Obama-Clinton-Sanders Plan on Drug Costs

March 22, 2016
Writing in the Wall Street Journal today, Eli Lilly and Company Chairman, President and CEO John Lechleiter examines proposals that would require pharmaceutical companies to disclose detailed information about the cost of R&D for individual drugs and the extent of discounts offered to insurers for each drug. Such proposals have been advanced in President Obama’s budget and on the campaign trail by Bernie Sanders and Hillary Clinton. But as Lechleiter explains, the key numbers are already known, and these proposals would do little to advance the affordability of medicines to patients.

Regarding the cost of R&D for new drugs, Lechleiter writes:
Averages are easy enough to come by—a new academic study in the Journal of Health Economics says it takes about $2.6 billion in R&D investment per new medicine launched. Calculating a precise number for an individual product is quite another matter. Consider Lilly’s investment of billions of dollars in R&D related to Alzheimer’s disease over the last quarter century. Since there are several candidates in our pipeline that emerged from past work, to which future product and in what proportion should these costs be allocated? And to what end?

The key insight is beyond dispute. Developing medicines is risky, expensive and time-consuming, and everyone would be better off if it were less so. Rather than meaningless disclosure mandates, policy efforts instead should encourage whatever can be done, without compromising patient safety, to shave precious weeks off development and regulatory-approval timelines.

On the proposal to mandate disclosure of discounts, he writes:
Mandating further disclosure of discounts negotiated by drug companies also is a route to nowhere. Lest anyone doubt that the discounts are substantial, allow me to report freely that the average net prices paid last year by Lilly’s customers in the U.S. ranged from a high of 67% of list prices paid by commercial health plans to a low of 19% paid by government purchasers including Medicaid. That’s right: The average discount off list price was more than 80% for government payers.

I’m not cherry-picking these figures—they cover Lilly’s entire portfolio of established products. But forcing Lilly, or other companies, to disclose product-by-product and payer-by-payer discounts would be an unprecedented affront to free-market competition.

As Lechleiter notes, “The list prices of medicines that feed media sensationalism are paid by essentially no institutional or government buyer in a hotly competitive marketplace.” However, many patients do face affordability problems because insurance companies often require them to pay a much higher percentage of their drug costs out of pocket than for other services such as hospital costs – 20% on average for drugs, compared to 5% for hospitals.

Read the full piece here.