Governor Baker’s proposal on drug-pricing will hurt biotech — and consumers
Governor Baker knows a lot more about health care than your average person. That is why it is so surprising that in his 2019-20 budget proposal he has opted for political gimmickry on drug pricing rather than attempting a more serious approach to improving health care for Massachusetts residents while reining in spending.
Baker proposes to experiment with the state’s Medicaid program, which serves our most vulnerable residents, by attempting to use strong-arm tactics to compel so-called voluntary reductions from drug manufacturers, not unlike what President Trump has touted. This is a dangerous game, with Massachusetts’s neediest residents as the potential big losers. The Legislature should demonstrate its leadership by soundly rejecting this approach and opting instead for a bipartisan effort at real reform.
Medicaid was designed by Congress to ensure that our most vulnerable patients get rapid and equal access to the latest medicines by requiring that drug companies always provide the “best price” to these patients, a guaranteed 23.1 percent discount or the lowest price they offer in the country. This is so important that the federal government subsidizes part of these costs to help the state afford the program. The governor’s strong-arm tactics to squeeze innovative companies for more concessions risks delaying or denying access to new medicines for these patients in ways never intended by Congress.
Second, the governor’s approach won’t work — it won’t meaningfully reduce the Commonwealth’s health care budget. Drug spending is only a small portion of the state’s health care costs. At a national level, retail drug spending represents a small portion of overall health spending (10 percent) and grew at a significantly slower pace, compared to other sectors. In MassHealth, retail drug spending only accounts for 6.3 percent, after rebates, of total health dollars. The governor’s new proposal hopes to squeeze an additional $80 million (a meager 0.5 percent reduction in MassHealth spending) by threatening companies who are already providing the mandatory best price with investigation if they don’t provide additional rebates. Threatening attorney general investigations as a means of extracting additional discounts is inconsistent with American values. Other states have tried this type of approach and have come nowhere near close to those levels of savings. What’s worse, even if successful, this sort of effort will do nothing to actually bend the health care cost curve — only continued investment and support for developing new medical breakthroughs can truly do that.
Finally, while the governor’s proposal will not meaningfully reduce health care spending, it will without a doubt harm the highly productive medical innovation ecosystem, which is the beating heart of the state economy, and will potentially result in job losses.
The number of biotech companies in the state has grown by 28 percent in the last decade — directly employing close to 70,000 people bringing home over $10 billion in Massachusetts-based wages. Why is this unparalleled level of innovation happening here? Because of the educated workforce, academic medical excellence, major investments in innovation, and the interest and availability of capital, forming an unrivaled biomedical ecosystem that has proved its worth 10 times over in discovering new breakthroughs. Massachusetts companies have developed therapies for more than 260 million patients in the United States and close to 2 billion patients around the world.
Instead of following the governor’s political gamesmanship, the Legislature should pull together a group of experts from all corners of health care to work on a series of real reforms that can both improve health outcomes for our residents and cut unneeded spending without risking harm to our most vulnerable patients.
Robert K. Coughlin is president and CEO of MassBio.