NIH DRAFTING INTERIM PRICING POLICY STATEMENT FOR CONGRESSIONAL HEARINGS: MINNESOTA PROF SCHONDELMEYER SUGGESTS INTERNAL/EXTERNAL PRICING REVIEW BOARDS

The National Institutes of Health plans to have a pricing policy statement in time for anticipated congressional hearings at the beginning of the 103rd Congress, National Institutes of Health Director Bernadine Healy, MD, told a Dec. 2 meeting of the NIH Director's advisory committee. NIH will draft a summary of committee members' various answers to questions about reasonable pricing of medical technology developed in government labs. NIH will "circulate [the summary] by mail to the members of the committee to see if we can come up with some sort of interim policy statement," Healy explained. NIH devoted the majority of its Dec. 2 meeting to the topic of the institute's role in pricing to help prepare a foundation for the continuing congressional oversight of its enforcement of "reasonable pricing" clauses in CRADAs (cooperative research and development agreements) -- specifically the Taxol contract. By soliciting the opinions of the three dozen diverse members of the advisory committee, NIH is developing a broader base for its cautious approach to CRADA price negotiations. On a politically charged issue like prices, it is astute for NIH to get the advisory committee review before the likely Clinton Administration changes. The new topside at the institutes will inherit the recommendations derived under the current NIH management, which has been building a CRADA price policy cautiously. Healy pointed out that a document incorporating the views of the advisory committee "will be extremely valuable for us" in preparation for "hearings [that] will be coming up on this." The agency needs "a well thought out policy so that we don't just wing it," she said, adding that members' comments will "help us formulate these policies ahead of time rather than doing it under pressure in a reactive mode." The director maintained that, while NIH does not want to become a regulatory agency, "a role has emerged for the NIH" in the pricing issue. "Although it might be nice" for NIH to avoid involvement in the issue, she said, the government's laboratory research investment of $70-$80 bil. "has got to come with some identifiable return to the society." NIH asked the advisory committee for comments -- not technically recommendations or a vote -- on the nature of the institute's involvement in pricing discussions and the potential mechanics of that involvement. Two of the questions asked: (1) "Consistent with its programmatic and legislative mandates, is there an appropriate role for NIH in determining a 'reasonable' price? If so, what is that role?" and (2) "What criteria, standards, and/or procedures could be used by NIH or others for assessing the 'reasonableness' of prices?" To help focus the discussion, NIH invited seven outside speakers and a representative of the National Cancer Institute's Taxol program to provide background. University of Minnesota pharmacy professor Stephen Schondelmeyer urged an aggressive role for NIH in pricing decisions. When NIH discovers a valuable intellectual property, Schondelmeyer suggested, it "should act...just as jealously and guardedly as any private individual or private firm or drug company, or any university." However, he noted that NIH should realize that "it is incumbent [to understand] that part of the value of that is never realized unless you make [an intellectual property] commercially available." As a mechanism for determining whether a product developed under a CRADA has a reasonable price, Schondelmeyer urged that NIH establish two review boards: internal and external. "NIH is probably the world's master at developing review processes," Schondelmeyer pointed out, so "there is no reason that they cannot also develop that process for appropriate reasonable pricing of pharmaceutical products." An internal review function, Schondelmeyer suggested, should involve a small staff to review submissions from CRADA commercial sponsors defending the pricing levels for products developed under the joint projects. Noting that NIH already "deals with a lot of cost-based contracts," Schondelmeyer maintained that "a lot of those same principles apply to a cost-based evaluation of what does it cost for a drug company to produce that product in the marketplace. So it is not like you don't have auditing and accountability procedures and cost-based contracting procedures which you do quite well. This is just in a slightly different area and for slightly different purpose." An external review panel in Schondelmeyer's scheme would provide the broader review of pricing. "I think you need to have an external review panel that would have legal, economic and pharmaceutical expertise as well as auditing and accounting type expertise," he suggested. Office of Technology Assessment Senior Analyst Judith Wagner also suggested that NIH bring in outside economic expertise to help understand the technical, financial issues behind cost accounting for R&D projects. Wagner noted that scientific reviewers would have to be involved at one level because "it is the researchers who can identify the potential and characterize the value in the medical sense." If NIH has to sit down with companies to go over financial calculations, however, Wagner said the institutes will "need to have people that are well versed in the details of management accounting and the details of financial accounting and the details of economic theroy." Wagner, who has headed an OTA review of R&D costs, warned that "it is so easy to be misled even with data that are true." Reflecting NIH's reluctance to get deeply involved in financial calculations behind drug pricing, Healy was skeptical about bringing on a team of economic specialists. Short of establishing an Institute of Economics, Healy asked how should NIH participate. During discussion at the end of the meeting, committee member William Kelley, MD, University of Pennsylvania, maintained that NIH should avoid involvement in product pricing so that technology transfer is not impeded. The issue is how to support NIH's investment and how "to maximize the translation of that fundamental science to the benefit of health care in America and worldwide," Kelley said. "I'm not at all sure that it's the role of the NIH to be involved in" the complex issue of drug pricing, he said. "My advice is to let someone else deal with that issue. If it's an important issue to the public sector, then let Congress deal with it, but that's well outside the range of the NIH." Healy returned several times, however, to the practical reality that NIH is now being expected to show more direct return for taxpayer funding. NIH must help determine the "economic return" on its investment, "not just the human benefit, which is our most important responsibility," Healy said. "We are in part responsible for the escalation of health care costs, and I think NIH is moving into a more aggressive posture in terms of articulating a contribution. That is a return on NIH research that really never is quantified." Similarly, NIH's Daryl Chamblee, senior policy advisor and counselor to the director, cautioned the advisory panel that it should not recommend that NIH avoid taking a position on reasonable pricing. Chamblee acknowledged that the committee may appropriately agree that "NIH should not be a price setter" because "it is not a regulatory agency, [and] price setting is very complicated." However, she said, "you also have to be very clear about whether you want to have absolutely no role in this whatsoever." NIH Advisory Council Member Erwin Bettinghaus, MD, Michigan State University, suggested that NIH's scientific expertise can help evaluate the medical contribution of its research, but professional economists should evaluate the monetary worth of NIH research. "I do think there is a role" for NIH in the pricing issue, "but I think the role is for NIH to be able to figure what its contribution has been and to get proper credit," Bettinghaus said. It would be "appropriate" for "some other agency" to develop "pricing decisions." Committee member (and former senior FDA official) Sanford Miller, PhD, University of Texas, commented on a suggestion that NIH receive royalties on products it develops "very bad public policy." Miller suggested that NIH royalties would devolve into a program like FDA user fees and give Congress an opportunity to cut appropriations, knowing that the loss could be compensated through royalties. The problem, Miller said, is that NIH research would then become revenue driven. Schondelmeyer noted in his presentation that NIH could attempt to recover value from royalties or by seeking a lower price for the public in the marketplace, but not both. The Industrial Biotechnology Association has been supporting the idea of royalties. In a position paper dated Nov. 20, IBA noted: "It has been suggested that instead of attempting to regulate the prices of products in which it plays a research role, NIH should consider licensing its technology in the same way companies do, with license being granted in return for an upfront cash payment and/or royalty on sales, these amounts being determined by negotiation between the parties." IBA said that approach is "worth further examination."