Friday, January 29, 2016

Pricing of Prescription Drugs Debated

(This article "Pricing of Prescription Drugs Debated" originally appeared on the HealthLeaders website, January 18, 2016.)

By Christopher Cheney.

In the "Great Drug Pricing Debate of 2016," a semi-fictional duo goes head-to-head on whether the pricing of prescription drugs is spiraling out of control, whether price controls should be instituted, and whether drugs can be priced based on value. 

Pricing practices for prescription drugs are drawing intense scrutiny from inside and outside the healthcare industry.

Healthcare payers are apoplectic over the rising costs of prescription drugs. America's Health Insurance Plans, the trade association for healthcare payers, has been blasting pharmaceutical companies over drug pricing on a nearly daily basis.

Healthcare providers also are sounding the alarm, with the American Medical Association announcing in November that it would launch an "advocacy campaign to drive solutions and help make prescription drugs more affordable."

Drug pricing is already a hot topic in this year's presidential race, with Democratic Party contender Hillary Clinton calling for affordable drug pricing in political advertising and on her campaign's website. Her main opponent, Sen. Bernie Sanders (D, VT) has his own plan to lower prescription drug prices.

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To debate the issue, I have assembled a semi-fictional duo with opposing perspectives on drug-pricing trends and their impact on the healthcare industry. The debate format gives each participant about 500 words to answer a handful of questions.

Arguing in favor of the drug-pricing practices of pharmaceutical companies is Reginald Thump, wealthy Manhattan businessman and candidate for president of the United States.

Arguing against the drug-pricing practices of pharmaceutical companies is Jennifer Campbell, analyst for healthcare cost and delivery at the National Business Group on Health.

HLM: Are prescription drug prices trending at unsustainably high levels?

Thump: This country is not as great as it used to be and certainly not as great as I could make it again. Let's face it folks, the ability to innovate is one of America's greatest strengths, and it blows my mind that my opponent and others like her want to beat up on one of the most innovative sectors of our economy.

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If we want to focus on unsustainable healthcare costs, we should not be focusing on prescription drugs. Pharmacy-dispensed drugs account for about 10% of total healthcare spending, and the cost of those drugs pale in significance compared to the costs of ER visits and hospitalizations. Drugs keep people out of the hospital, which generates cost savings for the entire healthcare industry. That's an undeniable fact that pharma's critics want to ignore.

Campbell: The trend is unsustainable.

While drug pricing and utilization both continue to surge, drug spending will increase by 6% or more annually from now until 2022, according to the Centers for Medicare & Medicaid Services. In 2014, U.S. spending on prescription drugs hit $379 billion, a third of which can be attributed to specialty drugs.

Layering on top of this growing financial burden is that these drugs are now being formulated and targeted for chronic conditions affecting much larger patient populations, a trend that will spark continued discovery and growth of specialty drugs.

Under current law, the Food and Drug Administration grants brand-name biologic drugs a 12-year exclusivity period upon approval. Such a long exclusivity period essentially removes the benefits of price competition, resulting in higher drug prices and a failure of less-costly generic versions to reach the market—all of which will continue to endanger affordable coverage options.

When there is a lack of lower cost substitutes for these steeply priced drugs, health plans and employers alike will increasingly struggle to execute drug access and cost management strategies. More and more, we are seeing that even when efficacious, low-cost generics do exist, payment incentives are not always aligned to promote their use.

HLM: Should there be price controls or windfall-profit taxes in the pharmaceutical sector?

Thump: Price controls would harm patients. U.S. patients have more treatment options and earlier access to medications than patients in any other country on Earth.

The new hepatitis drugs, which we should be celebrating because they cure a dreaded disease, are a great example. The doomsday predictions about these drugs have not come true. All of the patients who need these drugs have gotten these drugs. The market does work.

Campbell: We support neither approach and believe, instead, that the current pricing models are unsustainable and that manufacturers and payers should come to a consensus on pricing.

One promising approach involves manufacturers taking on risk if medications don't deliver as promised and either fail to reduce downstream costs or increase them.

HLM: What is the best way to contain rising prescription drug costs?

Thump: The costs of life-saving medications are not the problem, and the health plans should look in the mirror before they start pointing fingers at pharmaceutical companies.

The way health plans craft benefit designs contributes to increased drug prices. Some health plans require doctors to use an expensive medication when there is a cheaper alternative. Other health plans have placed generic drugs in the highest tier of their drug-pricing benefit designs with brand-name medications.

Campbell: There are a number of best practices that employers follow. In conjunction with their pharmacy benefit manager and health plan provider, employers first seek to provide employees with tools and support to guide appropriate specialty medication management.

Second, [employers seek to] create a comprehensive utilization management framework, complete with prior authorization, step therapy, quantity limit, and exclusion protocols.

Third, [they] implement a custom drug formulary that is designed based on evidence of drug safety and efficacy, and promote patient access to appropriate treatments while effectively controlling costs.

Fourth, [they] promote a more dynamic relationship between patients and their physicians and pharmacists to ensure practical treatment recommendations and compliant drug utilization behavior.

And fifth, [they] focus on site-of-care strategies and the most cost-effective distribution channels, such as specialty pharmacy chains.

HLM: Can prescription drugs be priced based on value, such as how well one drug performs clinically compared to competing drugs?

Thump: Every sector of the healthcare industry is struggling with this challenge. Singling out pharma for the sector's struggle to price prescription drugs based on value is the height of hypocrisy. I'm just saying.

Campbell: In the new value-driven healthcare system, pharma companies are feeling the pressure to demonstrate real, measurable product value. Employers have long been clamoring for more alignment between purchasers and manufacturers.

Finally, we're starting to hear more chatter around this. There are multiple efforts in the United States to make drug price determinations based on value, including the Institute for Clinical and Economic Review and DrugAbacus.

HLM: Are the costs of prescription drugs taking up too large a share of patients' total cost of care?

Thump: Again, the health plans need to take their fair share of responsibility for what is happening with the price of prescription drugs. In this country, the cost of all medications has consistently accounted for about 14% of total healthcare spending.

Patients are enduring higher out-of-pocket costs for their medications because of the way health plans are crafting benefit designs, including high deductibles. The prescription-drug share of the healthcare spend has been consistent, but the patient share of the healthcare spending burden is going up because of the way health plans are changing their benefit designs.

Campbell: The simple answer is yes, although the question is not quite that simple. As one of our forward-thinking employer members has pointed out, we need to understand the downstream costs associated with medications such as medical side effects in addition to the "value add" of the drug. 

However, in general, on a per-member, per-month basis, "specialty drugs" are having an impact on patients' total cost of care. In general, increasing drug costs are driving higher costs to health plans as well as to members, both on the medical and pharmacy side.

The better question might be, "how has specialty pharmacy had an impact on the member's total medication cost share over the course of the last year or so?" To which one member responded, "It's going up, and with no end in sight."

By Christopher Cheney, the senior finance editor at HealthLeaders Media.

Contributor Biography: Christopher Cheney has been a professional journalist for 20 years. He currently works as senior finance editor at Danvers, Massachusetts-based HealthLeaders Media. Prior to joining the staff at HLM, he worked in multiple roles at several newspapers in New England, including the Boston Herald, Cape Cod Times and Concord Monitor. Cheney began his career in healthcare research administration at Children's Hospital Boston. He holds three university degrees, including a master's degree in journalism from Boston University. Cheney is a native of the Red Sox side of Connecticut and lives in New Hampshire with his wife, Jennifer.

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