In a fascinating paper on drug pricing, Ana D. Vega and her five co-authors trace increases in the price of brand-name and generic drugs in the U.S. during the period 2012-15, using the national average drug acquisition costs (NADAC) data made public by the Centers for Medicare and Medicaid Services (CMS). These acquisition costs are the prices that retail community pharmacies pay to acquire medicines, usually from a wholesaler.
The tables in the paper show that the top 50 increases in the price of generic drugs over the three-year period ranged from a “low” of 448% to a high of 18,808%. For branded drugs the increases over the period ranged from a “low” of 63% to a high of 391%.
The paper also presents data on the wholesale acquisition costs (WAC) differences between first-in-class drugs and subsequent me-too-drugs, the latter usually costing much more than the first-in-class drugs, although they typically involve only small molecular changes. Here the price differentials varied from a low of -2.3% (the sole case me-too-drug actually being cheaper than the first-in-class drug) to a high of 61,259%.
It is rare to find such transparency on drug prices in this country, presumably because the data are in possession of a public agency, the CMS. By contrast, the private sector usually confronts both patients and researchers with contemptuous opacity. The pharmaceutical benefit management industry (PBMs) is particularly opaque on drug pricing, and private insurers and employers have gone along with it.
Price increases of the sort reported by Vera et al. usually are defended on two distinct grounds.
The first is what has come to be called “value pricing’ the idea that the price of a drug should be pegged on the value that drug has to patients or to society at large, in their eyes. For life-saving drugs or pain-killing drugs, that value can be very high.
Another defense of the ever rising prices of drugs is that they are needed to provide the incentives for new drug development.
Value Pricing
In my presentations on drug pricing, I often use the following metaphor to convey the central point of this concept.
Picture, then, a man somewhere in the Sahara desert close to dying of thirst.
Along comes a camel caravan for tourists, loaded with bottles of water. Assume the chap on the first camel is a private equity manager who knows a thing or two about “value creation” through “value pricing.” Assume the lady on the camel behind the first is a corporate lawyer.
Jumping off the camel, the private-equity chap approaches the dying man and, water bottle in hand, queries the dying man thus:
“How much would you pay me for this fresh bottle of water?”
Election Day 2016 should have been Christmas morning for Republicans. Long awaited control of the White House and both houses of Congress. A chance to deliver on an every two-year election cycle promise to repeal and replace Obamacare. In 2010 Republicans needed the House. They got it. In 2014, it was the Senate. Delivered. But we still need the White House they said. Asked and answered with President Donald Trump.
In a beautiful community on the Olympic peninsula, just north of where I live and practice, it happened again; another private clinic sold to a large medical corporation.
Now that it’s public, I’ll offer my thoughts on the next steps for Don and ONC. Don Rucker is a good pick for the nation, and will be a great National Coordinator. I’ve gone on record as saying that some others are not qualified, and as many of you know – I don’t mince words. Don is smart, focused, thoughtful, intentional, and will make good decisions for ONC and HHS. I have known Don for 20 years. He’s got a long track record of integrity, he’s a nice person, he deeply understands the challenges, limitations, and opportunities of Health IT. I have no doubt that he’ll do a good job. He’s got a lot on his plate.
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