Health Policy

A Cure at Any Cost? Time to Shine a Light on Drug Pricing

By CECI CONNOLLY and BOBBY CLARK

We are all are anxiously awaiting the approval and delivery of a cure to the novel coronavirus – or better yet, a vaccine.

Amid the race to develop a safe and effective vaccine, some may be inclined to give drug companies a pass on their well-established bad behavior related to pricing and market competition.

But that would be an awfully expensive mistake.

As the COVID-19 pandemic claims more lives and families’ livelihood, policymakers and the public must press drug makers for more information on the products they are developing. The country must be protected against price-gouging for therapies that could bring the pandemic to a halt.

Yes, we need America’s biopharmaceutical companies to develop a cure or vaccine so we can resume our normal lives. And yes, they should be compensated for their work.

But no, a cure should not come at any cost.

Now is precisely the time to shine a greater light on drug makers and the black box of pricing.

We need more transparency on the safety and effectiveness data that will be critical to ensuring vaccine uptake is high among an increasingly skeptical public. We also need transparency on the data which will determine how much this country will pay to achieve herd immunity.

It is only through data on safety, effectiveness and costs that we will ascertain the true value of a coronavirus vaccine.

Take the case of Remdesivir, which is a treatment (not a cure) produced by Gilead, and costs $3120 per course. Wall Street analysts predict Gilead will earn $9.5 billion at that price point. That is a hefty sum for a therapy whose biggest known benefit is reducing hospitalization days by five days. There is little evidence the drug reduces mortality rates related to the coronavirus.

That kind of price tag could have significant costs for our nation’s health care spending, including hospital spending.

The Kaiser Family Foundation recently issued a report suggesting inpatient and outpatient health services (meaning hospitals and doctor visits) are the most significant driver of health costs in America. News coverage of the analysis went out of its way to note that drugs were not at the top of the list.

On the face of it, the Kaiser numbers are correct and worthy of attention. But the reality is more complex. It is unclear, for instance, whether the analysis accounts for drug costs included in a hospital stay, such as intravenous medications. It is not uncommon for drugs delivered in a hospital to cost much more than those we receive at our local pharmacy.  

Again, Remdesivir is a good example. The $3210 spent on treating a hospitalized patient, including President Trump during his recent hospital stay, would fall into this “inpatient” spending category.

Or consider cancer drugs which can command price tags in excess of $100,000 per year. Those too get counted in the inpatient/outpatient column. If we are to truly assess the impact drug spending has on our health care tab, we must look at drugs dispensed in all settings.

The truth is we don’t have good data on how much drug prices are driving inpatient and outpatient spending. Even reliable sources such as the National Health Expenditures data set lumps inpatient pharmacy costs into the larger category of hospital spending. Retail pharmacy costs are captured elsewhere. It’s not an apples to apples comparison.

Improving pricing transparency on how much drug prices contribute to hospital care would be a big improvement. But even knowing the price tag is not enough, given the drug industry’s well-documented proclivity to put profits (and PR) ahead of R&D that is in the public interest.

The House Oversight and Reform Committee recently released a report detailing how drug companies recklessly increased product prices at the expense of American consumers.

The Committee’s report reveals that pricing decisions were driven almost exclusively by the need to meet company revenue targets and shareholder earnings goals. Furthermore, pricing decisions appear to have been unrelated to past or future investment in research and development – an oft-used rejoinder from drug makers trying to justify high prices.

What this experience shows is that we need better data and transparency around drug pricing. The good news is, there are policy proposals that could help accomplish this goal.  

The FAIR Drug Pricing Act is a bipartisan bill that would have a real impact. It would require drug makers to notify the Department of Health and Human Services before they increase prices. The legislation would also improve accountability by requiring companies to provide an explanation for price increases including manufacturing costs, research and development, marketing and profits.

The world is in dire need of the pharmaceutical industry’s best brainpower in defeating COVID-19. Let’s just hope we can afford it.

Ceci Connolly is president and CEO of the nonprofit Alliance of Community Health Plans, a national consortium of nonprofit health organizations, and a former national health correspondent for The Washington Post.

Bobby Clark is a principal at Pyxis Partners and consults for ACHP, and previously served as a senior health policy adviser in the House of Representatives and the Department of Health and Human Services during the Obama administration.

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2 replies »

  1. “The first is just how profitable does the drug industry need to be to provide investors with a satisfactory risk-adjusted return vs. other investment alternatives? The second is free riding by foreign governments on a U.S. market perceived to be unfettered.”

    It appears that other countries have recognized the profitability is too high and so use consumer protections to regulate price. It’s not “freeloading” it’s good public policy.

    Healthcare controlled by Wall Street is why we have such an expensive system locked in a cycle of sickness/drugs/sickness. Drugs won’t solve our health problems; public health, nutrition and exercise will get us healthier and cost far less.

  2. There are two issues here in my opinion. The first is just how profitable does the drug industry need to be to provide investors with a satisfactory risk-adjusted return vs. other investment alternatives? The second is free riding by foreign governments on a U.S. market perceived to be unfettered.

    The first question has never been explicitly addressed to my knowledge but my general sense is that the long term profitability of the drug industry as measured by return on equity, return on capital or EBIT return on net assets is more than it needs to be to attract investor capital and sustain its business model.

    On the second question, I think the Trump administration’s effort to push a most favored nation rule giving U.S. customers prices comparable to what is charged in other developed countries is a good idea though the industry claims it would have an adverse effect on new drug development. I see no reason why the drug companies can’t extract somewhat more from other countries once the drug companies can no longer charge U.S. customers whatever the market will bear. Just tell the other countries that the days of free riding on the U.S. market are over.

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