When Parties and Pricing Collide

I was barely awake on the “first day back” when I saw the first of several stories about drug prices in The Wall Street Journal. By the time I had returned from the gym (New Years resolution going strong so far), the derivative press and business pundits were all a buzz about what the Democratic House of Representatives might do in a world where Big Pharma wasn’t taking the hint and some companies (and you know who you are) were proposing hikes approaching double digits.

None of this was surprising. Over the holiday break I was part of multiple discussions with respectably lubricated health care speculators from across the political spectrum who were sure that they had the solution to all of our health care problems. Most of these theories started with drug pricing. 

I wish I had been more diligent and captured the nuances of these solutions because many of them seemed a lot less coherent in the cold naked light of day.  To make matters worse the few things I jotted down on napkins were unreadable as they were blotted out by a color that looked suspiciously like the mustard I had applied to the delicious “pigs in a blanket” served at a number of these holiday parties. 

What remained were a couple ideas interesting enough to merit some consideration as we navigate our way through the intersection of fair and right.

Idea 1: Pharma Companies domiciled outside of the US (particularly in Europe) can only charge US payers/patients the same prices they charge in their home countries 

Pros:  This just feels fair + right?  After all, why should we be subsidizing your healthcare (insert your least favorite European country here). 

·     It would sure slow down inversions by US companies looking for a tax break. What foreign drug maker would want to take an immediate 40% to 90% price cut on the US business.

·     It would streamline the system, eliminating the need for many of the rebate programs used today. Further, it would limit the role of PBMs since the public and private payer acquisition cost for all of those European drugs be transparent and lower. 

·     Game theory: Countries like Switzerland, UK and France would be under pressure from their Drug companies to take their local prices up! If you don’t think I’m serious consider that almost 50% of Switzerland’s exports are chemicals and pharmaceuticals[1]so you have to believe that Roche and Novartis have a seat at the table.

·     More game theory: US Pharma would have to meet the Europeans prices that have just been lowered. Here’s the great part, all of the US Companies would be able to raise their European prices…. and we have more Rx companies, than anyone! Lower prices here, profit losses offset there, to quote the former star of 2 and ? Men, “WINNING”.

Cons  

·     Ultimately, the US ends up with all of the Rx companies domiciled here which sounds good but ends with government control of drug prices. Of course, I plan to see many of the members of the Holiday Brain Trust around Easter so I may have a solution to this problem by late spring.

Idea 2: Any American who owns stock in a US Pharma Company gets drugs for the same price as company executives.

Pros:   Suddenly we all love drug companies! Moreover, as stock holders and patients, we would want our companies to develop the safest most efficacious drugs versus just buying back their stocks. 

·     For a about $600 you could own a basket of shares from PFE, JNJ, BMY, AMGN, and MRK. That covers a lot of illnesses and hey you are buying American!

·     The solution isn’t just for the rich. Since many union and state government pension funds already hold these stocks; teachers, firefighters, machinists, and more are all in!

·     Over-The-Counter Drug divisions will become important to pharma again. After all, OTC drugs have great margins compared to everything except…. well…. Rx drugs

·     Game Theory: It helps solve the illegal immigration crisis. Since non-US citizens won’t be eligible for this pricing they will really want to become citizens so they can get the discounted drugs.

·     Once again, PBMs become unnecessary as we all end up negotiating with ourselves.

Cons:  Ultimately everyone wants to be American because of the low drug costs and traffic to the New England Consulting Group  Headquarters in Westport, CT is already pretty bad.

Idea 3 (Really Idea 2A) US drug companies would cut their dividends for institutional investors but pay out bigger dividends to individual stock holders in days of therapy

Pros:   Damn those mutual funds and the cigar smoking fat cats that run them! 

·     Cost of goods promotions are less expensive than full retail prices so the system would be very efficient.

·     It would democratize stock ownership even further

Cons:  It was pretty late when this idea surfaced and there were multiple desserts out so I may have missed the cons.

Whether you like these ideas or not, you have to admit that the storm clouds around US drug pricing are gathering. It’s one of the few things that Trump and Pelosi agree on and as we get deeper into the year, I have a sinking feeling that without some creative approaches, a number of 2019 Rx CEOs are going to be in front of congress looking a lot like their Silicon Valley peers did in 2018.   

But let's be honest, while Big Pharma isn't perfect, they have delivered a steady stream of innovations for years. Anyone with multiple family members in their late 60s and beyond can probably point to a drug or two that has saved or extended a loved one's life. I'm not saying we shouldn't look for free market mechanisms that can help clarify and lower drug prices. I am just saying that before we light the torches and grab the pitchforks this early in the year, we should strive for a calmer and more reasoned approach. I you can't get calm on your own, I think there's a pill for that.

Happy New Year!

[1](Swiss) Federal Statistical Office, (Swiss) Federal Customs administration