What Is The Solution To "High-Price" Drug Sticker Shock?
By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL
Last November, lawmakers and the Obama administration began ratcheting up efforts targeted at pharmaceutical company’s “high-priced drugs.” Some view this as a sign that legislators are trying to bridge the political divide to tackle a key driver of rising healthcare costs. But are high-priced drugs and biopharmaceutical companies the most important driver to target? After all, research has shown that hospitals and physicians are much bigger contributors to overall U.S. healthcare spend. Further, when compared to the rest of the word, U.S. citizens are the top consumers of expensive sophisticated diagnostic imaging technologies, pay nearly twice as much as other countries for hospital and physician procedures and services, yet have the worst health outcomes compared to their international peers. In fact, if we look at the nine drivers behind high U.S. healthcare costs, there seems to be numerous opportunities for improvement — in addition to trying to reduce the price we pay for medicines. So why then is it Americans heap a disproportionate amount of the blame for staggering healthcare costs on the biopharmaceutical industry? Could it be drug-price sticker shock? Let’s explore.
Should One Drug Cost More Than A Cadillac Escalade?
Over the next decade, healthcare costs are expected to rise by 5.8 percent annually. According to CMS, the growth in spending is being driven by the coverage expansion provisions of the Affordable Care Act, the continued economic recovery, and a steadily aging population. And while 5.8 percent outpaces a 2016 U.S. forecasted GDP growth rate by about 3 percent, it remains far below previous historic highs. For example, healthcare spending over a three-decade span, up to the economic collapse of 2008, averaged 9 percent! Last year however, medical costs rose by a whopping 5.5 percent. The sudden spike was attributed to the rising cost of drugs; a situation not helped by biopharma “bad boy” Martin Shkreli.
The former CEO of Turing Pharmaceuticals, Shkreli first made headlines when his company purchased a 62-year-old drug, Daraprim, and then increased its price by over 5,000 percent. For Gilead Sciences, the theatrics that catapulted Shkreli to rising healthcare costs’ “public enemy” number one was probably a welcome reprieve. When Gilead received FDA approval (December 2013) to market its hepatitis C drug Sovaldi, it was labelled by medical experts as a “game changer.” But when the $84,000 price tag was revealed, politicians created a biopharma propaganda media feeding frenzy, and effectively shifted the public’s focus away from the compound as a miracle cure, and instead, toward outrage over its “mind-boggling” price. But how does Sovaldi’s $84,000 price tag compare to the alternatives?
It is estimated that in the absence of a liver transplant, the average lifetime cost for hep C treatment is about $100,000. So Sovaldi, a product that forever cures one from hepatitis C, costs $16,000 less than the previously available, yet inferior, treatment. What about compared to a liver transplant? Well, let’s find out. In the United States there are approximately 1,000 patients transplanted each year for liver disease caused by hep C, and at a cost of roughly $280,000 per patient! But wait, there’s more. In order for a transplant recipient to keep their new liver healthy, they will need to take medications for the rest of their life. According to Penn State University, the estimated cost for these liver transplant drugs is $3,892. Thus, the final price for treating 1,000 hepatitis C patients via transplant is $326.7 million, — a figure that does not include the costs associated with a person not being able to work while recovering from surgery, as well as any possible complications (e.g., liver rejection, infection). While the $84 million cost of treating those same 1,000 patients with Sovaldi is not a cheap date, when you consider the fact that it represents a $242.7 million savings over this alternative, the reality is that Sovaldi, even at $84,000, is a darn good value — perhaps even too good. That being said, paying more for a drug than the cost of a Cadillac Escalade is still a pretty tough pill to swallow. What is the solution?
Are Compounding Pharmacies The Cure?
In the Tuesday, January 26 edition of the Wall Street Journal, Mark Baum, CEO of Imprimis Pharmaceuticals, notes that according to the Kaiser Family Foundation, “75 percent of Americans now say their top health concern is the rising price of prescription drugs.” According to Baum, “The public is now experiencing firsthand the unintended consequences of federal policies that facilitate monopolies by erecting regulatory barriers to new entrants.” He asserts that the government is responsible for creating an environment that allows for price gouging. His solution is for the federal government to take steps to promote more domestic competition. One of his suggestions is to allow Medicare to buy cheaper drugs, such as those that can be produced by a compounding pharmacy. For example, when Shkreli jacked up the price of Daraprim, Baum’s company, a compounding pharmacy, quickly brought to market a 99-cent alternative, containing the identical dosage of FDA-approved pyrimethamine. “We were able to do this by compounding it with leucovorin, a vitamin commonly used along with pyrimethamine, creating a new formulation choice.” By taking this approach, Imprimis Pharmaceuticals was able to provide a pill that didn’t have to go through a “prohibitively expensive and time-consuming new round of FDA approvals.” Baum says that even at 99-cents his company still makes a respectable profit.
Could compounding pharmacies be a solution to our “high-priced” drug problem? No. Well, not without some additional changes. Mr. Baum suggests providing incentives for doctors to prescribe less-expensive drugs, and allowing compounded copies of generics. While Baum’s suggestion is interesting, it is not free from concern. For example, if we take a straightforward understanding of the notion of less expensive, it could be less costly for insurance companies to use older, less-effective hepatitis C treatments, despite the long-term cost savings previously demonstrated for prescribing a drug like Sovaldi. Here’s why. Insurance companies look at things on an annual basis (e.g., annual renewal of health insurance contracts with employers). As a result, it is much harder for these organizations to justify spending $84,000 to treat a hep C patient in one year via Sovaldi versus $10,000 (i.e., $100,000 spread out over 10 or more years). Further, how do you create the proper physician incentives to prescribe less expensive drugs? One possibility could be a payment-withhold model (i.e., a percentage of payments or set dollar amounts deducted from a contracted insurance reimbursement payment). These withheld monies are typically placed into a “risk pool.” If, for example, a physician provided care at a cost less than what was budgeted by an insurance company, they might receive some or all of the money withheld. In other words, if a physician was really good at keeping healthcare treatment costs down, they might get a big bonus at the end of the year. The problem is this can create a conflict of interest for physicians, withholding care just to make a buck. As for allowing for compounded copies of generics, this could be a rather slippery slope. For starters, it could totally kill the generic biopharmaceutical manufacturing industry, and if this happened, would eliminate some of the competition Baum attests to be healthy for lowering drug pricing. Though he suggests that the compounding of generics be available for those drugs that have been off patent for more than five years, is this enough time for a generic manufacturer to recoup any investment it may have made (e.g., building a plant, buying machinery, research to prove their generic equivalent safe and effective)? Further, what’s to stop an outraged public from demanding compounding pharmacies soon be allowed to copy branded drugs that aren’t yet generic, but just too darn expensive? After all, Baum attests that “Drug pricing isn’t unusually complicated.” I tend to disagree. As evidenced by the Sovaldi example, based on the value it delivers, it could easily be priced much higher. Don’t get me wrong, Baum’s idea has merit. It just needs a little tweaking to ensure patients have access to miracle cures of the future, not just cheap copies of treatments from our past.