OP-ED

The Coming Debate Over Specialty Drugs

Screen Shot 2014-06-24 at 6.09.38 AMThe debate over the price of specialty drugs is intensifying and could well be the next major healthcare issue to dominate the national, even international, agenda. In a nutshell, how will society pay for breakthrough scientific innovation?

Specialty drugs, complex therapies used to treat severe illnesses such as cancer, multiple sclerosis and Hepatitis C, are coming in with price tags that have purchasers sounding alarm bells. At $1,000 per pill, the newest Hep C medication runs about $86,000 for a course of treatment.  Two major insurers have publicly cited the price of this single new drug as contributing to next year’s rise in premiums.

In fact, analysis by our team at PwC’s Health Research Institute shows that this one new therapy will impact overall U.S. health costs by .5% this year and .2% next year. Considering the nation’s total healthcare budget is $2.8 trillion, that is a remarkable budgetary impact for one product.

But the story doesn’t end there. Drug costs represent just 15% of total health spending, compared to nearly one-third spent on inpatient care. Short-term budget spikes could become long-term savers from both a cost and health standpoint. For the most severe patients, the price of Hep C medication – that is nearly 90% effective – is three to six times less than treating a lifetime of cirrhosis ($270,000) or providing a liver transplant ($580,000.) Patients essentially “cured” of Hepatitis C can go on to have productive, long lives.

Yet not every case is so severe that it would incur the highest medical bills. And as people switch jobs and health plans, the insurer or employer that pays for the expensive medication today may not be the one that reaps the long-term savings.

The issues surrounding how we pay for breakthrough treatments are complex and merit a thoughtful national conversation. What are the ethical implications to determining who gets what treatment when? Why can’t insurance company actuaries factor new products into their risk calculations? How do drug companies determine prices for new products? And is there a better approach to financing medical innovation?

It would be tempting to hope the battle over the new Hep C medication will blow over. But with additional Hep C therapies expected on the market and 70% of the FDA drug approval pipeline now filled with specialty drugs, we will continue to grapple with this important issue.

Ceci Connolly is the Managing Director of PwC’s Health Research Institute, a research organization dedicated to objective analysis on the issues, policies and trends important to health organizations and policymakers. Ceci is a veteran journalist and co-authored Landmark: The Inside Story of America’s New Health Care Law and What It Means for Us All. 

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allanWhatsen WilliamsVik KhannaBob HertzJohn Peter Recent comment authors
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Ceci Connolly
Guest

Now comes news out of Arkansas on another high-priced medication. Are the courts the right venue for this discussion? See Joseph Walker in WSJ http://on.wsj.com/1wxlFgv

Ceci Connolly
Guest

Elisabeth Rosenthal of NYT weighs in today with surprising developments on the generics front http://nyti.ms/1nqiMfX

Robert McNutt
Guest

A Cochrane Review in 2011 (http://www.ncbi.nlm.nih.gov/pubmed/21901722) examined the effects of financial renumeration policies on primary care physician behaviors. This review found only 7 papers to summarize – a whopping jump of 3 papers over a similar review in 2000. The populations of physicians studied were small and non-generalizable; the exposure of amount and type of financial incentive varied, the methods were poor, and the outcome measures also varied leaving us unable to know how economic models affect care. Also, noteworthy, no study, yet, has addressed patient outcomes. Hints arose, however; FFS increased visits, specialty visits, diagnostic tests, and curative therapies,… Read more »

Ceci Connolly
Guest

To those of you observing that “this is nothing new,” two observations: what’s old to careful observers may still be new to average citizens (and the worthy of discussion) and the approaching numbers (patients, therapies and dollars) do appear to be much larger. In 2013, a full 70%of FDA approvals were specialty drugs. That’s new! And big!

Whatsen Williams
Guest
Whatsen Williams

The bigger waste is the $$$$ billions being spent on digitizing medicine, witout improved outcomes or reduced costs. Some say that mistakes are increased associated with EHR devices.

At least with the expensive meds, they have been vetted and do work to mitigate disease.

That can not be said for the $$$$ billions noted above.

Bob Hertz
Guest
Bob Hertz

We have had innovative drugs for years in America, and many lives have been improved. But none of these drugs has led to any overall savings in our health costs. Why? Because if person X takes the Hep C drug and avoids a liver transplant, then hospitals will just charge more for heart transplants. If the need for heart transplants goes down, then hospitals will buy up medical practices and get extra money from thousands of ‘facility fees.’ George Halvorson has described this phenomenon in his writing, especially in the 1996 class ‘Strong Medicine.’ We do not have a firm… Read more »

Vik Khanna
Guest

Mr. Hertz is completely correct. There is absolutely nothing “coming” about the debate over speciality drugs, which has been going on robustly within managed care for at least 20 years. From HIV cocktails to immunosupressants for transplant patients to cancer cocktails and adjuvant therapies, and now a Hep C product, this debate is old news. The fact that we are still talking about it as though it is a new problem does not bode well for our healthcare future. Drug companies and their legions of market sizing and reimbursement consultants are laughing all the way to the bank (along with,… Read more »

allan
Guest
allan

Vik, be careful that you don’t sound like one who is demonizing success and productivity. Gilead through hard work and luck hit it big with one of its drugs. Many companies like Gilead bit the dust and the investors lost all their money. No one is there to compensate the investors for their lost capital. Maybe they owned a bit of Gilead to soften the losses. Pharmaceuticals are not necessarily the best investment. Check out Merck. In fact check out Gilead during its first 10 years of existence whose record was better than many others that bit the dust. There… Read more »

John Peter
Guest

I would be inclined to require a a lot of macro economic (Keynesian) read on this.
Ask not what the R&D prices ar. raise what percentage individuals are used as a results of the manufacture, lobbying and sales of the cure of HCV

Mike Miller
Guest

Interesting analysis, although I believe the 15% figure for drugs is from the PwC Medical Cost Trend report that looks at employer based coverage, not total US health spending where the figure is closer to 11%. Also, while the HepC treatment prices have drawn a lot of attention, for many reasons they are not a good precedent for the many new specialty biologics and pharmaceuticals in the R&D pipeline – as I’ve written about here: http://www.healthpolcom.com/blog/2014/06/16/sovaldi-and-curing-hep-c-myths-and-other-facts/

Robert McNutt
Guest

I admit that I tuned out classes on economics after the professor, noted, and a blogger at times, said that he does not spend anytime trying to figure out the economics of our system of health care. He said, we have no measure of value, hence, we can’t study a system with no measures; we can describe what is happening in the market place, at times, but we have no way to assess cost/effect. I don’t know if he is correct, but if he could not figure it out, how could I. So, I am a poor judge of economic… Read more »

Saurabh Jha
Guest
Saurabh Jha

I would be inclined to take a more macro economic (Keynesian) view on this.

Ask not what the R&D costs are. Ask how many people have been employed as a result of the manufacture, lobbying and sales of the cure of HCV.

I think it will make for a more pleasing conclusion.

(PS: I’m not being facetious)

Barry Carol
Guest
Barry Carol

We already have elaborate protocols for rationing kidneys and other organs because there aren’t enough to go around. Ultra high cost specialty drugs may be similarly rationed in the future if the society, through our political process, decides that we can’t afford to give them to everyone who could potentially benefit, even marginally. I suspect that the first group to be cut off will be the elderly who have already lived a normal lifespan and then some.

Camilla Parker
Guest

This issue is being debated widely, even in other countries aside from US. The national governments of each countries should really focus in innovating and promoting health care and medications but also it should consider the financial aspect. Otherwise, great article Ceci! I will keep an eye on this issue too.

Ceci Connolly
Guest

The immediate financial impact is significant but long-term savings could be greater in some instances. Cancer, MS and more Hep C therapies on the horizon. http://bit.ly/BTN2015

Al Lewis
Guest
Al Lewis

Thanks for the posting. I don’t think we want to discourage drug companies from developing actrual cures, even if they ream us. (The reaming us part is really a purchaser issues — if the feds simply said that any drug over a certain price would require a most favored nations” price for government purchasers, that would help a lot.) Where we run into trouble is when drug companies develop dtugs that continue to control conditions instead of curing them, thus setting up a stream of income for themselves at our expense. Economically, the “worst” is when they develop drugs that… Read more »