Economics

The Prescription for High Drug Costs? Transparency for Starters

Ceci ConnollyFor most Americans, $280,000 might represent the price of a home or perhaps their entire retirement savings. But for the 1.3 million people in this country stricken by rheumatoid arthritis (RA)that quarter million dollars could be their drug bill.

Rheumatoid arthritis is a debilitating disease that causes painful inflammation and swelling of the joints. Left untreated, it can lead to permanent disability. Thankfully medications such as Enbrel, Humira and Zeljanzcan keep patients healthy enough to stay active and keep working. Yet the price tag is quickly becoming out of reach.

One recent report from Express Scripts found that spending on drugs that treat inflammatory conditions such as arthritis rose 25 percent in the last year alone. The annual cost of treating the nation’s RA sufferers is expected to reach $9.3 billion by 2020 – a 45 percent jump from 2013.

For a 45-year-old patient recently diagnosed with RA, the lifetime cost of medication is likely to exceed $1.4 million. Even if that person has 80 percent of their costs covered through insurance, the math works out to $280,000 in copays alone.

There’s something out of kilter when families may be forced to choose between investing in a home or easing a loved one’s pain. Yet that is exactly the sort of Catch-22 some will face if we do not find a sensible way to price drugs.

Americans will never be assured of paying a fair amount for medications until we can all see inside the black box of how those prices are determined. And while transparency from drug manufacturers is in short supply, there are also troubling signs of market manipulation, be it the pay-for-delay schemes used by manufacturers to keep generics off the market or  price-boosting to reap short-term gains as lower-cost ‘biosimilars’ emerge. As RA biosimilars near approval, Amgen raised the price of Enbrel three times in 2015.

Of course, RA drug prices are just one example. One in 11 Americans suffers from diabetes, and related medication spending is expected to rise 18.3 percent over the next three years.First-generation drugs treating multiple sclerosis,which originally cost $8,000-$11,000 nearly two decades ago, can now exceed $60,000 per year, while emerging multiple sclerosis treatments are being priced up to 25-60 percent higher than existing ones without offering significant improvements in care.

Ultimately we all pay the price. In fact, the Express Scripts report found that spending on drugs for inflammatory conditions such as RA cost all insured Americans an average of $89 each last year.Consumers might have difficulty keeping up with their out-of-pocket expenses, as health plans struggle to keep premiums affordable while providing their members the drugs they need. Hospitals and physicians cope with the consequences if patients skip doses and end up with complications. In the long run, employers very well may be forced to cut other benefits to meet rising drug prices, and the federal government will see additional strain on Medicare, Medicaid and insurance exchange subsidies.

Simply put, the indefensible increases in drug prices crowd out other priorities,such as groceries or investments in education.

Many  hospitals and health plans help patients live productively with challenging illnesses, often through medication therapy management in which pharmacists guide patients through a treatment regimen. While such programs can improve patients’ health and manage costs, they are no longer enough to absord the rapid rise in pharmaceutical prices. Health plans are simply running out of ways to provide lifesaving treatments and maintain affordable premiums.

We won’t be able to find solutions for unrelenting drug price increases until we all understand how those prices are actually derived. That’s why transparency is such an important first step.Drug companies should be expected to reveal the percentage of money spent on research and development, marketing and other costs.

Health plans today operate under medical loss ratios (MLR), which require 80-85 percent of revenue spent on medical care. The MLR and state insurance commissions bring a hefty dose of transparency to health plans. Under the Affordable Care Act, any proposed premium increase over 10 percent  triggers an automatic rate review. Shouldn’t pharma operate under the same requirement?

And a growing number of hospitals and physician groups are posting cost estimates for a specific treatment in a given facility. Employers and some startups deserve credit for purshing to make medical costs better understood by the average consumer. The drug industry has a similar responsibility to be more forthcoming.

We need more clarity about both the cost and relative effectiveness of drugs, so we can all work together to ensure consumers can access the drugs and treatments they need –without having to mortgage the house.

Ceci Connolly is president and CEO of the Alliance of Community Health Plans.

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9 replies »

  1. Nice piece, Ceci, and good discussion. I concur that transparency should be compelled…in the marketplace and perhaps by law. We need a thorough analysis of how that could/should roll out–legally and technically. I suggest ACHP join with like-minded groups to fund such an analysis in the coming months. If Hillary becomes president, we have a chance of moving forward on this and other solutions to unsustainably rising Rx drug prices/costs.

  2. Really important insights here about the VALUE of a therapy. Rarely are we paying for health outcomes; far too often we’re paying for me-too drugs or teeny improvements. Other countries (and now a handful of private deals in the US) do pay based on the results of a treatment. Super excited to see more and more oncologists engaging on this.

  3. I don’t think patients need to settle for “good enough.” We know in the vast majority of cases there are options and the patient and Doctor can determine the right drug for the right patient. But when there aren’t options — or when all the options are exhorbitant — that’s when drug companies need to rethink the price tag. Totally agree about striking a balance!

  4. I’ve read recently that oncologists are starting to look much more carefully at cost-effectiveness as part of the equation that determines their treatment recommendations to patients. I’ve also heard that in some cases, drug companies will only be paid for certain high cost specialty drugs if they actually work for a specific patient. If they don’t work, they won’t be paid.

    The bottom line is that we have to develop mechanisms to make prices across the healthcare spectrum reflect value for money as opposed to just raw market power. Market power rules today in the areas of branded and specialty drugs, medical devices, and large hospital systems.

    While I thought the list price of both Sovaldi and Harvoni was way too high, at least those drugs offered a 90% plus cure rate for Hepatitis C and the PBM’s negotiated large discounts of around 50% as I understand it. Way too many of the new six figure cancer treatments, however, are only marginally useful at best and extent life for a relatively short time often with poor quality. Those drugs are prime candidates for insurers and PBM’s to exclude from their formulary of covered drugs. Drug manufacturers are, of course, welcome to come back and offer them at sharply lower prices if they want payers to pay for them.

  5. The standard economic prescription to bring down monopoly prices–a 20 year patent is just that–is large purchasing, called monopsony or oligopsony. The government won’t do that for drugs because that was the tradeoff for big Pharma support for the PPACA. But I don’t see why the patients or the public or the plans or PGMs couldn’t do this through purchasing cooperatives….at least for some areas in health care where it is legal. The voluntary hospitals did this through VHA, which was an oligopsony buying hospital supplies ( I’m not sure if this is still going or not.)

    There aren’t too many other ways to do this other than changing the patent laws, liberalizing generic manufacturing, or allowing foreign drug purchasing. We could also ‘nail’ manufacturers by insisting they prove “usefulness” before we allow marketing. We slide on this clear patent requirement and help many firms to release drugs with the promise that clinical research later can be used to prove “usefulness”. I suppose we could trade off this looseness for a promise that firms moderate their prices when they finally reach the market.

    I think transparency is nice but not particularly important because it seems manufacturers don’t care whether the public knows their confiscatory prices or not. At least the Hep C treatment manufacturers didn’t.

    These tools to lower prices are just sitting there. We can use them or just keep agonizing and talking.

  6. If there are multiple drugs in a therapeutic class, insurers and PBM’s need to be able to just say no and refuse to cover certain drugs deemed too expensive. A competing drug that might be somewhat less convenient to take or even slightly less effective than the more expensive drug is often likely to be good enough. Alternatively, the insurer or PBM could pay a reference price that applied to all the drugs in the class leaving the patient to pay the difference if he can afford to.

    There are iPhone apps now that can tell us what specific drugs cost at most of the local pharmacies in our area or any zip code to which the patient may be traveling to. I recently installed Good Rx on my phone. It’s free and easy to use.

    Historically, the pharmaceutical industry has been one of the most profitable if not THE most profitable industry in our economy. Since patients don’t buy these products because they want to but because they have to, I think the drug companies could be at least somewhat more sensitive to patients’ ability to pay and to the impact of high and rising drug prices on the cost of health insurance.

    There was a time when companies tried to strike a balance among all their stakeholders – customers, employees, suppliers, shareholders and the communities they operate in. In more recent years, the priority seems to have shifted toward maximizing the stock price to the exclusion of all else. I think that’s unfortunate and I say that as one who spent my career in the money management business.

  7. If insurers are willing to pay $100,000 for a drug today then the sellers will assume they will be able to charge $150,000 tomorrow independent of the production costs of the drug.The investors are looking to maximize their profits and they don’t care if that maximization occurs in toys, Apple phones or pharmaceuticals. Therefore, we should all be easily able to understand the process and guess at what will happen even if we don’t know the first thing about costs.

    If the insurers refuse to purchase these medications and no one is able to afford them the producers will rack up a high loss in R&D etc. They will have to lower prices to return some of their investments and they will be looking to producing drugs that are affordable to the population. The investors will gradually reallocate their funds based upon the highest return at the lowest risk. We are the investors as most of us have money in retirement funds and elsewhere that are invested in the marketplace including the pharmaceutical market.

  8. Excellent, Ceci. A clear, sensible response to the craziness that has become drug pricing. But keep in mind that we can’t drive transparency or common sense solutions until Congress no longer actively works against the common interest and in favor of the pharma lobby. Pharma is only taking advantage of the opportunities made possible for them by our legislators.

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