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Fact check: Do lower drug prices make it harder for companies to find new treatments?

MARY LOUISE KELLY, HOST:

This week the Biden administration announced a historic milestone for Medicare. For the first time, the health program for seniors is starting to negotiate drug prices - up first, 10 medications that treat conditions like diabetes and rheumatoid arthritis. But the pharmaceutical industry opposes these negotiations, arguing that lower Medicare drug prices would put a huge dent in companies' ability to find new treatments. NPR pharmaceuticals correspondent Sydney Lupkin has been looking into whether that is true. Hey, Sydney.

SYDNEY LUPKIN, BYLINE: Hi, Mary Louise.

KELLY: OK, so the basic question here - how would lower Medicare prices affect drugmakers' bottom lines?

LUPKIN: So the fact that there are eight lawsuits to keep negotiation from happening really tells you that it's - will probably cut into how much money drugmakers can make. The entire U.S. health care system spent around 600 billion on drugs in 2021. And Medicare Part D, which covers drugs, accounted for about a third of that. When we look at just these first 10 drugs up for negotiation, they cost Medicare $50 billion last year. And I should note, however, that all these dollar figures don't reflect rebates drugmakers pay Medicare and private insurers. That said, even though these are just 10 drugs out of the thousands that Medicare pays for, it's a huge chunk of money to the program and a pretty significant chunk of drug spending in the U.S.

KELLY: It sounds like the basic answer to that basic question is yes, then. Lower prices would affect pharmaceutical company revenue. What would that mean for research?

LUPKIN: So it could mean that drug companies will spend less on R&D, but it isn't necessarily the doomsday scenario the industry predicts. People I spoke to pointed out that there is a correlation between revenue and R&D. Companies tend to spend the same proportion of it year after year, so if there's less revenue coming in, there's likely to be less money going toward research. But what drug companies spend on research isn't completely tied to how many new drugs get discovered. Here's Saad Omer, dean of the O'Donnell School of Public Health at UT Southwestern in Dallas.

SAAD OMER: A lot of these discoveries come from taxpayer investments in academic research and small startups.

LUPKIN: And while drug companies do spend money doing crucial clinical trials later on, overall, he says it's just too simplistic to say that without today's high prices, we won't have tomorrow's cures.

KELLY: OK, so could all of this, these negotiations, push drugmakers to shift how they spend their money, like - I don't know - spending less on lobbyists or less on drug ads on TV?

LUPKIN: It's a good question because drug companies spend a lot of money on TV ads and things like stock buybacks and dividends. In fact, studies have found that often, they spend more on those things than they spend on R&D. But it's possible they might spend their research money more wisely. So for so long, the industry's pricing power has meant there wasn't as much need to rein it in. Richard Evans, a pharmaceutical industry veteran who runs SSR Health, says being pickier about which experimental drugs get to move into expensive human clinical trials would be a good place to start.

RICHARD EVANS: When you go into humans, your spending goes up exponentially, and you should only be putting the best molecule that you can get your hands on into humans whether you discovered it or not. And the problem is the quality of things that are going into human testing is not as good as it should be.

LUPKIN: So he says changing that could be a silver lining for the industry.

KELLY: OK, so bottom line on the question we began with - whether these negotiations will dent the pharmaceutical industry's ability to find new treatments.

LUPKIN: Well, the nonpartisan Congressional Budget Office looked at the expected effect of the law. It estimated that it would only mean 13 of the 1,300 new drugs expected over the next three decades would not make it to market. Of course, which 13 is kind of the iffy part, right? Is it going to be a drug that cures cancer? Or are they all just going to be tiny little tweaks on existing old drugs with new names and bigger price tags? And we don't know. But overall, the CBO's expectation is that this will have only a modest effect on drug development.

KELLY: Thank you, Sydney.

LUPKIN: You bet.

KELLY: NPR's Sydney Lupkin.

(SOUNDBITE OF THE BEATNUTS SONG, "WILD, WILD, WHAT (INTERLUDE)") Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Sydney Lupkin is the pharmaceuticals correspondent for NPR.