Wednesday, September 21, 2016

Drug Pricing in Today’s Environment

MDRP’s keynote speaker, Scott Gottlieb (Resident Fellow, American Enterprise Institute) focused on drug spending and the politics in today’s environment. This topic seems to dominate many of my conversations when people hear that I work in the world of pharmaceutical pricing. In recent years, there has been great scrutiny on the increase in pharmaceutical prices. In fact, Mylan’s CEO Heather Bresch is scheduled to appear today before the US House Committee on Oversight and Government Reform where she will be questioned about how the company recently raised the price of their EpiPen allergy shot by more than 400%, from $57/shot in 2007 to $300/shot.

Although there has been a lot of media attention regarding drug pricing with the EpiPen price increase this year and Daraprim last year by Turing Pharmaceuticals, LLC, overall drug prices are actually in line with current inflation rates. However, the perception that drug prices are rising at unrealistic rates are fueled by the high publicity cases as well as the fact that drug spending is rising as a component of total medical spending. This is due to a few reasons…

Pharmacotherapy is more prevalent as a treatment option because there are more drugs available today that are more effective than other treatments. For manufacturers, changes in approval mechanisms at the FDA and better efficacy of these products are often driving decisions related to research efforts. For example, today’s treatments for asthma are more expensive than those used 10 or 20 years ago, but they are also more effective, reducing hospitalization of patients and the overall cost to treat the individual patient.

Within the insurance world, changes are also taking place. For those purchasing their insurance through the marketplace or exchanges, insurance coverage has shifted to high and very high deductible plans as a result of the Affordable Care Act (ACA). These were first offered as part of the state exchanges and are now being adopted by commercial and Medicare plans. There has also been a shift from a copayment to coinsurance where a patient pays a percentage of a drug’s total cost rather than a fixed copay and many plans are moving towards closed drug formularies which means patients have no coverage for a product not on formulary. As the use of specialty products expands and insurance plans shift more of the burden to the patient, the out-of-pocket expense is making the cost of drugs untenable for some consumers. For the asthma patient in the previous paragraph, with older therapies, this patient may have been hospitalized and only been responsible for a copayment of $100 or so. However, with the new pharmacological treatments, if the drug that works best for this patient is not on her plan’s formulary, her cost may be hundreds of dollars each month to keep her asthma under control. With this improvement in care, the patient’s individual cost has now risen considerably but the insurance plan’s cost has dropped.

One additional item of interest is the use of rebates in the pharmaceutical industry. Many health insurance plans negotiate rebates with manufacturers. They receive this rebate even if the beneficiary pays for the product as part of their deductible. In this situation, the insurance company still receives the rebate with no benefit being passed along to the beneficiary.

Anyone working within the pharmaceutical industry who is familiar with pricing and contracting can attest to the complexity of the current system. In Government Pricing, we often say, “Follow the dollar, follow the pill.” In this dynamic environment, the complexity to “follow the dollar” continues to be even more difficult.

About the author:
Katie Lapins has worked in the pharmaceutical and medical device industries in the areas of commercial and government contracting, compliance, finance, and sales operations for over 15 years. As a GP consultant, Katie’s areas of primary focus are audits/assessments, training, ongoing calculations, and policies/procedures. Katie is the principal/owner of Government Pricing Specialists, LLC which she started in 2010 to provide a cost-effective consulting option for manufacturers.

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