Magazine Article | July 1, 2016

Finding The Common Ground On Drug Pricing

Source: Life Science Leader

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

From conversations spring beginnings. People share ideas and typically go away with some new ways of acting on them. But reaching resolutions presents a greater challenge than simply sparking initiatives, especially when the voices in a conversation speak disparate views. Of course, a group whose members all share an obvious common interest will have an easier time of it, though their discourse may lack much drama or their resolutions much impact for anyone outside their circle. If you want to resolve a real conflict — to reach a solution that works for all stakeholders — you must start a conversation that includes, at least, a fair sample of the opposing sides.

So when we decided to implement an advisor’s proposal to hold a roundtable on drug pricing, we also chose to apply the principle of inclusion. We not only invited roundtable candidates from the biopharma industry, but we also reached out to some of the industry’s most powerful adversaries: healthcare insurers, or “payers,” managed care organizations, and pharmacy benefits managers (PBMs). And we recruited other panelists from organizations that fight for patients’ access to medicines — some of the strongest supporters of industry innovation, but now also an emerging voice of conscience for industry pricing practices. Two additional panelists, a Harvard economist and a veteran industry strategist, helped widen the context when the discussion turned to “value pricing” of innovative new drugs.

The panel included three essential perspectives: the payers’ and other outside advocates’ side of the debate; the industry/business case for drug pricing; and the need for solutions based on acceptable terms for all parties. Although panelists stopped short of writing precise prescriptions, they found value in sharing views and envisioning new directions for potential solutions all stakeholders may achieve together, given enough time, work, and goodwill.

THROUGH AN OPEN DOOR
We are hereby including our large body of readers in this conversation as well. We hope to break out of an old pattern — the industry discussing pricing issues almost exclusively with itself, mainly behind closed doors. In the following edited transcript of the roundtable exchange, we take you into the room where our panelists gather around the table and speak directly to each other’s concerns.

Chief Editor Rob Wright greets the panel and shares his perspective on the roundtable’s central focus — perception versus reality in the drug pricing debate.

Welcome everyone to this morning’s very important discussion of drug pricing. We are in Boston, where my daughter will be attending Berklee College of Music in the fall, leading me to compare rising healthcare costs to rising higher education costs. Since 1978, the cost of getting a four-year degree has increased by 1,120 percent, four times the consumer price index, while medical expenses have increased by 601 percent.

We all know the value of a four-year degree, but it’s costing a lot more, taking a lot longer. Sixty percent of students now take six, not four, years to earn their degree. But on the healthcare side, we have seen HIV and AIDS being changed from a death sentence to management of a chronic disease. Today, if you’re diagnosed with cancer, there is a 50 percent chance you will survive at least 10 years. Now we have a hepatitis C drug that is priced much less than the previous lifetime therapy and eliminates the need for a half-million dollar liver transplant.

Nobody is calling the universities and the colleges greedy profiteers, but there is a lot of finger-pointing at the drug industry. We’re hoping to move toward a more balanced view of the industry today, and at the same time, toward ways industry can work in greater harmony with payers, patients, and the public in general.

This is not a new debate or a new issue in the pharma industry, of course. But the players have changed, and the balance of power has changed. At this table we have voices for the key players ready to speak. This could be the beginning of a new conversation for all of you. Each of you can say where you see the problems and where you see some possible solutions, but we also encourage you to listen carefully to each other as the discussion proceeds. It can be said patients inhabit the common ground we seek, so we will start with the patient’s perspective.

This is something people with MS have been dealing with for a long time. There have been decades of increasing prices, and it has changed the landscape for our population. I’m not the only patient here today. We all access healthcare, and anything that happens in this industry that impacts cost and access to care and medications affects all of us. Normal market forces are not at play when you talk about this issue — particularly in the world of MS, where we have increasing competition in the market, yet the prices are rising at a staggering rate. As each new agent enters the market, it is priced higher than the existing ones, and existing agents follow suit.

What value do I put on my medication? I am on one of the first-generation MS medications and have not had an exacerbation in more than 10 years. All medications don’t work the same for everyone, and in some of us they overachieve. But the medication was dropped from one of the largest PBMs this year, though not the one that supplies me. Cost is driving new utilization management measures on the payer side.

In an MS Society survey of more than 8,500 people with MS, we were surprised to learn 40 percent of the respondents are receiving patient assistance from pharmaceutical companies. Yet 40 percent reported it was difficult for them to afford the medications, and 79 percent believed the prices were unreasonable. A disproportionate burden of the cost is born by certain groups. A single medication in a class may support the development of the others within that class. MS drugs may be priced at a place where they support the development of, say, Alzheimer’s medications.

If decisions are patient-centered and patients can access, change medications, and stay on therapies best suited for them, they will be healthier, and cost in the system will be lower. Anytime we reduce the pressure of cost, it will lead to a more sustainable, transparent system with more predictable outcomes.

In the patient advocacy, not-for-profit philanthropy community, many of the pioneering organizations partner with industry and de-risk the science to get industry to develop it. We care deeply about innovation. So the drug-pricing issue, and the fervor of the headlines it has generated, have taken some of our groups by surprise. Patient-advocacy groups were created mainly because there were no effective therapies in their particular disease areas. We have been somewhat disinterested in fixing the healthcare delivery system because it didn’t relate to that core mission of de-risking the science, but now we are learning about it. If we can start to look at the healthcare delivery system, the healthcare costs, and the role innovative therapies can play in reducing long-term costs, it could be an effective wedge, but it will not happen overnight. We have asked payers to join us in discussions, but they have shown little interest to date.

HEARING THE OTHER SIDE
Our “payer” panelist offers an alternative context for the drug-pricing debate.

The opening introduction really should have compared the average wage of the average worker in the United States, which is flat over time, to the rising cost of healthcare, including pharmaceutical cost. Real wages just have not increased much at all over the course of the last 10 to 15 years. Moreover, as the baby boomers age, we have fewer and fewer workers per retiree — therefore we cannot hope to afford the system we currently have. That is where the real crisis comes from. Anyone who takes an ethical view of managing healthcare is basically saying there’s a commons issue here, and if you all overgraze the commons — consuming shared resources to the point of harming the system on which everyone depends — it will eventually lead to disaster. That is the payers’ point of view.

We negotiate with pharmaceutical manufacturers, and we develop formularies. Our basic business model is to offer the lowest cost possible for the right medications to our clients: managed care organizations, health plans, and employers. To manage drug costs, we take advantage of competition between drug companies for essentially identical medications in the same class to get the best possible price; and we ensure through prior authorization that prescribers are following evidence-based medicine.

Our PBM also has a possibly novel bulwark against reducing access to needed care: an independent pharmacy and therapeutics committee, consisting of about 25 doctors and pharmacists. They independently review and decide about formulary placement and utilization management. We have several hundred other expert doctors and specialty panels to review all of our programs. So, for example, if we want to remove a neurology drug from the formulary, it has to go through a neurology expert panel and then through our P&T (pharmacy and therapeutics) committee, who must be convinced good alternative medications are available in such situations. They also must approve any of our requirements for prior authorization of specific drugs.

Everybody seems to think the price of drugs has gone up, but it has actually gone down over the years, quite dramatically. Today, 90 percent of the scripts written in the United States are generic, and essentially every one of those scripts is at a lower price than it was each year before. The price of specialty and rare-disease drugs, however, is where the whole discussion should focus because it is the only place where price inflation has occurred. In the mass markets like hypertension, which 20 years ago was the biggest problem we had in this country, the price of drugs has gone down by half — because of a wonderful price-control system called mandatory substitution.

PATIENTS IN THE MIDDLE
The panel turns toward more specific cases where companies, patients, and payers spar over prices.

The issue is less about pricing than the fact that no patient ever wants to take a drug. Having to take a medicine represents a very significant step in the patient’s life. But buying and paying for a drug is not the same as purchasing a free-market product. Patients generally don’t even know the price of their medicine. Although medicines are part of one of the key pillars of our democracy — education, defense, and healthcare — medicines do not operate in a free-market environment. Patients are therefore not traditional “customers.” Our responsibility as an industry is to understand the implications of this fact.

We need to be the patients’ advocate and ally, and they need to be our advocates. Because until they are, policymakers, whom the patients elect, will continue to paint a big bull’s-eye on us. It is a mistake for us to be debating the drug-cost issue with pharmacies, payers, versus tackling the issue together. The mutual task for pharma and all these stakeholders should be attaining better, cost-effective patient care.

Drug prices as a percentage of healthcare cost haven’t changed over the past 40 years, and the percentage is unlikely to change. But the point is patients show up at a pharmacy counter and they’re hit with co-pays, co-insurance, or full payments against deductibles they can’t afford. We should not be in a situation where patients can’t afford to fill their prescriptions or have to make other sacrifices to do so.

We have to be part of the solution, but we can’t solve the problem by ourselves. We must work together to figure out how to evolve the system so patients can actually afford the drugs they need, but in a way that doesn’t dis-incentivize the development of new drugs. I’m the CEO of a public company; I have responsibilities to the company’s stakeholders, and the biggest stakeholders are the patients who take our drugs. When we price our drugs, we must consider the value of how they affect the patient’s health, lifestyle, quality of life, family, and so on. We must also consider systemic affordability.

Troyen is correct — healthcare costs are rising faster than is sustainable. We all have to participate in finding solutions to that issue. Ensuring the proper use of the right drugs by the right patient should be cost effective. Some pay-for-performance schemes could be good, although regulatory constraints make them hard to negotiate. Payers must also consider some changes — they have put a great burden on patients by increasing “cost sharing.”

MISSION POSSIBLE?
Has a payer-sponsored PR campaign poisoned the waters for constructive drug-pricing discussions?

I hear many learned and thoughtful comments around the table. But as I listen, I realize how almost impenetrably complicated this issue is. The current environment is utterly not conducive to even beginning to find practical solutions because it has become so charged. A few years ago, the AHIP [America’s Health Insurance Plans] association decided to fund a campaign that would focus attention on the drug industry and drug pricing. They have been very successful.

The AHIP asked Hep C patients on Sovaldi, “What do you hate about our system?” They said, “My drugs are too expensive.” They were not talking about Sovaldi’s list price of $84,000 or probably $50,000 with 45-percent discounts — in exchange for which society probably gets about $200,000 back in avoiding lifetime care — they were talking about what they would have to pay out of pocket due to insurer policies.

It is not possible to have constructive solution-seeking conversations right now when one of the key players, biopharma, is being publicly and intentionally vilified by other parties. What hasn’t been thrown into the public spotlight is how hospitals and the insurance industry contribute to all of these issues in at least equal measure.

According to IMS, drug prices for patent-protected brand drugs in the U.S. grew only 2.8 percent from 2014 to 2015 — after rebates, discounts, and other price concessions were taken into account. Overall sales of pharmaceuticals was $425 billion, but overall revenue for pharmaceutical companies was $310 billion. What happened to the $115 billion of drug sales? It went to the PBMs, insurers, hospitals, and all the other players who take a piece of the drug spend along the way.

KOBERSTEIN: Are the patient groups seeing more concern about cost sharing and the other measures by payers that restrict access to drugs?

PAGE: Absolutely. Many of the decisions with step therapy for MS are being based on the cost of the medications, not medical benefit. All of the MS medications end up on the top tier. Patients have no financial choices among drugs. With prior authorization, patients frequently must get reauthorized repeatedly. The shift from co-pay to increasing levels of co-insurance makes drugs unaffordable for many patients.

Troyen, I would encourage you to bring some patients onto your formulary design panels. Let the patients talk to you about the difference among delivery methods. Taking an oral versus an injectable form of a medication might enable some to stay on the medication and get a better outcome in the long run.

ANDERSON: There’s incredible work being done to bring the patient perspective and experience into the design process so that we get better products that actually meet their needs. We need to do the same thing on the healthcare delivery side. We are working with Avalere, a strategic advisory company, to pioneer a value framework from the patient perspective. A number of other not-for-profits are also in this space, and we’re all talking to each other actively. People working on the value frameworks seem shocked at how much fervor the frameworks have generated. When we asked them, “Where’s the patient perspective in your framework?” they say, “That wasn’t what we were starting out to do.” That is another great opportunity for the patient voice and the patient movement to play a role in the value dynamic, but we will need industry engagement to broaden the focus of these frameworks.

PAYING FOR INNOVATION
The panel gets down to tackling the economic relationship between drug pricing, access, and development.

KOBERSTEIN: Arm in arm with the issue of healthcare cost is the issue of patient access to healthcare. It isn’t just about making choices based on value. In our system, to receive any assistance for the noninsured financial burden of care for patients with catastrophic conditions, people usually have to exhaust most of their resources first. Let’s turn to our economist.

It is true, when U.S. patients get sick, they face double jeopardy. They are already hit with the disease — cancer, MS, Alzheimer’s — and then they get hit with the co-insurance and copayments. That’s not insurance anymore because the purpose of insurance is to smooth out well-being; it’s not to make sick people shop for healthcare. That should have been done while they were healthy. And so we need more innovation in plan offerings, especially with a value-based plan design where we don’t have co-insurance for things that work.

Second, on the point of development, it is entirely possible that we, as a society, might be innovating at a rate that the average American can’t actually afford. We have built a system where we have never actually sent a signal to manufacturers saying this is how much we can afford as a country. Instead, we dodged the issue of willingness-to-pay with laws that force Medicare and Medicaid to cover every FDA-approved drug. That’s essentially saying, “If you build it, we will pay for it.” Then manufacturers build it, and we say, “Well, now we don’t want to pay for it.” This kind of pricing uncertainty will affect development, which is already risky.

Third, academics love to say there is no tradeoff between innovation and pricing. This comes from our self-interested belief that scientific progress, often in our labs, generates innovation, instead of also realizing that market size induces innovation. So the fewer people we insure or the less we pay, the less innovation we will get. The trade-off is exacerbated where biopharma competes in financial markets for investor dollars with Apple, Uber, and other high-tech companies. The higher the financial returns to tech, which is not as R&D intensive as biopharma, the fewer the dollars that will flow to biopharma. So what happens outside healthcare, in the rest of the economy, affects R&D in biopharma, too.

WILL INVESTORS FLEE?
Major investors, nervous about the drug-pricing controversy, are contemplating wholesale flight from the biopharma sector.

COHEN: A couple of months ago, George and I were sitting around the table with the portfolio managers for some of the world’s biggest public mutual and investment funds — altogether representing more than $500 billion worth of capital. They are extraordinarily exercised about what they are seeing in the entire price-value debate. They conveyed this message very clearly: They will no longer be able to allocate the current level of capital to medical innovation if the debate continues along the same path. If we simply reduce pricing in a vacuum, with no other action to incentivize investment in our industry, we will significantly reduce the level of innovation and the number of important new drugs.

SCANGOS: If you cut industry profits in half, you save only a tiny fraction of total healthcare costs at the expense of a huge reduction in the flow of new drugs. I don’t think anybody wants to make that trade-off. We do have the problem that patients can’t afford their drugs, but the solution is not to slash the industry’s profits. There has to be more thoughtful ways of cutting costs that would yield much larger results.

CHANDRA: The tremendous opportunity is the realization that most of healthcare is a noncompetitive industry. The hospitals are huge geographic monopolies. My greatest worry is that biopharma will also become consolidated because of the pricing uncertainty that smaller biopharma companies face. In that world, biopharma prices would be high for two reasons— because the R&D is expensive and uncertain, and because of reduced competition. The more competition we have in biopharma, the better it is for patients.

One theory for reduced price competition in biopharma may lie in the U.S. Patent Office. The standard to get a patent in the United States is extraordinarily high. It is very hard to show that a molecule is novel and nonobvious when that molecule has been talked about at the major science meetings and published in leading scientific journals. If we could lower the patent bar, we would see more new drugs, and more price competition.

RETHINKING THE SYSTEM
The roundtable steers back toward to its original mission — seeking practical solutions all sides can accept.

COHEN: Biopharma is looking at long-term innovation, with reduction of healthcare costs because of better treatments. Payers are looking at this year, this quarter, how do they cut costs now. Under their accounting systems, I’m not sure they can amortize cost savings from a particular medication over time.

CHANDRA: We treat the payers like regulated utilities and that reduces innovation by payers. We, as in our government, made the payers regulated utilities through Medicare’s MLR [medical loss ratio] rules and similar measures. And so we can’t enter into a longterm contract with a payer, which is why the payers don’t do prevention.

We all agree some drugs are priced too high, but we would have a difficult time agreeing on which drugs in particular. As an industry, we’ve fallen into the trap of trying to defend everyone’s price. That is not our job. Each company’s job is to defend its own prices.

What really drove innovation in the rare-disease space was the business model our company created. We priced our first orphan product, a true rare-disease drug for only 5,000 people, at $400,000 a year. We ended up in the headlines and even in front of Congress. But we built a new business model, and through that model, there are now hundreds of orphan drugs available that would have had no chance without it. But orphan designation does not mean orphan pricing. An orphan drug for 200,000 people and an orphan drug for 5,000 people represent very different price points. All of us have responsibility in this equation, yet we’re not good at listening, and we’re remarkably short of facts and reliable data to inform the debate.

LEVIN: The range and dialogue on pricing from the very small orphan or rare area to the very large markets are substantial. But the debate in the orphan area has not begun substantively. We all would agree that fixing this system is critical because the system itself is too important to fail. Without doing so, as a society, we would change dramatically through our inaction. Without doubt, the industry is getting punched every day of the week. However, I believe part of the solution is to look at the system and to ask ourselves where we can become partners with other stakeholders in finding remedies for the system’s ills instead of arguing about the fairness or otherwise of pricing.

COHEN: Pharmaceuticals-biopharmaceuticals are the only component of healthcare that can reduce costs for society. People are still struggling to figure out what kind of value framework makes sense. We need a framework for talking about the entire healthcare experience for the patient in assessing the relative value of those components.

LEVIN: Your comment might better be that drugs are the only component believed able to reduce costs in the system — this is a sound bite that the Hill understands. But it is not the sound bite that the patient can understand. Nor is it accurate. As an industry, we need to build a deep relationship with patient advocacy groups to give, for example, a sense of what it is like when it costs $85,000 per year to care for a patient in a family with Alzheimer’s. Medicines can dramatically reduce that cost.

CHANDRA: The government tried to make the care-delivery system more efficient, but the solution it picked — ACOs [Accountable Care Organizations] — was completely unproven. The proven solution was bundled payments but for a variety of political and aspirational reasons, we didn’t pursue that. Helping government and plans to lead on bundled payments is a much better way to disrupt the hospital industry than to push on ACOs, which have only encouraged more hospital consolidation.

COHEN: Every one of the solutions CMS now proposes under its Medicare Part B drug-payment experiment is trying to chip away directly at drug prices rather than taking a systemic approach that forces the market to come up with individual solutions, as in bundling.

SCANGOS: Now the question is what can we practically do in the nearer term to change the system and its incentives? I’m worried about whether we have the time before we witness some kind of populist solution.

WHO IS LISTENING?
The one panelist on the payer side, who has listened to most of the discussion until now, shares his thoughts on what he has heard.

BRENNAN: I would encourage pharmaceutical manufacturers to bring more people into your tent to present the other side of the discussion. I am worried when I hear the same arguments over and over. I don’t believe you have a broad and contextual grasp of the situation right now. Take bundling. If I am a medical center taking risk in a bundle program that involves a disease with a specialty medication, I will take advantage of 340(b) pricing if it is available. That is where good business sense will lead me. The pricing is so much more attractive, and because 340(b) hospitals have a disproportionately high share of Medicare and Medicaid patients, they will justify using the discount from an ethical, not just a business point of view. They are the last hope in access for many patients.

Where we’re really seeing drug-price inflation is on branded medications, both specialty and nonspecialty, with consistent, annual 20-percent price hikes. If pharma companies want to get out of the spotlight, my suggestion is get your inflation rate back down to where hospitals and physicians have been, 3 to 4 percent during the past few years.

MEEKER: There are bills going through Congress now that would mandate that the FDA approve generics within six months if those generics break a monopoly such as the Turing-Valeant situation. We should all be encouraging Congress to pass that law. It is an easy way to deal with abuses of the system.

COHEN: As trade associations, we are specifically barred from any internal discussions that touch on pricing specifically. We are all independent companies, and everyone makes their own decisions. I don’t see a way to regulate behavior other than through more extended conversations, societal pressure, and some of the pressures Troyen talked about. I have no problem justifying a high price for a new innovator drug. Annual increases that are way in excess of inflation are indeed more problematic, though even here the issues can be complex.

MEEKER: We should not take annual price increases that are purely related to increasing revenue, as opposed to price increases which reflect the cost of living or true recognition of increased value creation. We must find a way to talk to payers preapproval. Those are actionable items.

A small-biotech CEO, having listened, enters late in the discussion.

I lead a venture-backed company, the kind that other companies sitting around the table look to for external innovation. It is a very challenging time for raising capital for a Phase 2 asset in the Valley of Death from investors who are nervous not just about the scientific and regulatory risk, but also how you will price your product.

In that light, we are very patient-focused. We bring patients into roundtables to thoroughly understand their needs. We are also innovating on the manufacturing side, so when we’re ready to launch, we have a very cost-efficient drug. We put a lot of capital into understanding the market needs, reimbursement, pharmaco-economics, the works. The dialogue with payers proposed here is something we are doing at the ground floor, in early development.

KOBERSTEIN: Like many good roundtable discussions, this one seems to be just getting going as it ends. We have to look at this as a beginning of a discussion to continue long term. Let us not say the roundtable is over, end of discussion. Let’s continue our exchange as a working group to keep moving the ball forward, and as we add other participants down the road.