2016 BUSPH Pharmaceutical Symposium: Key Readings
Boston watchdog takes aim at rising drug prices
(Weisman, 2015)
Due to the trending high prices of pharmaceuticals Dr. Steven Pearson has begun to research the balance between cost and health savings. As president of the non-profit Institute for Clinical and Economic Review his teams work to determine “value based” prices for the new medicines coming to market. While some pharmaceutical companies have criticized this work saying they do not take the potential future savings to the individual if they used the medicine into account, insurance companies like Harvard Pilgrim Health Care applaud their efforts to demystify the pricing schemes.
America’s Real Drug Problem
(Goel & Yadav, 2015)
The Turing Pharmaceuticals price hike of the drug Daraphim used to treat toxoplasmosis brought to light the challenges with the current pricing system in the United States. While medicines are an inelastic commodity meaning, as price increases the demand will not decrease, there are no mechanisms in place to regulate price like the National Institute for Clinical Effectiveness (NICE) program in England. Medicare, one of the largest purchasers in the US, is unable to negotiate prices and therefore when companies like Turing increase the cost exponentially the only hope in driving the price down is competition from a generic company.
POV: US Drug Companies Failing to Offer Affordable Drugs
(Glantz, 2015)
With companies like Vertex Pharmaceuticals, Regeneron Pharmaceuticals, and Gilead pricing medicines out of patients’ reach light has been shed on the lack of price regulation in the industry. The introduction of the Affordable Care Act restricted Medicare and the federal government from negotiating prices allowing the market to move forward unregulated. Others have argued that insurance companies should be able to lobby to lower the prices, but once the Food and Drug Administration (FDA) approves a medicine they are essentially required to supply it irrespective of cost. Therefore, all of the power is in the hands of the pharmaceutical industry, and only time will tell how long the U.S. health system will be able to sustain these costs.
How Government Policy Promotes High Drug Prices
(Engelberg, 2015)
The way medicines are generated, patented, and marketed in the United States has had a direct impact on price gouging. It takes approximately ten years to bring a new medicine to market, and within that timeframe companies whose drugs are under patent can charge as much as they choose. Many cite research and development as the reason for high prices, but only 15% of profits directly go towards new growth. Additionally, since most pharmaceuticals are prescription based patients cannot choose and are at the mercy of physicians who are targeted by companies. The federal government can promote change in the system by reducing the number of “me too” drugs, allowing Medicare and Medicaid to negotiate pricing, and by restricting the amount of time pharmaceutical companies can monopolize the market.
HHS considering action on drug patents over high prices
(Sullivan, 2016)
More then 50 House Democrats have submitted a letter to the Health and Human Services (HHS) office requesting the HHS assert their “march-in rights.” “March-in rights,” which were developed in the 1980s, allow the Federal government to break the patent on medicines whose prices are deemed too high and whose research was at least partially funded by the Federal government. HHS has acknowledged the letter, but has decided to first explore administrative options. These actions include the proposals promoted to legislation by the Obama administration. Unfortunately, Representative Lloyd Doggett of Texas believes executive action is necessary to reduce drug prices since the legislative branches do not agree.
From the Archives: Pharmaceutical Pricing
(Dolan, 2015)
The process of developing, pricing, and bringing drugs to the market is incredibly complex and expensive. In 2003 it was reported that product development of biologics and small molecule drugs cost roughly $1.2 billion. Additionally, the amount of time spent in the clinical development phase has moved from 2.5 years in the 1980s, to 6.5 years in the 1990s, and finally to 7.5 years in the 2000s. With the increase in cost and development time pharmaceutical companies are no longer seeing large returns for innovative ideas. To combat this problem discussions have taken place surrounding the idea of allowing companies with novel medicines to benefit as a reward for innovation. The concern is that many medicines are being over priced to make up for the costs of research. New solutions need to be put in place since Medicare cannot negotiate prices and insurers are being forced to pay for novel medicines without taking price into consideration. Interestingly, there have been suggestions to change the reimbursement model to price drugs based on effectiveness. If pharmaceutical companies are required to justify the price based on the drug’s benefit many think they will be forced to lower the costs reducing the high prices burdening insurers and patients.
Impact of ACA on the Dinner-for-Three Dynamic
(Schoonveld, Coyle, & Markham, 2015)
The dinner-for-three dynamic is based on a metaphor of the insurer paying, the physician ordering, and the patient eating the meal. This paper looked at how the Affordable Care Act (ACA) impacted the system in relation to pharmaceutical access. The ACA has increased health coverage for the majority of Americans leading insurance providers to expand cost sharing programs. In many programs, due to high drop out rates, insurers have been forced to raise premiums, co-pays, and deductibles to increase revenue allowing them to cover more people. In considering the model this affects access to pharmaceuticals by removing the emphasis from improving long-term health, which is the main function of many medications. Similarly, physicians have been forced to consider the price of medicines before prescribing. In the past the restrictions on prescribing were less pronounced, but with many of the formularies provided by insurers not covering certain medications physicians have had to be more cognizant. Patients have also become more involved with their care. When medicines are more expensive patients will either not fill their prescriptions or will advocate for alternatives. With the ACA provisions put in place to limit the amount of out-of-pocket spending for patients, but there has still been significant “sticker shock” preventing patients from fully taking advantage of their options. To adjust to these changes pharmaceutical companies have begun to market directly to patients, as well as physicians, to show the need for potentially expensive medications.
Prescription Drug Pricing
(Sumida, Taniguchi, & Juarez, 2016)
The process behind the pricing and reimbursement of medicines in the United States is complicated. In 2013 Americans spent $329.2 billion on prescription drugs comprising 11% of total health expenditure. For each medicine sold the manufacturer first has to negotiate the price with the wholesaler based on manufacturing costs, research and development expenses, taxes, desired profits, and the current medicines competing in the market. Next the wholesaler resells the drug to retail pharmacies with a markup based on what they originally paid the manufacturer. Finally, the pharmacy sells the drug to the patient at the desired markup from the wholesale price or at the price negotiated with insurers. Considering all of these steps it is easy to see how the cost of a medicine can jump for the patient if the pharmaceutical company decides to higher the price. Recently there is concern around generics increasing prices due to issues with availability and manufacturing. With companies merging there are fewer manufactures to drive the costs down, and many are capitalizing on their monopolies by increasing costs of newly acquired drugs. Additionally, since Medicare cannot negotiate or set prices under current legislation pharmaceutical companies are pricing many novel drugs on the cost of the current disease course.
2015 State Policy Progress Report: A Road Map for State Improvement
(NORD, 2015)
With the Affordable Care Act (ACA) insurance coverage has been expanded and made more accessible, but prescription costs still remain a huge barrier to care. The ACA specifically prohibits insurers from refusing patients with pre-existing conditions, which has caused many insurers to pay increasingly high reimbursement rates. To deal with the challenges around prescription coverage companies have implemented cost-sharing, which requires patients to pay a portion of their prescriptions based on the actual price. This means that many patients, especially those with chronic conditions, are being priced out and forced to use less effective or less safe treatments. While 14 states were found to be considering cost-sharing legislation, only 8 states currently have restrictions on cost-sharing measures to ensure patient access. As coverage continues to grow this problem is expected to become more apparent and more states should address legislation to regulate the practice.
2015 Cost Trends Report:
PowerPoint, Executive Summary, and Recommendations
(Massachusetts Health Policy Commission, 2015)
(Commonwealth of Massachusetts: Health Policy Commission, 2015)
From 2013 to 2014 there was a roughly 13% growth in spending on pharmaceutical drugs in Massachusetts. This has been attributed to the high cost of new medicines, like Sofisburvir for Hepatitis C, the increase in the prices of brand name and generic medicines in circulation, and a decrease in the number of patents expiring. In 2014 the growth of non-HIV antivirals, consisting of mostly Hepatitis C drugs, was 352.3%. This increase dwarfs the growth from the next largest class of drugs for Neurological disorders which only expanded by 39.9%. Similarly, expenditure on specialty drugs, which can cost more than $6,000 a year, increased to 34% of pharmaceutical sales. With strong evidence that drug prices are rapidly rising there is need for reform. In public polls 86% of people supported drug companies releasing information about pricing, and 84% supported plans to allow Medicare to negotiate prices.
Viewpoint: Why cost controls will undermine innovation, health outcomes
(Coughlin, 2015)
MassBio members like bluebird bio and Biogen are committed to providing innovative medicines to treat diseases. Bluebird bio focuses on rare genetic diseases and cancer treatments, while Biogen specializes in Alzheimer’s drugs. Both companies, and those similar to them, are at risk of having to slow research and development projects if regulations are put in place to lower drug prices. Coughlin argues that controlling drug prices is a short-term solution that fails to see the long-term benefits of improved and more narrowly tailored medicines. Under the current system with generic competition drug prices only comprise 10% of health care expenditure. With new drugs taking an average of 10 years to come to market and costing $2.3 billion price restrictions will remove the incentive for development.
If there was a reduction in the excess waste in the remaining 90% of health expenditure Coughlin suggests more money could be distributed to help cover the costs of drugs. New medicines can improve treatments, and in turn reduce the number of expensive hospital stays and procedures. Over time this will provide long-term benefits to patient health, ultimately curbing the overall costs to the health system.
Not Up for Negotiation: Lowering drug prices is much more complicated than candidates make it sound.
(Leonard, 2016)
A Kaiser Family Foundation poll revealed that 93% of Democrats and 74% of Republicans support proposals to allow Medicare to negotiate for lower drug prices. The government provides $143 billion of the $317 billion in total sales for the pharmaceutical industry. With numerous candidates, Democratic and Republican, pledging to follow through with plans to promote legislation giving Medicare power to bargain prices there are numerous questions about feasibility. Many feel if Medicare successfully reduces the price of drugs private insurers will be able to use their price as a baseline to reduce costs for patients. The first problem with this is that the majority of high prices are due to patent protections that prohibit competition. Designed as a way to incentivize companies to develop new medicines patents give market exclusivity making it hard to negotiate. In addition, the challenge with Medicare is that it will most likely only target the most expensive medicines. While negotiation might help for some medicines, drugs to fight HIV, tumor growth, and organ transplant rejection are separated into a “protected class” that can only be advocated for by patient groups. This class was created to force the government to provide medicines regardless of cost, but it also limits its bargaining power. The final hurdle to lowering drug prices is that the pharmaceutical industry spent $18 million lobbying Congress in 2015. Due to this influence numerous bills to give Medicare the power to negotiate failed. While there are additional suggestions the problem is multifaceted and it will ultimately take a lot of work to implement an achievable solution.
Author: Kristen Turpin, BUSPH MPH student, Global Health Concentrator, Pharmaceuticals Certificate.
Date: 25 March 2016
Resources:
Commonwealth of Massachusetts: Health Policy Commission. (2015). 2015 Cost Trends Report: Executive Summary, Recommendations. Health Policy Commission. Retrieved from
Coughlin, B. (2015, October 23). Why cost controls will undermine innovation, healthy outcomes. Retrieved March 13, 2016, from
Dolan, R. (2015, November 24). From The Archives: Pharmaceutical Pricing. Retrieved February 23, 2016, from
Engelberg, A. (2015, October 29). How Government Policy Promotes High Drug Prices. Retrieved February 21, 2016, from
Glantz, L. H. (2015, October 26). POV: US Drug Companies Failing to Offer Affordable Drugs | BU Today | Boston University. Retrieved February 17, 2016, from
Goel, A., & Yadav, P. (2015, December 14). America’s Real Drug Problem. Retrieved February 17, 2016, from
Leonard, K. (2016, February 26). Not Up For Negotiation. Retrieved March 13, 2016, from
Massachusetts Health Policy Commission. (2015). 2015 Cost Trends Report. Health Policy Commission. Retrieved from
NORD. (2015). 2015 State Policy Progress Report: A Road Map for State Improvement. National Organization for Rare Disorders (NORD). Retrieved from
Schoonveld, E., Coyle, B., & Markham, J. (2015). Impact of ACA on the Dinner-for-Three Dynamic. Clinical Therapeutics, 37(4), 733–746.
Sullivan, P. (2016, February 10). HHS considering action on drug patents over high prices [Text]. Retrieved February 23, 2016, from
Sumida, W. K., Taniguchi, R., & Juarez, D. T. (2016). Prescription Drug Pricing. Hawai’i Journal of Medicine & Public Health, 75(1), 25–30.
Weisman, R. (2015, September 13). Drug price watchdog may be new threat to industry’s high priced medicines - The Boston Globe. Retrieved February 17, 2016, from