Battling the consequences of price controls at high altitude

By Gunnar Esiason and Mike Sherman

POLICY | BIOTECH

Photo by Kait Herzog on Unsplash

March 25, 2024

What makes a drug unaffordable? And to whom? And how can policymakers tweak policy to make medicines affordable?

These are questions Prescription Drug Affordability Review Boards (PDABs) should be asking themselves as they debate the ceiling prices insurance plans are going to be permitted to pay for certain drugs at the state level. But it’s not clear that they are asking these questions, which is too bad, because the answers might surprise them and lead them to constructive solutions. 

Instead, as a pioneering PDAB takes its first baby steps in Colorado, we’re getting the impression that we’re watching the rules being made up as it goes along. Fortunately, we’re also witnessing the power of organized and impassioned patient advocacy to slow, reverse, and maybe someday reshape misinformed public policy.

The backstory

Colorado selected Trikafta, Enbrel, Stelara, Cosentyx, and Genvoya for PDAB review. Notably, these medicines are all at different points in their respective branded life cycles and treat different diseases and population sizes. 

The HIV medicine Genvoya ($32,000+) was deemed to be affordable by the board. The auto-immune disease drug Enbrel, which cost Colorado’s payers ~$46,000, was deemed to be unaffordable. 

Based on that, one would think that the PDAB would have found the cystic fibrosis drug Trikafta, at over $230,000 per patient, really unaffordable. But no, last December the PDAB acknowledged that Trikafta actually is affordable. 

However illogical it may seem that the PDAB deemed Trikafta’s $230,000 but not Enbrel’s $46,000 to be affordable, the board will now earnestly consider what Enbrel’s upper price limit should be, with consequences for patient access. 

At the heart of the selection process we can find patient advocacy, mathematical models, insurance design, total drug spend, out-of-pocket costs, copay assistance, and good old-fashioned government bureaucracy. What’s unclear is how much each mattered to the final determinations of which drugs to select. There’s certainly a lot of room for subjectivity. What we can infer from these first few cases is what it’s going to take to keep PDABs from undermining patients’ access to today’s medicines and tomorrow’s.

We speak from some experience. One of us, Gunnar, lives with cystic fibrosis, takes Trikafta, and was intimately involved in the advocacy effort to defeat the board’s effort to impose a so-called ​“upper price limit” for the drug. 

Rocky Mountain Spotty Policy 

At least nine states have begun implementing PDABs. While no two PDABs are created equally, they all have similar mandates to assess prescription drug affordability typically using faulty, European-style health technology assessments (HTAs).

Here’s what PDABs can’t do. PDABs can’t cap what payers are allowed to charge patients in out-of-pocket costs. This is somewhat ironic because, as Mark Cuban has pointed out, PBMs can impose high out-of-pocket costs on patients for what are actually inexpensive drugs. That a low-cost drug, even a generic, can be made unaffordable seems to be a giveaway as to what the problem with affordability is. Hint: it’s insurance design, and yet that’s what a PDAB can’t fix. 

Rather, in Colorado, the board has the power to cap the prices payers are allowed to pay for medicines it labels unaffordable for state residents. This isn’t just a state price limit on state healthcare plans. This is a state-wide prohibition against any plan, even a private commercial plan, paying more than the state price limit for that drug, under threat of financial penalty. Truly, this is a powerful government override of negotiation. It would be as if Colorado forbade anyone from paying Tesla more than $40,000 for its Model S in order to forcibly make that car ​“more affordable.” That might sound appealing to some, but the problem would soon become evident when Tesla stopped selling its cars in the state.

So Colorado’s so-called ​“upper price limits” (UPLs) present a notable risk to patient access. While consumer advocates will argue against this point, here’s why it matters: Colorado’s UPL could affect a drug’s so-called ​“best price” and therefore ​“cascade” into state Medicaid plans across the country since Medicaid purchases medicines at a ~23% discount off the drug’s lowest price nationwide. It’s a little complex, but what that means is that what happens in Colorado doesn’t stay in Colorado: if a drug normally priced at $100 is price-controlled down to $45, the nationwide Medicaid best price ($100*(1 – 0.23) = $77) would need to be recalculated ($45*(1 – 0.23) = $34.65). 

So companies can be expected to sooner pull their drug from the tiny Colorado market than lose out on significant revenues everywhere else, and access advocates have sounded warnings.

So how did Trikafta escape this situation? Ultimately, patient advocates argued in defense of Trikafta and the board came to recognize what we all already know: Trikafta is affordable to patients because insurance, supplemented with copay assistance from the drug company, makes it affordable.

And while the same is true for Enbrel (it is also well covered and patients receive copay assistance), the board reached a different conclusion. So however ultimately logical the PDAB seemed to be in the case of Trikafta, it didn’t seem to extend that logic further.

And yet there is an explanation for the PDAB’s decision. It’s clearest if you don’t think about which drug is more deserving of price controls but rather which drug has a coordinated defense against them. In other words, PDABs are pretty indiscriminate in their initial selection of drugs to price control (other than focusing on branded drugs with high prices and likely high revenues) and will follow through where there is little resistance from patients. The PDABs seem to operate with an ethos of ​“Let’s try to price control everything and see what sticks.” 

Two very different drugs

Trikafta is a unique treatment for the indication it treats (cystic fibrosis). There’s no other drug like it and losing access would be catastrophic for patients (you can read more about Gunnar’s life-changing experience with Trikafta on his blog). 

On the other hand, Enbrel is one drug out of many in its class (anti-TNFs for autoimmune diseases), and losing access is annoying for the patients who take it but not unconscionable. Just as a PBM might decide to cover some anti-TNFs and leave others off formulary – a common negotiating tactic between drugmakers and PBMs – Colorado has functionally threatened to boot Enbrel off all state formularies unless Amgen lowers its price. 

It’s important to understand these patient dynamics that fed into the HTA process for each drug because they shed light on the PDAB’s priorities and what those will mean for patients and the drug industry. The next drug one of these PDABs comes for might just be one you care deeply about. 

In defense of Trikafta, patient advocates highlighted that Trikafta is highly cost-effective for society since it keeps people healthier, productive, and out of hospitals and will eventually go generic, becoming inexpensive. Had Trikafta not been invented, society would be spending money on treating cystic fibrosis patients with hospitalizations and ER visits, which never go generic and represent an eternal and rising cost.

When the Colorado PDAB reviewed Trikafta, local patients rose up together. They took to the media, editorial pages, the halls of the Colorado statehouse and the PDAB Zoom meetings. They made the case that Trikafta was cost-effective, despite its per-patient cost, and they brought cost-effectiveness analysis receipts to make their point. They explained that because cystic fibrosis is a rare disease, the cards were stacked against the community. They understood that price controls in Colorado could mean no Trikafta in Colorado. The chorus was unanimous: ​“Colorado, don’t you dare take away our drug.” 

And Colorado didn’t.

Did anyone stand up to say the same for Enbrel? Not really. A spokesperson for the International Foundation for Autoimmune and Autoinflammatory Arthritis even suggested the board hadn’t done enough to ​“engage patients.” Maybe because Enbrel’s an older drug; it was once novel, the first subcutaneous anti-TNF agent, and delivered a profound benefit for patients with autoimmune disorders when it first came to market, generated substantial sales, and eventually attracted many competitors, including some that are better than Enbrel. 

That’s ideally the way medical progress works. Maybe someday CF patients will have that luxury, too, of having medicines that are even better than Trikafta. 

And yet, in losing its uniqueness, Enbrel lost the loyalty of patients it needed when Colorado’s PDAB targeted it for price controls. If there is an Enbrel community, it didn’t show up to defend the drug in the same way the cystic fibrosis community did for Trikafta. The PDAB meetings for Enbrel weren’t as tense nor were they filled to the brim with community members who wanted to question the PDAB processes and justify the drug’s list price. 

Would patients be helped by a PDAB price controlling a non-unique drug? It’s certainly hard to see how this could be the case, since the Colorado PDAB’s price cap will likely prompt Amgen to stop selling it in the state. Removing one drug from the playing field also means others have one less competitor for PBMs to leverage in their negotiations. Hopefully that won’t cause plans to raise out-of-pocket costs of the remaining drugs, because there’s nothing about the PDAB that lowers the out-of-pocket costs that plans can charge patients, who will still be on the hook for whatever costs their plans impose on them for a different anti-TNF. 

Will doctors care? We surveyed 50 physicians who prescribe Enbrel (almost 1700 prescriptions in total) and found that the drug might actually be replaceable in a lot of cases, even though switching patients off a drug that works for them wouldn’t be preferable. We also spoke with an inflammatory disease patient advocate who came to a very similar conclusion on Enbrel’s use. (Not all drugs in a class are interchangeable, and one or another may work better for particular patients; notably Enbrel is the only drug approved for children aged 4 – 6 with psoriasis, but when pressed, physicians noted that prescribing another drug off-label might be a possibility.)

But is Enbrel affordable for the patients who take it? It’s a bit of an odd question, since by definition anyone taking a drug is able to somehow afford it. Still, the PDAB cited a very small survey in which 8 of 38 Coloradans reported that ​“Out-of-pocket costs [of Enbrel] have caused me to accrue medical debt,” and 20 of 38 answered, ​“Due to the cost of this medication, I have had to cut costs in other areas of my life.” 

So let’s accept that these patients are struggling with the out-of-pocket costs imposed on them by their insurance plans. For whatever reason, they are not getting copay assistance. Will the PDAB help these patients? No. Patients will be losing out on their preferred anti-TNF agent without getting anything in exchange for the inconvenience of having to switch medications and likely being stuck with similarly high out-of-pocket costs on the new anti-TNF their doctor prescribes.

Price controls have different consequences on old vs new drugs

Besides patients, physicians, and payers, innovators and their investors have a major stake in the outcome of the Colorado experiment with price controls. And like patients, they have reason to care a lot more about Trikafta than Enbrel because one is new and the other is old.

It’s hard to overstate the age gap between Enbrel and Trikafta. Trikafta was first approved in 2019, while Enbrel hit the market in 1999. 

The patent system and the Hatch-Waxman Act intend for novel medicines to generate a market-based return over an average period of about 14 years, after which they are expected to go generic and become inexpensive for society. It’s kind of like society is paying off the mortgage on a drug and then enjoys its benefits for low cost forever after. This aspect of the biotech social contract holds true for most small molecules, but biologics are more complex and harder to copy (their copies are called biosimilars, not generics). Biologics also feature more post-launch patenting that delays biosimilar entry. So the mortgage can become stretched and start to feel like an eternal rent. 

Trikafta is still in the early days of its launch and therefore what society is spending on it is still very much a mortgage meant to pay off this innovation so that it can someday go generic, becoming inexpensive while still helping patients and saving society billions in hospitalization costs and lost productivity. 

But Enbrel, at 25 years post launch, is much longer in the tooth. Enbrel’s first biosimilars are FDA approved, but not likely to hit the market until 2029, 30 years after its launch. Were Enbrel a small molecule, it would most likely have gone generic by now. Its mortgage should have been paid off by society about a decade ago.

If innovators saw that Trikafta were subjected to price controls just five years after launch, that would have a chilling effect on their willingness to risk time and money on making new drugs, since they might expect that any success would also be met with price controls soon after launch.

But seeing Enbrel price controlled 25 years after launch doesn’t send that message. Discounting of future cash flows means that profits earned much beyond the average 14 year period protected by patents and Hatch-Waxman have little value to investors and innovators when they are making early-stage funding decisions a decade before a drug comes to market.

That’s why stimulating innovation requires novel medicines being financially successful in those first 14 years; if they are, then it’s not important to innovators and their investors that the drugs thereafter go generic. This is the intent of the patent system, to dangle the rewards of market-based pricing for a patent-protected period of time in front of innovators and investors while society gets the lion’s share of the value of all that innovation in the long run. 

It’s not clear to us that Colorado’s or any other PDAB would consider how long a drug has been on the market or why it still had exclusivity, or if they’re even aware of the distinction. PDABs aren’t even the appropriate bodies to be adjudicating the kinds of patent games or legal loopholes that result in a small handful of drugs maintaining brand exclusivity for more than 20 years. 

Ultimately, the PDAB targeted Enbrel, patients aren’t coming to its defense, and so the price controls are likely to go through. And yet, maybe by a stroke of luck, this is a drug whose price control doesn’t directly discourage innovation. However, what should worry innovators is that even if Enbrel were novel, as long as it’s not unique, patients would still probably not come to its defense. 

Often there are several drugs that come to market in a novel drug class. Let’s say that many companies are competing to treat a disease and three make it to the market within a few years of one another. Imagine if within five years of the first one launching, a PDAB picks the best selling one of them and imposes price controls. Patients might not be bothered much since they would have two other options, but that would absolutely chill investment in innovation. 

Even if Colorado went after a second drug in this class, patients might not show up to defend that one either since they would still have another option. Patients might then only come out in defense of the last drug in the class. That’s absurd and yet this is the logical lesson of the Trikafta-Enbrel PDAB case studies. When considering whether to fund other companies competing to cure a different disease, investors would wish to know which of the companies would end up with the last drug standing. And yet that’s impossible to know. So investors would logically assume that price controls would rob them of financial returns and just stay away from biomedical innovation. 

That’s why it’s critical that novel drugs not be targeted for price controls. Market-based negotiation among payers and drug companies – yes. Government price controls that supercede all market-based negotiation – no.

Next up, Maryland

Complicating things further, Maryland’s PDAB recently released its list of medications for a preliminary review. That list includes some newer drugs, and certainly nothing as old as Enbrel: Biktarvy, Dupixent, Farxiga, Jardiance, Ozempic, Skyrizi, Trulicity, and, perplexingly, Vyvanse, which is already generic. We’ll in particular keep our eyes on Biktarvy and Skyrizi. Like Genvoya, Biktarvy’s an antiretroviral combo drug for HIV; advocates in Colorado pointed to cost-sharing programs that keep the drug affordable and accessible, while the board noted Genvoya’s use in the state is actually decreasing in declaring it ​“affordable.” We suspect Maryland patient advocates and advocacy groups could do the same with Biktarvy. 

Skyrizi, an anti-IL-23 auto-immune disease drug introduced just five years ago, worryingly may fall into that novel-but-not-unique category where patients and physicians aren’t jolted into fighting hard for continued access – but where access remains key to inspiring future innovators and where alternatives (other IL-23 targeters or drugs that target IL-17) don’t have quite as strong an efficacy and safety profile. 

If there is any lesson to be learned from Colorado, it’s that copay assistance – whether from government programs in the case of Genvoya or from the manufacturer in Trikafta’s case – and effective patient advocacy both weighed heavily on the board’s mind. Copay assistance certainly drives towards the question of affordability, but in truth, it’s often the manufacturer that’s stepping up to meet the needs of patients whose insurance plans are falling short (though Medicare patients are unable to receive copay assistance). On the surface, Maryland’s list largely doesn’t seem to stir up the same potential for a patient advocacy battle.

The key takeaway here is that to preserve access to an existing medicine and preserve innovation, patients and advocates have to show up to make their case. In the PDAB’s process, the board allows space for patients and community members to speak up. The CF community showed up, took over meetings, and got loud in state and local media outlets. One CF patient advocate in the state, Amanda Boone, cited HTAs outside the United States as a rate-limiter for patient access to Trikafta, and now the CF community has taken the effort a step further and is attempting to convince the Colorado state legislature to carve all rare diseases out of future PDAB reviews.

If the PDAB targeted expensive drugs after 13 years like CMS does with Medicare negotiation (14 years would be better), innovators wouldn’t really have a problem with it, though that still creates a confusing patchwork pricing landscape for physicians and patients and administrative complexity for payers.

Photo by Mike Scheid on Unsplash

So far the Colorado PDAB leaves us with more questions than answers and fails to lend a credible voice to the problem of healthcare affordability in America. If the PDAB targeted expensive drugs after 13 years like CMS does with Medicare negotiation (14 years would be better), innovators wouldn’t really have a problem with it, though that still creates a confusing patchwork pricing landscape for physicians and patients and administrative complexity for payers. That will inevitably lead to greater frustration and increased administrative expense, which so many of us have been trying to reduce.

And the bigger problem is if only a few states do it, then instead of companies accepting that this is simply a state-by-state regulation that does what genericization is meant to do after a patent-intended mortgage period, companies will pull their drugs from PDAB states, denying access to patients. So patients in a few states will go without simply because all states aren’t enforcing the biotech social contract. 

Colorado is offering the wrong solution to a problem that should be addressed at the federal level

We have to ask: why are states even tackling drug pricing? 

Because the federal government hasn’t solved the national problem of out-of-pocket costs. Insurance plans seem to promise people that they will be able to afford appropriate care when they fall sick and then stick them with unaffordable copays, co-insurance, and deductibles, often disconnected from what a treatment really costs. That’s maddening. And the public makes its anger known. That drives policymakers to offer solutions. But because healthcare and drug pricing and insurance are complex, policymakers often misdiagnose the problem and offer the wrong solutions. 

The federal government should solve drug affordability for everyone by capping what insurance is allowed to charge patients out of pocket for what the plan considers a covered medicine. It did that for Medicare plans via the Inflation Reduction Act, capping out-of-pocket costs at $2000/​year. And it should extend those caps to all commercial plans instead of leaving it up to states to muck through these issues. Because what we’re seeing is that Colorado has misdiagnosed the problem and offered the wrong solution. 

Federal policymakers appear to be working their way towards the right set of solutions for the whole country. Congress is already talking about fixing the nine-year penalty for small molecule drugs and President Biden proposed extending Medicare’s $2000/​year out-of-pocket cap to all plans in his recent State of the Union address. 

Until then, we must hope that patient groups can fend off PDABs from making state-level mistakes based on their diagnosis of the affordability problem. This is the kind of policy that generates good-looking headlines to appease frustrated voters who want to see elected officials doing something, anything, and even the wrong thing to address their anger over out-of-pocket costs. In the long run, it will probably prove embarrassing to its proponents. The question is how to mitigate its harms in the meantime. Patients and their advocates can make the difference.

Gunnar Esiason is a cystic fibrosis patient advocate and the head of patient engagement at RA Ventures. Mike Sherman, former Chief Medical Officer at Harvard Pilgrim, is a venture partner at RA Ventures.