Direct Cost. I’ve written about the cuts from the National Institutes of Health (NIH), but I’m not sure I was clear on the impact on pharmaceutical manufacturers. Pharma relies on basic research for its drugs, and they also rely on scientists that have been trained in graduate schools and post-doctoral fellowships to develop and advance the product to commercialization. Right now, it could be a blip, one bad year of fewer grad students and disrupted research. It just feels like this tidal wave is about to hit shore, and there is no safe harbor in America for science.
As a recap, back in early February, the NIH announced that all new and existing grants would be subject to a 15% cap on indirect-cost rates. This means for every dollar of “direct costs” that an investigator directly receives to pay trainees and purchase supplies, the NIH would pay an additional 15 cents to the researcher’s institute to pay for lab space, equipment, lights, administration, etc. An article in the New England Journal of Medicine walks through what a big change this would be. Many high-profile research institutions negotiate rates of 50 – 60% based on the size of their research enterprise -the historical average is around 40%.
For now, this cap is on hold but the consequences of making these changes are catastrophic for a lot of universities, particularly for medical schools with numerous research labs. Is 60% too much, maybe… but cutting back overnight is not reasonable either. Some level of overhead is needed from an operations standpoint but also support personnel.
Already, the threat of these cuts has decimated graduate student enrollment for many biomedical sciences programs for the Fall of 2025. Add uncertainty in the continued funding of new and existing grants, and everyone is on edge. The threat of US-trained scientists leaving to work abroad is real and is starting to happen. The future of developing scientists here that will then go and work for industry is questionable, and that should worry pharmaceutical manufacturers.
Bated Breath. Rumor has it that on Monday we will see a standalone executive order introducing international reference pricing to Medicaid and/or Medicare – also known as Most Favored Nation. It’s messy and problematic. But don’t listen to me, USC said it best. Long story short – other countries aren’t going to pay more, other countries are willing to say no to products, prices are secret, the whole thing can be gamed.
The pharmaceutical industry puts the cost of this at a trillion dollars. What’s really interesting is that it will not help patients. There is already a $2,000 out-of-pocket cap, and Medicaid patients already pay low cost sharing. So premiums might be lower in Part D plans, but the tradeoff could be less innovation.
Know any other trillion-dollar-over-10 year-programs that don’t really help patients? Oh wait – you do – 340B. That’s me being spicy because some parts of 340B do help patients but, overall, the program could use some work.
More details are coming out next week.
Buy Now, Pay Later. Quick take on how to pay for drugs that cost millions. Medicaid amortization anyone?
Build It and They Will Come. President Trump signed an Executive Order looking to speed the process for getting domestic pharmaceutical manufacturing set up. Lately the cool kid thing to do is say you’re doing more manufacturing in the U.S. but let’s be real – it isn’t happening anytime soon. It takes time to get this going and maybe this will help but it is still a 5 year in the future thing.
