Podcast

Matt Stoll (00:00)
And welcome back to On Background. This morning, this afternoon, no it’s this morning. We are joined by a couple great guests. one of, JJ is out, she had some emergencies to take care of. So this morning we have Brianna Meyer. Brianna is a pharmaceutical consultant with 20 years of experience and an adjunct instructor in pharma policy at the University of Minnesota. Brianna, thanks for joining us this morning.

Bryana Mayer (00:31)
Thanks, Matt.

Matt Stoll (00:33)
And our guest this morning is Doug Holtz-Eakin. Doug was the former CBO director from 2003 to 2005. Did I get those dates right? Is it Bush II? Yeah. And is currently the president of the American Action Forum. Doug, thanks for hanging out. Appreciate it. Steve, you want to kick it off?

Douglas Holtz-Eakin (00:43)
That’s right.

Thanks for having me.

Steve (00:52)
Sure. So thanks. Thanks for joining in for a fun conversation. So we’re talking pharma policy and there’s lots of stuff that’s been going on in this space. There’s some work that actually Brian and I just did some in this area too. But I want to kick it off a question to Doug. One thing that has been invading my TV watching in the morning, I use like a four screen now on YouTube TV just to

you recreate that experience of, you know, working in DC because you just can’t get enough, right? So and so I keep on hearing about this thing called the Biden pill penalty. ⁓ Can you explain what this is actually?

Douglas Holtz-Eakin (01:24)
you

can. ⁓ As ⁓ listeners I hope are aware that during the Biden administration, Congress passed and he signed the Inflation Reduction Act, which was no such thing. And it included a large swath of pharmaceutical part of the policy, ⁓ including the so-called negotiation regime, where legislatively you set ⁓ a ceiling for the maximum fair price for a drug. And then there’s a negotiation.

which takes place between the pharma and CMS in a black box. No one’s privy to what goes on in there and out comes the price ⁓ for 10 drugs each year at the moment. It expands later on. ⁓ And ⁓ if you are so unlucky as to enter this regime, ⁓ there’s a starting date and that starting date is nine years of exclusivity for small molecule drugs.

and 13 for large molecule drugs, biologics. And it’s never been explained exactly why 9 and 13 are the magic numbers, and in particular why 9 and 13 are different numbers. ⁓ And certainly, if you have only nine years to recoup the enormous investments required to deliver drugs to…

the market in the United States, ⁓ that’s a big penalty compared to 13. And one would expect this to affect all sorts of choices ⁓ in terms of R &D by pharma companies and ⁓ strategies for marketing those drugs. indeed, we’re starting to see that right now. But the penalty is that shorter time to recoup your investments.

Steve (03:17)
Just to make sure everybody understands that just a play professor for a second. the average patent life is or not average, but patent life is 20 years. know, as you know, Doug, mean, and Brian, you can chime in real quick on this. mean, you just because you the patent starts when the molecule is filed with the patent office and then basically, you know, you might not get to market until what year 12. Right. So in terms of all the things you have to do for clinical trials. So

Matt Stoll (03:17)
it

Bryana Mayer (03:45)
Yeah, absolutely.

I the time to market is taking longer. We know that the FDA is requiring larger clinical trials. That’s going to take more time. It’s going to cost more money from the industry standpoint. Doug, I’m curious what your thoughts are on those years. And do you think that it should be different between the two? And if you had to choose, how would you align that policy?

Douglas Holtz-Eakin (04:08)
Well, let me just stipulate at the outset so the listeners understand. I wouldn’t do any of this. I think the Inflation Reduction Act is just a mistake. It’s bad policy, not something I would have gotten into. Conditional on being in this regime, think 13 sounds like a minimum to me. And I would have preferred to have something that looked like 15 years, 16 years. mean, if you aren’t going to go to 20, get closer.

Bryana Mayer (04:36)
Yeah, yeah. What do you think some of the bigger impact might be on patients and society overall with this reduced timeline?

Douglas Holtz-Eakin (04:46)
So the first thing that you can imagine is that ⁓ unlike now, like now you get a patent on the drug, sort of get it all tested out, you get one indication, one ⁓ population that you can treat, and you put it on the market and you start making some money, and you keep looking for other populations that the drug treats and get more indications and broaden ⁓ the usage of the drug and the revenues that it produces.

⁓ Since the clock is going to start ticking the moment you put it on the market, I would expect many firms to hold back drugs.

look for more indications and then once they’ve got what they think is the basically the whole range, launch the drug and make as much money as they can in those nine years. So this will have had the perverse result of deferring the access ⁓ by seniors to our most innovative and new therapies and that’s conditional on having those therapies and all that. The second thing that would happen, think given the assuming that we have the same therapies out there is

This really complicates generic entry because if you’re looking to enter…

and you’ve got a drug and it’s out there and it’s being priced and you’re thinking about just entering and your target price to enter. And then you do all the work to get the generic ready for market. And just before you go to market, it’s announced that it’s now in the negotiation regime that’s been selected and that the price you’ve been looking at could be way lower. I mean, half of it or something like that. Now you’re stuck. have a really, you’ve got a bad business decision. So it’s going to complicate generics. I think, you know, the,

evidence is quite powerful. The more generic entry you get, the bigger downward pressure on prices. And so again, perverse result, something which is supposed to make drugs cheaper, makes them more expensive because you don’t get the generic entry, don’t get the downward pressure and competitive pricing. That’s not a desirable result. And we’re not going to see that for a number of years, but

That’s something that I would expect to happen if this regime remains unchanged. Then of course there’s question of what therapies will you in fact develop? And we have already seen ⁓ a predictable result, which is that people funding early stage research are thinking, okay, let’s get away from small molecule drugs and let’s go where the money is. And the money is drying up for the small molecule drugs and shifting over to biologics for seniors or…

let’s just avoid the market for seniors and start looking at pediatric drugs and sort of look at the different places. And so this is going to distort ⁓ R &D plans dramatically. And we will see less innovation in a place where we have seen an enormous amount over the past 15, 20 years. ⁓

Matt Stoll (07:36)
So kind of dug on that topic. there’s a pre-print article that’s going to go up on the Heal Network that tries to tease out productivity gains from biologics versus small molecule drugs. It’s always like, here’s the money we’re putting in, here’s the money we’re getting out as a society. So as an economist, what’s your take on that?

Douglas Holtz-Eakin (07:55)
This is going to sound like ⁓ I’m sucking up. I’m really not. I think it’s a great piece of research for a couple of reasons. Among the things that irritates me about

Matt Stoll (07:59)
Go for it.

Douglas Holtz-Eakin (08:07)
⁓ discussions of health policy is that somehow we pretend that these are not economic decisions. We just toss our economics and pretend that health is special and different. There’s an enormous amount of health policy to be improved by just having it be good economic policy and don’t interfere with things that you shouldn’t and the like.

So thinking about the economic impacts of ⁓ therapy, small molecule drugs, is the flip side of that. We often forget that it’s not just health, but larger impacts like on the ability of people to work, ⁓ contribute to society, are impacted by the drugs. And this is on that vein.

I was really impressed with the size of the numbers. know, sort of look at the drugs that are developed over about a, I think it was about a 15 year period, maybe a little shorter. And you get, you know, $230, $220 billion worth of additional output, additional productivity out of the labor force because people can work more. They are not sick, they’re not disabled, they’re capable of working and they do work and they produce things on their own behalf.

Matt Stoll (08:56)
Mm-hmm.

Douglas Holtz-Eakin (09:16)
half society, those are big numbers and the majority of it was in the small molecule drugs. Something like 160 billion of it, if I remember right.

You know, that’s a great reminder that there’s a lot more at stake with these drugs than just the health of the seniors. Like, we have a big investment in making sure that people can work with conditions they have, whether they’re mental health conditions or some sort of other chronic disease, and we can manage those things, and people can work and be productive. That’s an important lesson.

Matt Stoll (09:54)
Fantastic.

Steve (09:59)
So, Brian, I know you want to ask Doug about some new questions about the new initiatives they’re doing in private health enterprise.

Bryana Mayer (10:06)
Yeah, absolutely. mean, if you think about academia, I mean, you’ve worked in government, you’ve worked in academia, and obviously you know the industry very well. I mean, what can we do, what can those different sectors do to drive down the cost of the development of drugs while still maintaining and gaining in terms of health outcomes for patients?

Douglas Holtz-Eakin (10:32)
well

i i think it’s is it’s not complicated i mean you know you have to ⁓ you know go back to the constitution recognized the founders saw the importance of patents and protecting intellectual property so people can read the return on their their ⁓ investments of time energy ideas and ⁓ money

And we’ve seen some, we’ll call it backsliding on the protection of intellectual property ⁓ over the past couple of years. The margin rights ⁓ declarations by the Biden administration, sort of threatening the sort of research coming out of universities and ⁓ by dole transfers into the private sector. How that all gets done is really important.

I’m not a big fan of the research threats that the Trump administration has put on some of the medical establishment. I worry about that as well. if you’re worried about prices, number one, have more supply. We were always worried about drug prices, so the only real solution is greater supply.

So let’s get that and do the best we can. Some things will just be expensive. That’s a reality in life. In terms of the research enterprise itself, mean, research is a costly thing. It requires skilled labor and has ⁓ equipment. has… ⁓

all sorts of regulatory apparatus that surrounds it. And so as an economic exercise, he’s stepping back saying, okay, do we have adequate investment incentives? We often don’t. All of this stuff should be expensed by ⁓ for-profit companies and give adequate investment incentives. Do we ⁓ have a good pipeline of skilled workers?

I’m worried about the education system in the US and the delivery of skilled workforces. ⁓ This is becoming a chronic problem.

fix the K-12 system so that people are ready to go to college and capable of pursuing these careers, that would be my first choice. I don’t hear anyone talking about that. And then there’s the obvious ability to have immigration, skilled workers and legal immigration is going to be the solution to some of our future problems. We’re not really too open to that at the moment. from a lot of sort of perspectives, the R &D ⁓ enterprise is not getting all the

policy support that it could. I’d like to see us do a little better.

Steve (13:11)
So Doug, imagine a world where, poof, you’ve now been nominated for the secretary of HHS in the future. And you actually are willing to do it, and your family is willing to let you do it. And there’s like a whole checklist of other things that are there. ⁓

Douglas Holtz-Eakin (13:22)
fan of Disney policy dramas. Great!

Matt Stoll (13:25)
You’re a liar!

Hahaha

This fantasy question

like got real real fast.

Douglas Holtz-Eakin (13:39)
So I don’t what the rules are in this podcast, but it is a true fact that my deputy was at ⁓ a briefing being held by, ⁓ they will not be named by a trade group in town. And the governor affairs people were putting up likely Trump nominees and they put me up at it as HHS. And, and Sarah was like, they don’t know Doug.

Steve (14:04)
Ha ha ha!

Matt Stoll (14:04)
Hahahaha!

Douglas Holtz-Eakin (14:07)
This is not right. She came back and told me I was horrified.

Matt Stoll (14:08)
Hahaha.

Please don’t do that to me.

Steve (14:15)
So,

you know, I mean, you’ve been in government, you know this, and I know this look from my time too. Like if you were to do it and you were to pick like maybe one or two or three things that are, for lack of a better term, unique to Doug that you’d want to push on, what might those be?

Douglas Holtz-Eakin (14:31)
I’m a firm believer that Medicare Advantage is the foundation of the future of the Medicare program. that’s sort of building a better MA should be everyone’s objective. And I don’t understand why we’re clinging to a legacy system.

⁓ that we devised in 1960s. The ⁓ fee-for-service traditional system, I think, really has just outlived its usefulness. And it skews everything because, you know, we put all these sort of critiques on the MA program, which I’m not arguing is perfect. I it’s the right starting point, though. But we never bother to ask, what’s the quality of the outcome in the fee-for-service program? It’s a completely unlevel playing field. And so I’d like to…

get rid of that and just have an MA program that really is focusing on ⁓ a far less ⁓ regulated one. think CMS overreaches on MA in an effort to turn it into fee-for-service. That’s their instinct. They make some big mistakes. They reach inside the MA program where they really have no business in my view. ⁓ My view is you give them the risk-adjusted ⁓

capitated amount for a beneficiary and they do their very best to deliver high quality services and you find ways to measure and hold them to that and if they don’t hit the quality metrics they don’t get paid and if they do then they make as much money as they can in those services. That’s the incentive I want. So it’s a little less regulated MA program but the key is

with MA is that it is different everywhere in the United States. This is a big country with an enormous amount of population heterogeneity and MA programs don’t need to look the same in Connecticut and in Wyoming. They won’t. And a problem I think even many conservatives have is we always try to think of the model and get it to scale. And it’s never going to be that way. We’re going to have many, many, many different things and MA is capable of doing that. And if we run it right,

we can lose an MA program. Like one of the things the government does really poorly is let things fail. One of the things we have succeeded at over the centuries is letting things fail. when that’s the beauty of the American economy is.

things do fail, they’re allowed to fail, if they no longer satisfy society’s objectives, they can go away. We can have competition and an MA plan can fail. That’s actually something that isn’t a bad thing. It’s success in the larger scope of events. So I want to have it be competitive, have it be flexible and different across the country, and really turn it into ⁓ a much, much more vigorous enterprise.

Matt Stoll (17:23)
And speaking of kind of bringing it back to costs at large, and tying it back to pharma. So the US healthcare system, we’ve got the highest costs in the world for some mediocre outcomes. We pay the most in pharmaceutical costs in the entire world. ⁓ Just a little bit, just a touch. I gotta ask, I know.

Douglas Holtz-Eakin (17:40)
You channeling your inner Bernie here, I mean what ⁓

Steve (17:48)
These kids, these kids, Doug, you know?

Matt Stoll (17:52)
I’m a health policy neophyte. You can blame it on that. ⁓ So we’ve got

Douglas Holtz-Eakin (17:54)
You

Steve (17:56)
was guessing it’s radio

otherwise we see that AOC poster on the back of your head there, man.

Matt Stoll (18:02)
No, that’s why I keep this wall blank. They’re right off camera. you we’ve got, you know, if you look at the G8, the G20, we pay more than anybody else. Our outcomes are not commensurate with our spending. ⁓ You know, I work with several pharmaceutical startups and our joke is always that, you know, it’s not a joke. We make all the profit in US.

So we’ve got, and I think 2023, was 450 billion in spending on pharma. was about 9 % of the healthcare budget. So we have kind of a few conflicting priorities of we want to keep pharmaceutical development healthy. We want to cut healthcare costs, yet we’re paying more than anybody else in the world for pharma. How do we reconcile that?

Douglas Holtz-Eakin (18:50)
So a couple of things on this. ⁓ Number one, ⁓ RFK Jr. is right about something, which is that about 80 % of your health, decomposition is not exact, is your genes, your ⁓ preventive efforts, your ⁓ exercise patterns, all of those things, what you eat. that’s not. ⁓

what the U.S. healthcare system is doing. The U.S. healthcare system is doing a lot of acute care and chronic disease care for people. And on that, we’re getting our money’s worth. We’re the best in the world. It’s not even close. If you want to get sick, get sick in the United States. Oncology, drugs have been a miracle. It is now a chronic disease in many cases, not a…

Matt Stoll (19:19)
Yeah, it’s break fix. Yeah.

Douglas Holtz-Eakin (19:38)
⁓ what it used to be. Pancreatic cancer used to be a literally untreatable thing and we’ve made enormous progress. So if you look at…

sort of survival rates post ⁓ an episode of cancer, the US is way better than anybody else. And that’s true of a lot of things. Pediatrics, we have all of the best pediatric hospitals in the United States with a few exceptions. Toronto, South Korea by the way is a whole bunch. I don’t really fully understand that. ⁓

So with that sort of broad brush, you know, we spend a lot of money but we don’t have good health, well that’s because that’s not what we’re spending the money. That’s a different set of issues and they have to be dealt with, I get that. But where we spend our money, we actually do an enormous amount of good and it’s very successful.

And it’s my, you know, I currently have my think tank at G HOT against single payers. And really it’s basically a wake up that we, that the United States system does some things very well. And those single payer systems that people keep trying to promote don’t do that at all. You know, if you’re in Canada, you can get access to about 11 % of cancer drugs. In the US you can get access to about 90%. You know, there’s some things that go on in those that don’t, really we do much better.

Steve (20:36)
Thank

Douglas Holtz-Eakin (20:56)
On the drug, it is just a fact that the US is a place where the drug companies make their money and they make their money so that they can fund their research programs. And so we are paying for the world’s pharmaceutical research. We are. That’s neither appropriate nor fair, but it’s true. And no one has successfully cracked this nut. We’ve sent…

Steve (21:01)
and the fact that we have money, and it was.

Douglas Holtz-Eakin (21:19)
FDA heads around the globe begging people to pay more. ⁓ We’ve tried it in trade negotiations. We’ve never successfully gotten any European to raise their prices and put more of the bill and allow prices to be lower in the United States. ⁓

Steve (21:23)
you

Douglas Holtz-Eakin (21:36)
You know, this could be the NATO moment for President Trump. He could go and say, just like NATO, you guys have to pay your fair share of drugs. And he’s probably the only guy who could pull it off. I don’t know. No one’s done it. So I can’t solve that one for you. I will say they don’t foot their fair share of the research costs, but they also, as a result, don’t give their ⁓ populations access to these drugs in many cases. The way they solve this problem is they just don’t, people don’t pay a financial price. They pay a health price and a big one.

I mean, that’s the Canada story. I’ve just resigned myself to sort of that reality at the moment. Maybe someone can figure out how change it. I haven’t got an easy solution.

Matt Stoll (22:18)
⁓

So the current give and take is accessibility versus pricing, basically. I know that’s maybe oversimplified, but.

Douglas Holtz-Eakin (22:23)
I mean, there’s

a middle piece which is how do you socialize the costs of some extremely expensive small population drugs? mean, that’s just a hard, hard problem. But when you get a cure for an infant muscle disorder that saves five lives a year but is really expensive, how do you think about that? That’s a very hard problem.

Steve (22:45)
you

Douglas Holtz-Eakin (22:53)
We have that problem because we can figure out how to make that drum. That’s the beauty of it.

Steve (23:00)
Yeah, no, I think that’s that’s at least two. Actually, the next next question for the rounding us out. So mean, well, first of all, just thanks for your comments on the working paper. It was nice to actually put that together and it’s out in the blog now and update what’s there. And kudos also to the original authors of the papers, Dana Goldman and Alice Chen for putting it together. But I question for you, Doug, is like what?

Douglas Holtz-Eakin (23:13)
Yes, he’s here.

Steve (23:25)
What’s, whether it’s farmer related, what study would you want to see? mean, even going into that question we just raised about, you know, all these things that are like literally cures in the future, but like, how do we, how do we think about them in terms of pricing them properly? I mean, that’s, that’s an issue that’s been top of mind for me. And I know a few other people lately too, but I, but I’ll leave it over to you. Like what study would you love to see?

Douglas Holtz-Eakin (23:51)
Oh boy, that’s a hard question. I mean, there are just so many. I would like to see much more in the way of sort of on the ground utilization of healthcare services, US versus other places. We get a lot of, it’s easy to track development of drugs, for example, like patents and stuff like that. It’s easy to track financing measures, who pays, how much they pay. But in terms of like,

other places versus the US, how much care really are people getting in different settings and what kind of care and how effective is it? I don’t know a lot about that. Like, you sort of look at the systems and say, well, this is the best you could do in that. When you assume they’re doing the best, I don’t think you want to assume that. Like, you know.

It’s like, you we’ve done these experiments where we put people on Medicaid or not and the outcomes are worse when they’re on Medicaid or about the same, you know, but there’s no dramatic increase. That’s probably because when you’re looking at population, no one there knows how to manage their care.

So it doesn’t really matter who the payer is. so I’m really, I think that’s become more more interesting because at some level, you can’t run the world I would like to live in unless people are willing to learn a little bit more and manage their own care, make some choices on their own, be able to discriminate between better and worse providers and expensive and less expensive providers. That’s all important. But the missing link there is how do the participants in that system work?

Steve (25:25)
That sounds pretty cool and a real tough lift. Some of the data that’s ⁓ possible in the future is to do that. We’ve talked about this before, pretty challenging in the end to do it. But it’d be really helpful. One last comment. I don’t know if you’ve seen this sort of like this, but this one I would think would be kind of interesting too. This is the match point. We have this international comparison stuff. ⁓ The analogy I kind of use in class sometimes is to say like,

Douglas Holtz-Eakin (25:30)
Yeah.

Yeah.

Steve (25:54)
What if we put all the 50 states up along with essentially all the international comparisons? you’re going to see, mean, politically it’s probably going to be pretty unsavory, but you’re going to see some states are going to be probably close to Denmark and other states are going to be close to Botswana.

Douglas Holtz-Eakin (26:00)
course.

Yeah, right. The

ones that are Rhode Island are about the size of Denmark. Yeah. yeah, I… ⁓

Matt Stoll (26:18)
And

we know what states are going to be which.

Bryana Mayer (26:21)
And

there’s like Doug said earlier, there’s a lot of socioeconomic factors and behavioral factors that play into this. But ⁓ medical innovation pays off for everyone. I think Doug, you said it well. It’s like when we do sick care well here, we develop the great drugs here. We’re good at that. And when we support the development of new treatments, whether it’s traditional small molecule drugs or biologic drugs, everybody wins. Right. And we’re investing in human capital.

Douglas Holtz-Eakin (26:21)
Yeah, I mean, there’s…

Bryana Mayer (26:51)
and keeping our human capital healthier. I think, is there anything else Doug that you would kind of, maybe a final message that you hope, know, policymakers, if they’re listening to, would take away from this discussion and how to move forward?

Douglas Holtz-Eakin (27:08)
So

it often turns into these abstractions, but I’ll tell you why I ended up paying attention to healthcare and health economics and health policy. ⁓ I had an aneurysm in my right renal artery. That’s the short version of a long diagnosis. And ⁓ they had mistakenly diagnosed it as a stenosis and they just wanted to open it up. So they ran a guide wire into… ⁓

My my renal artery and could have punctured it. They really could have so the what they did in in 1990 which is when this all happened is they ⁓ They got rid of the renal artery. So I’m a ⁓ Right renal auto transplant. I’m the donor of my right kidney to be transplanted to my left iliopathy I have two kidneys on the left side and rebuilt for the 21st century ⁓ It was you know 12 hours of surgery lots of fall all the things you went

Today, with the same aneurysm in the same location, they would fix it in place and we’d be done. And I would not have missed any work and I would not have my kidneys rearranged. It’s miraculous. And so what that means in terms of the…

Steve (28:17)
Hmm.

Douglas Holtz-Eakin (28:22)
The health of the patient is amazing. What that means for their ability to contribute and be productive in the labor force is amazing. I think we underappreciate what those advances have brought us. I mean, it’s stunning. And I don’t want to see that advance halted by bad policy.

Matt Stoll (28:39)
That is an excellent final word. Doug Holtz-Eakin, thank you so much for having us, or talking to us today. You know, I’ll re-edit that. Doug Holtz-Eakin, thanks for joining us today. Appreciate it.

Douglas Holtz-Eakin (28:49)
Thanks for having me.