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By John O’Brien, president and CEO of the National Pharmaceutical Council
With a new Congress, a new administration, and new leadership in statehouses across the country, there is a new opportunity for a data-driven and evidence-informed conversation about the value of medicines to patients and to the health system.
At the time of this writing, the incoming administration was announcing its nominees for key health policy leadership roles. As this piece publishes, the nominees are preparing for confirmation hearings — a process that will continue to consume a lot of time and attention.
I’ve learned that personnel is policy; who is confirmed to these important roles matters. But personnel won’t change the unfortunate starting point in January 2025: We have a health care system that views medicines as an arbitrage opportunity to extract margin and fund other priorities, rather than seeing them for their ability to help make Americans healthy, stay well and avoid more costly settings of care.
As a result, many of the policy conversations are about perverse incentives and unintended consequences that hurt patient access and reduce the resources available to drug manufacturers to research and develop future biopharmaceutical breakthroughs.
I’m a pharmacist by training, and today I lead the National Pharmaceutical Council, a 70-year-old health policy research organization that, throughout its history, has informed health policy conversations with evidence and science.
This work is more important than ever in 2025, and we will gladly share the findings of our research with any policy maker from any party or branch of government — or any pharmacist reading Chain Drug Review — who is interested in an informed discussion about the important issues that impact the future of innovation and patient access.
Employers are paying attention
to PBMs
Fifty-three cents of every dollar of what we call drug spending in the U.S. goes to some other part of the health care system — not the drug manufacturer. Where do those 53 cents go, since it’s not to the patient at the pharmacy counter?
For six years net prices have gone down, even while this system rewards higher and higher list prices. The prevalence of the gross-to-net bubble is perhaps why we saw a growing interest in pharmacy benefit manager PBM business practices not only by multiple branches of the federal government, but also by employers. I expect that will continue in 2025.
Employers are concerned about the return on investment they will get from rising health care costs, and many are starting to ask more questions about the pharmacy benefits they are purchasing.
Last summer, Mark Cuban shared NPC research on the role that rebate guarantees and employee benefits consultants play in self-insured employers’ decisions about benefits.
The data from that study showed 60% of employers relied on benefits consultants for these decisions. It found that if you worked with a benefits consultant, you were more likely to be in a rebate guarantee arrangement — which means you might be purchasing a formulary with higher-priced drugs that increase total cost of care.
Here’s why that matters: the 2024 Pulse of the Purchaser survey found that employers who are already on a value-based formulary reported three times lower spending on average compared to their counterparts on a rebate-based formulary.
The same survey found that half of employers are considering changing their PBM in the next one to three years and focusing instead on value-based formularies. Employers are paying attention.
340B is a markup program too big to ignore
Two years ago, on the 30th anniversary of its creation, I wrote a plea for more data and an honest conversation on the 340B program. At the time, the latest data said 340B was a $44 billion program — but growing fast.
Today, it’s $66.3 billion — a 50% increase in just 24 months. Minnesota’s landmark report on covered entities was a welcome breath of transparency — but provided more confirmation that large hospital systems are using the program to mark up drugs purchased at the 340B rate and turn a massive profit on them.
Let me be clear: As a pharmacist and caregiver who regularly takes my Mom to a Federally Qualified Health Center for her routine care, I’ve seen how important the 340B program is to financially stretched grantees.
But the program isn’t growing because more people are visiting clinics like hers, it’s because the program is being abused.
The research and evidence that has been published over the past few years has helped to inform decision makers that this program is increasing costs while hospital systems churn profit through drug markups.
For example, research found that the 340B program increased health costs for self-insured employers and their employees by $5.2 billion annually. Another model found one type of 340B direct contracting practice increased costs for every part of the equation — except the 340B hospital.
Despite the growth, the federal agency charged with overseeing the 340B program has not played a major role in ensuring compliance with requirements related to drug diversion and duplicate discounts, effectively amounting to “pay and chase” for manufacturers. The U.S. Government Accountability Office found that between 2012 and 2019, the Health Resources and Services Administration conducted only 1,240 audits of covered entities but found 975 examples of diversion or duplicate discounts.
New leadership at the Department of Health and Human Services could take an immediate step toward reducing the abuse of this program by blessing the rebate payment model proposed for 340B by several manufacturers, which is intended to reduce duplicate discounts while rapidly ensuring reimbursement for 340B purchases. Policy steps like this can help protect the program to ensure it is benefiting the underserved as it was intended.
Huge concerns about implementing IRA’s Drug Price Negotiation Program
Research has found that the IRA’s price setting may delay launches, reduce the number of subsequent indications and have a chilling effect on post-approval outcomes research.
But as we approach 2026 when the first Maximum Fair Prices (MFPs) go into effect, there are tremendous concerns about just about every part of the DPNP.
First, we don’t know what the impact for patients will be. Access and coverage for the first 10 drugs was good and getting better; now that Part D plans have a much higher financial incentive to use utilization management, will plans prefer non-MFP drugs? Will patients experience more utilization management for selected drugs?
Second, there are new concerns about how much the law will save the government overall. The Congressional Budget Office sent an update to Congress that the cost of the law’s Part D redesign would be $10 billion to $20 billion higher in 2025 than originally projected.
Third, it isn’t clear what evidence CMS valued or will value going forward in turning qualitative inputs into a quantitative price, and the “concise justifications” weren’t required to be released until after the process for the next round of drugs was well under way.
Fourth, pharmacies are concerned about the effectuation of the MFPs and whether the process CMS has laid out will leave them “floating” the program. Their concerns are occurring against the backdrop of questions over how the Medicare Transaction Facilitator will be set up and whether it will be ready. How will the new leadership at CMS respond to these concerns?
The value of medicines
The thread through all these conversations is that our current system looks at medicines through the lens of the amount of margin that can be extracted for various middlemen. That ends up leaving patients on the hook while continuing to take cuts out of the resources available to generate new breakthroughs to address unmet need.
It is important that medicines are valued based on what the science and evidence tells us. When you ask physicians which medical innovations have impacted outcomes most for U.S. patients diagnosed with debilitating health conditions, they attribute more than half of the improvement in outcomes to biopharmaceutical innovation.
As we head into 2025, there is a tremendous need — and opportunity — to educate policy makers on how the pharmaceutical ecosystem really works. We are now in an era where, for the first time in my career, policy risk is as big as clinical or regulatory risk for pharmaceutical manufacturers.
Good policy is based on good evidence. We are living in a golden age of biopharmaceutical innovation. If we want to help more Americans cure their sickness, manage their chronic conditions and be protected from communicable diseases, let’s start by understanding what the evidence and science say as we work together to build a healthier tomorrow.
