What Experts in Law and Medicine Have to Say About the Cost...

What Experts in Law and Medicine Have to Say About the Cost of Drugs


Pharmaceutical drug costs impinge heavily on consumers’ consciousness, often on a monthly basis, and have become such a stress on the public that they came up repeatedly among both major parties during the U.S. presidential campaign–and remain a bipartisan rallying cry. A good deal of the recent conference named Health Law Year in P/Review, at the Petrie-Flom Center for Health Law Policy, Biotechnology, and Bioethics at Harvard Law School, covered issues with a bearing on drug costs. It’s interesting to take the academic expertise from that conference–and combine it with a bit of common sense–to see which narratives about drug costs hold up.

The Industry Narrative

In defending the ever-growing cost of drugs, the pharmaceutical industry can’t roll out a single, intuitive explanation. Rather, their justification breaks down into many independent but interacting parts. We have to tease these apart before examining their validity.

Rising complexity of clinical trials
Over the years, the experiments required to prove the efficacy and safety of medicines have become longer in length and more complicated. The FDA has imposed new requirements in the wake of embarrassing failures like the fatalities ascribed to Vioxx. All this improves safety, but raises costs–and also ensures that fewer drugs will make it through the every-tightening gauntlet of tests.
Constricted time for exclusivity
The 20-year period during which U.S. patents allow drug companies to have exclusive rights to sell their drugs seems generous (and is longer than the period for other machines and processes). But a patent has to be filed near the beginning of the research process, and more than half the alloted period may elapse before the company can find a compound that works, make sure they can deliver it to the body, test it, and put it through the FDA approval procedure.
Narrowing markets
Drugs for most of the endemic health care problems, such as high blood pressure and heart failure, have been on the market for years and become commoditized, no longer generating large profits. Except in a few cases–such as Hepatitis C, which is quite widespread–the new drugs target extremely narrow populations. Therefore, the hundreds of millions spent on their development have to be spread over a small group of sufferers. Precision medicine explicitly narrows markets even further: when geneticists can identify sub-populations of patients with genes that leave them vulnerable to a particular illness, pharma companies may need to develop and market separate drugs to each sub-population.
FDA delays
Companies routinely complain about the time they wait for approval to sell their drugs. These complaints drove many provisions of the 21st Century Cures Act.
Savings that compensate for costs
Drugs can replace surgeries and hospital visits, and perhaps prevent emergency room visits. All those things are expensive, so we should balance drug costs against the ways they save money. Notorious pharma executive Martin Shkreli made this argument about 1:50 minutes into his video interview on Bloomberg Daybreak: Americas.

Let’s look next at each element of the pharmaceutical narrative, and see what research tells us.

Rising complexity of clinical trials

No doubt about it: clinical trials require immense expertise, take a long time, and won’t go away, because they’re the best guarantee we still have that our drugs and devices are safe and effective. Biologics, a relatively new trend, accentuate the cost problem even more. They are immensely powerful but possess almost every possible trait that raises costs: manufacture through complex chemical processes, lack of competition, sensitivity to heat and contamination, etc. Intellectual property expert Claire Laporte, in her Petrie-Flom session, said that biologics are granted an unusually high 12 years of exclusivity.

Still, innovative companies can use modern organizational and information techniques to reduce the burden clinical trials impose–and many are doing it.

One of biggest problems faced by those conducting clinical trials is finding subjects. According to one researcher, only 5% of all patients participate in clinical trials, and 86% of all U.S. clinical studies fail to recruit the required number of subjects on time. If the pharmaceutical industry can increase participation by an order of magnitude, it can test more drugs and push more through to approval.

Electronic records and Internet communications could furnish the means to reach and recruit more patients. But the same limitations on data sharing that plague treatment–technical incompatibility and doctor resistance–also withhold critical information about potential subjects from pharmaceutical researchers. A promising way to reduce the cost of drugs is to force institutions to run analytics on patient data and contact potential subjects for clinical trials. Millions of patients feel an urgent need to find a cure and would be responsive to requests to join trials.

Research has also fanned out across multiple dimensions over the decades. Pharma companies and academic researchers are collaborating more, as I cover in another article, spreading drug development efforts over multiple research facilities and even multiple continents. Promising to speed up the research process, these collaborations require a level of coordination that has been rare up until recently. Health expert Jonathan Darrow suggested at the Petrie-Flom conference that Institutional Review Boards (IRBs) could update their rules to make collaboration among multiple research sites easier.

Much news has been made of requirements, by the National Institutes of Health (NIH) and other funders and journals, for researchers to share the data used in their research. But Dr. Barbara Bierer, in her talk about Clinical Trial Data Sharing, said that enforcement was lacking and many data sets are missing or unusable. On the positive side, nearly all R&D agencies in the federal government have data sharing plans.

Bierer actually rated the pharma companies as best at data sharing among those in health care, with universities not so good, and biotech firms unfortunately the worst. Academics just aren’t set up to share data easily, and when they try to do so, convenient search facilities are missing. It’s also hard to combine data collected through different consent agreements.

Informed consent for using patient samples and data is also evolving. On the one hand, researchers would like to loosen rules to make it easier for them to recycle samples and data in future experiments. On the other, patient advocates complain about the opacity of current consent agreements. In particular, genetic samples are highly vulnerable to being re-identified, a risk not addressed by current research environments. Current rules allow the Department of Health and Human Services (HHS) to re-evaluate risk every few years, so that they can take into account new privacy threats such as advances in re-identification. Unfortunately, both laws and HHS regulations lack punishments for re-identifying patients.

Petrie-Flom executive director Holly Fernandez Lynch discussed changes in the regulations for consent (known informally as the Common Rule), which were released mere days before the conference. She noted that de-identified samples and data can still be shared and reused without obtaining consent. This may be a privacy problem, because de-identification techniques are often crude and fail to reflect the tools available nowadays for re-identifying patients.

HHS is also trying to make it easier for researchers to ask patients for broad consent spanning future research initiatives. When data is considered identifiable, researchers must give patients some information about the use of data, such as whether it will be used for commercial profit. To make consent more meaningful, one might quiz patients about consent agreements and offer a waiting period before they have to make a decision.

We must finally note the promising growth of new biotech companies (a phenomenon that cannot be ignored from my vantage point in Boston). Most are still in the venture capital stage and quite vulnerable, with investment ebbing and flowing in sync with the general economy. But biotech firms that reach viability tend to be snapped up by established pharma companies, who are no doubt hoping to benefit from the more agile working methods of the new firms as well as from their technology.

All these trends suggest sluggish but demonstrable progress toward a 21st-century model for clinical trials that makes use of digital technologies and better collaboration. The result, hopefully, will eventually be more medicines in a shorter time frame, with lower costs.

Constricted time for exclusivity

The expiration of patents on blockbuster drugs that fall off a “cliff” has certainly forced large pharma companies to re-evaluate their business models. One impact is the release of new drugs at high costs, but the companies have many other strategies to prop up prices. In at least one case they have been accused of outright price-fixing, but the more common strategy is pay-for-delay. This is a simple proposition offered to competitors: instead of investing the money to bring a generic drug to market (a formidable process in itself), the original manufacturer will pay you to do nothing. This trick is reminiscent of government practices to maintain high food prices by paying farmers to withhold crops from the market (reread Steinbeck’s Grapes of Wrath for a scathing commentary on that policy).

Companies don’t act in a vacuum; regulation pervades every decision in health care. An examination of the controversy over the pricing of the EpiPen allergy medication suggests that the manufacturer successfully manipulated the FDA to suppress competitors.

In a session about drug costs at the Petrie-Flom conference, attorney Ameet Sarpatwari summarized the situation as follows: government policy permits strategies that allow drug companies to suppress competition, while simultaneously preventing payers from lowering costs. For instance, Medicare cannot negotiate prices, but is required to cover any treatment approved by the FDA. Price regulation by states is overriden by federal rules, and most legal experts tell Sarpatwari that the laws about unfair trade practices probably can’t be used to address predatory pricing. (However, as mentioned earlier, the FTC has filed lawsuits to stop pay-for-delay.)

Although pharma company profits could probably be trimmed without removing their incentive to develop new drugs, the question of where the money for such research comes from ultimately went unmentioned. Certainly, pharma companies charge more in the United States than in other countries, because they can. But do we want them to charge more in other countries, probably restricting access by patients who can’t afford to pay more? If Medicare negotiates lower prices, does that mean that all of us under the age of 65 will pay higher prices? And what about suggestions that U.S. residents buy their drugs in Canada (now permitted by HHS)? Someone pointed out that the population of Canada is about 11% that of the United States, so how are they supposed to order enough medications to supply us? I believe we have to find cheaper and faster ways to develop drugs, without which we’ll be very constricted in controlling prices after the fact.

One practice with promise that is taking off is to pay drug companies only when their drugs are successful, officially called indication-based drug contracting. This payment model extends and reinforces market pressures instead of trying to counteract them with regulation. Drug salespeople who hopefully check their marketing claims carefully so as not to deliver a drug for which they never get paid.

Narrowing markets

The role of genetics in illness seems to get more complex every year. In his Petrie-Flom session, Darrow said most researchers have given up the simplistic hope that we can find a one-to-one association between a gene and a disease. Even a single tumor may exhibit multiple genetic defects, so a drug targeting one gene probably won’t work.

Genetics are certainly worth researching, but we’re a long way from finding genetically targeted cures for most diseases, as I covered in an article on the precision medicine initiative.

FDA delays

Is it reasonable to blame regulators for rising costs in health care? I have examined this claim in another article about clinical costs, demonstrating that regulators and payers can’t solve the problems doctors have with coordinating treatment and sharing data. However, because an agency such as the FDA possesses far-reaching powers, and because it putatively represents the will of the American people as expressed through their representatives, it’s legitimate to look there for a solution to drug cost problems.

A study in the New England Journal of Medicine, perhaps surprisingly, found that the FDA is faster than regulators in other countries. Dr. Jerry Avorn took the stage at the Petrie-Flom conference with an aggressive argument that all the complaints driving the 21st Century Cures Act were fallacious. Drawing on some of the same work that has triggered extensive criticism about a raft of provisions in the law, Avorn asserted that the FDA:

  • Is just as fast as other regulators
  • Issues a high rate of approvals
  • Already uses diverse measures for decision-making

To top it off, Dr. Avorn questioned whether the opinions of patient advocates–insofar as they are based on anecdote–should be taken into account by the FDA, and strenuously criticized the highly contentious approval of Sarepta’s Exondys 51 treatment for Duchenne muscular dystrophy. I have seen a panel at another event spend nearly their whole session discussing the Sarepta approval, which raises questions not only about evidence and about the FDA process (where an administrator overrode her own advisory panel), but about whether any drug can be approved for a disease affecting a tiny population through the conventional clinical trial process.

Defenders of the free market in health care call on the FDA to approve more drugs, and approve them more quickly. The trade-off between safety and speed remains one of active debate. Avorn excoriated Trump’s proposed FDA heads for calling on the market to choose drugs, and reminded us that approving an experimental drug is not “compassionate use” (a common term among those calling for the freer use of such drugs) if the drug causes harm. When it comes to new generics, many people are seeking ways to reduce the red tape safely. Laporte, in her Petrie-Flom session, reported that the Affordable Care Act made it easier to show the efficacy of new generics by proving them to be biosimilars.

Savings that compensate for costs

Martin Shkreli’s claim that drug costs are a relatively minor factor in health care reflects a common defense in the pharma industry. A corollary is that–sure, our drugs cost a lot, but think of how much they save in hospitalizations and other treatments.

Plain economics undercut these arguments. In his Petrie-Flom session, Sarpatwari showed that drug costs are rising as a percentage of healthcare costs. For instance, employer health programs now spend 19% of their money on medications. If health care costs as a whole were decreasing, pharma companies might be able to claim that their drugs contribute to the decrease–but the opposite is happening. Health care costs continue to increase, and drug costs as a percentage of that figure continue to increase as well. So yes–just as sensed by the public and the politicians–drug costs are a problem.

Will we be saved by a genetic break-through?

The equilibrium of health care is occasionally punctuated by discoveries that never could have been anticipated. Examples include John Snow’s trace of an 1854 cholera outbreak to a contaminated water pump, Pasteur’s proof of the germ basis of infectious disease, the discovery of penicillin, and the Framingham Heart Study. Will our health woes and our cost increases be wiped away by some gigantic discovery on the genetic front?

Such a world-shattering break-through is entirely possible, but it’s too far off to solve today’s problems. Darrow reminded us of genetics’ limitations during his review of precision medicine and the Cancer Moonshot announced during the last months of the Obama Administration. He confirmed the conclusions I reached in my article “How Precision Medicine Can Save More Lives and Waste Less Money” by pointing out that genetics are not all-important. They make only a small contribution to the chance of contracting a disease. Behavior and environmental factors are more important, and are currently more responsive to interventions.

In addition, genetic cures face a host of problems. A single tumor can have multiple genetic defects, so a drug targetted at one gene may not adequately reduce the tumor. Darrow also pointed out that the Cancer Moonshot was announced without a clear end-point. Although the original moonshot succeeded when Neil Armstrong walked on the moon, we can’t expect to make cancer history for a long time.

Questioning beneficence and importance

As a varnish over all this wonkiness, the pharmaceutical industry presents a beneficent face, portraying their staff as hard-working seekers of truth, dedicated to bettering the life of the human race, with profit only as a motor to greater health achievements. Skewered by journalists over the price of any particular drug, the manufacturer is quick to point out that hardly anyone pays the advertised price. Payers and clinicians negotiate discounts, while hardship cases can get the drug free or for a very low price.

This theme is most evident in the book Magic Cancer Bullet: How a Tiny Orange Pill is Rewriting Medical History. Written by the chairman of Novartis, this story of the development and dissemintation of Gleevec certainly brings tears to the eyes–the company in this case seemed to put people before profits and to use every tool to speed up the approval process.

But it might be Dr. Vasella rather than Gleevec that is rewriting medical history. If pharmaceutical companies are so dedicated to the preservation of human life, why have they avoided malaria for decades? And how about vaccines, which are very difficult to develop and manufacture, and where shortages often occur? Why is the medical response to Zika driven by public health organizations and the National Institutes of Health, not pharmaceutical companies?

In quibbling over the real costs of drugs, manufacturers exploit the opacity of a health care economy that is probably puffing up expenses throughout the system. Sarpatwari, in his Petrie-Flom session, recommended more transparency to reveal where the money for drugs goes–for instance, how much is taken by pharmacy benefits managers and what discounts each hospital gets.

In his session, Avorn referred to a survey asking clinicians what they considered the most important drugs, and asserted that most of them came from government-funded research, not pharma research. He pursued this observation to reach the conclusion that pharma companies do not deserve the prices they have been charging recently. This reasoning does not hold up, though, in my opinion. People would not buy things such as EpiPen if they saw no value in them. True, few drugs rise to the historic stature of penicillin, but the new offerings are still changing lives. However, I do like Avorn’s suggestion that governments tax the activities of pharmaceutical salespeople and apply the proceeds to objective drug testing.

Essentially, that little round pill you hold in your hand over the breakfast table is a construct of mind-boggling complexity, comparable to high-tech machinery. We have created payment and regulatory policies of comparable complexity to deal with the risks of these medications. Drug companies and regulators can do better on pricing, but I believe progress will come through systemic changes in how we research and deliver health care.


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3 Comments on "What Experts in Law and Medicine Have to Say About the Cost of Drugs"

William Palmer MD
Feb 2, 2017

It’s all chemistry. All of medicine can ultimately be reduced to chemistry. In the long run, Pharma is going to win.

Patents are supposed to be novel, unintuitive, and useful. Many drugs seem to be marketed before this useful criterion is proved. It seems that post-marketing clinical trials often finally answers this utility question. If we define “useful” correctly, maybe we can cause all patented drugs to be useful and we can insist that their marginal cost is equal or less than their marginal utility in some well defined clinical situations.

Feb 3, 2017

Thanks for your interesting comment on patents, Dr. Palmer. Although I’m neither a doctor or lawyer, I get the impression from my study of patents that “usefulness” is very broadly defined. If you can detach a hangnail, it’s useful. So it probably rests on clinicians–and ultimately on payers–to determine whether a drug does so much better than alternative treatments that paying for it is worthwhile. And many clinicians and patients argue: “Maybe the drug isn’t worth the money for everybody, but it’s worth it for me!”