Blog | July 2, 2016

Living With Pricing

Source: Life Science Leader
wayne koberstein

By Wayne Koberstein, Executive Editor, Life Science Leader magazine
Follow Me On Twitter @WayneKoberstein

Living With Pricing

Life Science Leader Launches a Search for Common Ground

Two months and some weeks ago, this magazine and its editors took the risk of bringing opposing parties together to discuss an issue that has divided the industry from major elements in U.S. society. The issue is drug pricing. Our roundtable in April, as described previously in our editors’ blogs and documented in our July issue, included the voices of payers and patients as well as a variety of biopharma companies in a sometimes contentious but ultimately constructive conversation. I want to use this blog to fill in some behind-the-scene details, and some personal perspective on the roundtable and plans for follow-up.

In writing the account of the roundtable to appear in our July 2016 issue, I began with a transcript of about 30,000 words and edited, rephrased, paraphrased, and summarized it down to about one-sixth the original length. With such heavy hitters around the table, small-talk was sparse, which made many of the cuts quite painful. Personal touches, useful diversions, examples, anecdotes, humorous moments — too many were lost as I continued to pare everything away but the most salient points. At about 12,000 words, I saved the draft, thinking we might post a longer version on our website to augment the print article. But by the time the draft reached 5,000 words, it had become such a different document, the contrast between the two versions would have been jarring. Hence, I am mining the longer, earlier draft for a few bits worth sharing here and adding some thoughts of my own. After the event, several other panelists sent their own reflections, also shared here.

GATHERING FORCES

As the moderator on the panel, I had made every effort to remain neutral, and even in the stretches when the discussion turned almost hopelessly divisive, I suppressed the urge to blow the whistle and plead for peace, lest I sway the results. If the panelists could not vent their basic feelings on the pricing issue, how could they ever reach our end goal of proposing solutions?

When we first set out to hold the roundtable, we felt unique and alone in choosing an inclusive approach to the panel and its range of discussion. But by the time our panelists actually assembled around the table, the idea had obviously entered other minds. More multisided panel sessions began to spring up at industry meetings, typically placing pharma and payer CEOs together with a healthcare economist, and I worried the discussions would become redundant. Now, I confess, I see their resemblance as complementary and their proliferation as indispensible to a healthy trend of inclusion. But I still believe our panel is special — one, because it begins with a wider base; two, because it will potentially grow to involve all of our 35,000-plus readers and many others “allied to the field.”

Patients, as individuals and organizations, began our discussion on drug pricing. Pharma and payer panelists had to listen while MS patient and advocate Elizabeth Page of the National MS Society (NMSS) joined Margaret Anderson of FasterCures to frame the issue in human terms. The following are portions of their statements space constraints forced me to excise from the July article. In the article, Page stated specific ways patients can be affected when drug prices ratchet up to new historic levels in their disease area, but first she introduced herself to the panel by emphasizing her varied background:

“At NMSS, I’ve worked on advocacy issues at the state and federal level. I’ve also been on the other side, running an insurance company for five years, after I helped form and then served on the administrative board of the North Carolina High Risk Health Insurance Pool. I chaired that board for the last two years there, so I am very familiar with putting together insurance plans, subsidy programs, working with PBMs, and so on. I understand the financial challenges that payers face today. You can imagine the financial challenges we had in keeping our program solvent. But I am also a patient, with MS, and I want patients to have access to the best possible medicines the industry produces, unimpeded by high prices or payer cost-control.”

Page also followed up after the roundtable event and sent me a list of three “actionable items” for the industry and payers based on the drug-pricing discussion:

  • Call for a Congressional hearing focused on the patient perspective of prices and access to prescription medications, especially specialty medications.
  • Ensure that preauthorization for specialty medications and approval for patient assistance programs is valid for multiple years to reduce administrative burden and uncertainty for patients and providers.
  • Increase transparency of specialty formularies so that patients know exactly how much their out-of-pocket costs will be when they are making coverage plan choices and guarantee that they will continue to have access to their current medication while their condition remains stable.

Anderson also contributed some post-discussion thoughts:

  • Payers should be interested in engaging in the value discussion from a patient perspective.
  • Pharma/biotech companies need to ask patients and patient organizations what else they can and should be doing vis-à-vis pricing, reimbursement, value discussions, and workstreams.
  • In response to the comment by David Meeker of Genzyme that each company’s job is to defend its own prices, I would add this would go a long way to having some candor inserted into this public discussion on pricing. I would advocate that companies tackle this head on for themselves.

Bob Easton of Bionest, which sponsored the roundtable, was eager to put drug-pricing into a historical context, pointing out that drug costs in aggregate have not risen but fallen in recent years. Easton later sent the following outline of his further thoughts:

Rx Pricing: New Generations of Drugs in a Class

Second and follower generation of drugs in a class have to be priced higher than their predecessors just to maintain return on investment on development/market launch costs.

1. Follower drugs almost always address an inherently smaller patient population than their predecessors. The volume opportunity is almost always lower for the successor.

a. Every drug has some side effects, and most drugs are at least somewhat idiosyncratic in their efficacy. Doctors control scripts and doctors are properly conservative in their use of medicines. When a doctor finds a drug that “works” for a patient, he seldom switches that patient to a newer drug in the same class.

b. Propranolol is still the highest-selling beta blocker as measured by prescriptions, despite being off-patent for close to 30 years.

2. Follower drugs are far more expensive to develop than their predecessors.

a. The first drug almost always addresses the “easier” cases.

b. The successor drug has to be proven superior to its predecessor, to gain approval and to gain adoption.

c. Proving superiority in a class is inherently more expensive than proving superiority over an older, inferior class. It involves more difficulty recruiting patients, more patients to trial, longer duration of trials, more measures.

WHO’S LISTENING?

Now, for my own observations. We had only one payer voice on this panel. We invited many. The patient advocates on the panel were not surprised, saying the big payers and PBMs rarely agree to meet with patient groups, in seeming indifference to sufferers of the very diseases for which drug prices are highest. But, in fairness to Troyen Brennan of CVS Health, indifference could hardly describe his part in the roundtable discussion.

Brennan listened patiently while the biopharma participants spoke extensively in defense of their industry on the pricing issue. Only thereafter did he rejoin the discussion to make a passionate plea for the industry folks to listen and learn, to appreciate the impact of five- and six-figure prices, whether list or negotiated, on patients, employers, insurance plans, managed care groups, and PBMs. His application of the old phrase “overgrazing the commons” to describe current pricing practices was particularly striking. The phrase refers to economic situations in which some players, acting only in self-interest, consume shared resources to the point of harming the system on which everyone depends.

Brennan did not accept the argument that the pricing controversy could be blamed only on specialty drugs for small populations. He pointed to the new Hep C drugs, which have a potential market of up to 4 million patients in the USA alone. The pricing challenges for payers, he said, come from almost all new branded medications — nonspecialty drugs now command initial prices at the same level as for specialty drugs, and 20-plus percent annual price hikes are common for branded meds of all types. His implication was clear: however modest drug prices are in aggregate, or however generous the discounts for especially expensive drugs, the new price structures shock the system and send payers into protective mode.

The biopharma-company participants made good arguments from the industry’s point of view, citing strong evidence that “free pricing,” or the relatively pure version of it in the United States, propels an extraordinary level of entrepreneurial drug development. It was significant that the chairmen of PhRMA and BIO were on this inclusive panel, along with the CEO of a company that arguably created the orphan-drug business model. Yet one of the most useful inputs came from the head of a tiny company in early development already interacting with payers and exploring its potential practice and market environments.

Industry executives are getting better at stating their case and, if the trend continues, reaching out to the “other side.” The executives on our panel also voiced support for adoption of ethical standards and self-policing by industry companies in their pricing decisions. In this roundtable, perhaps their finest moments came when they felt most ill at ease. When someone hears another person’s concerns directly across a table and says, “this is so complicated,” you know the discussion is headed in the right direction — toward greater understanding shared across the normal dividing lines.

BUSINESS TO BUSINESS

Free enterprise often pops up as a central issue in this debate. Do price pressures or controls threaten our economic system? But here we are talking about two industries butting heads, both in full agreement with free-market principles. Biopharma’s job is to deliver innovative new medicines; the payers’ job is to limit healthcare costs for its primary customers, typically employers.

To put a cap on costs, managed healthcare systems have evolved with a multitude of adaptations to the economic environment. They have invented new cost-control mechanisms that never even occurred to the fearsome socialized-medicine systems outside the United States. And, surprise, they are not above influencing public opinion in their favor. Yes, payers’ aggressive use of “cost-sharing” with patients has created their own challenge in public relations, but it has also simultaneously driven more public awareness of drug pricing. Patients as stakeholders will react accordingly, bringing their wrath down upon both houses.

It seems the two industries are natural adversaries that may find themselves increasingly interdependent. That is why, despite what often looks like an intractable opposition of interests between the two sides, I maintain some belief and hope in a reasonable resolution of their drug-pricing dispute. After all, the alternative may well prove to be exceedingly unpleasant for both parties.

In 30 years covering pharma and biopharma, I have seen at least two complete transformations of the industry. The first was the shift from a field of midsize companies each in its own, virtually exclusive business area, to a much smaller club of mega-merged behemoths, each one trying to cover all bases. The second change was an even more profound one, from the closed field of giants to the vast open plains roiling with countless tiny startups, spawned mainly in academia, now contributing most of the real innovation in the new-medicine space. It is thus not hard for me to imagine another transformation forcing a collapse of the old system and the emergence of something completely new and unexpected to take its place.

TURNING POINT?

Some changes may be expected. The first has to do with the Big Pharmas, which have gobbled up most of the old companies I once knew and visited in past decades. At some point, the giants may decide they have become just too large and demerge into smaller, more manageable and more focused businesses. The second industry shift we might expect is in the financing of innovation. The current funding structure based on older business models, typically angel and VC money leading to the stock market, may be unsustainable for new-drug development. I’m not smart enough or educated enough in economics to guess what the new system will be. I would just freely speculate that it will involve a hybrid funding mechanism combining government, private sector, and industry endowments. Virtually all stakeholders in healthcare will underwrite it, including patient-advocacy groups and payers.

It seems industry has multiple but not unlimited choices in the drug-pricing debate. It can do nothing, hoping the status quo somehow remains unchanged. It can fight its critics tooth and nail, likely leading to a hopeless standoff. Or it can start engaging with its erstwhile opponents and find some common ground. Only the third route offers a chance for today’s industry players to have some influence on the shape of the next big transformation in their business environment.

We are looking forward to reader feedback from publication of the roundtable discussion and other pricing-related content in the July issue, and we are thinking ahead to how we can carry this initiative forward. In the spirit of the “third route” above, we are also reaching out beyond the industry, listening carefully to the other players on all sides of the issue, and looking for new ways to address their common interests.