By Suresh Kumar
The healthcare industry — from payers to providers and from drugs to devices and diagnostics — often touts lofty goals and a higher purpose. Yet it’s an industry that is perceived poorly by the public and patients for its practices. Dysfunctional politicians who can rarely align stand united to combat drug prices and industry practices. Even pharma leadership acknowledges that the current system discriminates against vulnerable populations and is unsustainable. It behooves us to look at what we set out to do, how we are doing this, and what we need to do to hasten changes.
PLATITUDES: WHAT WE SET OUT TO DO
Pharmaceutical, medical device, and diagnostic companies set out invoking science to change the world and improve lives. Vision, mission, purpose, values, and cultural statements abound in this industry. They include phrases such as every life matters; innovating every day; make the world a healthier place; helping people do more, feel better, live longer; and making health systems work better for everyone. But teflon vision statements rarely inspire or engage stakeholders — actions do.
Should a higher ethical standard be demanded from pharmaceutical companies? Scientific innovations helped introduce successive new therapies, drugs, and devices mainly at higher prices, often at unaffordable levels. Few have been cures for disease; the majority are for long-term maintenance and control of disease progression. Consequently, payers and PBMs restrict access to new therapies to a privileged few patients. Should industries that tout higher purpose be held to higher standards?
During infection-prone yesteryears, medicines staved off epidemics to save lives. Double-blind placebo-controlled clinical studies established high-water marks in objectivity and transparency for product development and approval. Improved public-health initiatives and protocols have dramatically reduced infection rates. Today’s priority is controlling chronic-disease progression where patients often need to take drugs throughout their life. This can, and often does, drain national exchequers and personal savings. Pricing approaches designed for drugs to fight infections or episodes over short durations cannot be sustainably extended to products that combat chronic diseases. The need today is for relevant, ethical, and transparent commercial practices similar to how industry approaches product development and regulatory approvals. Inability or unwillingness to grasp or act on this raises the question: Is it time to steer ethical pharmaceutical companies back to their roots of transparency through regulations?
In practical terms, should price ranges be established at the same time a drug is approved? Should the price of a drug be linked to access — the greater the potential patient population of a drug, the lower its unit price? Should companies be mandated to post the price on every drug package, advertisement, and promotional and educational material? Should hospitals be required to establish a price list for every procedure and the medical supplies used for it and for postoperative care (e.g., gauze, cotton wool, and medicines dispensed [this being capped at the wholesale price of the drug])?
PRINCIPLES: THE ECONOMICS OF HEALTHCARE
Between now and 2030, global population will expand by 1 billion to 8.6 billion, while U.S. population will grow from 325 million to 360 million. Without robust disease pre-emption initiatives, a growing population means an expanding patient population. An aging population with chronic disease predicates healthcare markets will grow even faster. Unlike infectious diseases that cull population, current health maintenance regimen reduces hospitalization and procedures. This means chronic disease patients live longer at home, in long-term care facilities, and in hospices. Care-management protocols have neither been sufficiently adapted for this change nor to cost-efficiently manage population health. Business as usual that benefits industry in the near term is catastrophic in the longer term when it does not serve governments and patient populations. With a relevant business model, we could better serve evolving patient needs and better steward corporate assets. It would also help patients, employers, and governments — the ultimate payers — better manage their finite resources. But changing business models requires courage. Without change, the industry risks increased public ire, confrontations with financially pressured institutions and governments, and losing market share and market power. Protecting status quo business models is a dereliction of responsibility for CEOs and boards of directors.
Economically speaking, healthcare can be characterized as a bundle of necessity goods that impacts survival and quality of life. We spend 18 percent of the GDP (more than anyone else) on healthcare. U.S. per capita healthcare spending is $10,200 vs. $4,800 in Canada and $4,300 in the U.K. Market imperfections and inefficiencies raise the profound question: Should governments purposefully hasten structural, regulatory, and commercial healthcare policy reform?
PRACTICES: THE ETHICS OF MAKING PROFITS IN MANAGED VERSUS FREE MARKETS
Pricing practices of pharma companies and discount shenanigans across drug distribution chains is universally abhorred. Ethical complicity extends to all areas of healthcare. Healthcare is a managed market, not a free one. It is characterized by regulated interventions, and in some combination, governments, employers, and patients pay for it all. A dissipated drug supply chain from discovery to delivery warrants oversight to:
- make sure that the patient’s interest overrides those of all intermediaries at every level
- determine what adds cost and what adds value to the patient and healthcare system.
Incentivizing the right behaviors helps. For example, in a bundled pricing environment, ordering more tests or diagnostics over SOPs does not bring in more revenue that would accrue under a fee-for-service (FFS) regime. Incentivizing institutions may accelerate transition to a fee-for-value (FFV) or an outcomes-focused system. Addressing potentially worrisome ethical conflicts could compress costs and conflicts.
Drugs are approved for specific claims after rigorous large-scale studies. Pharma companies are forbidden from promoting a drug for any purpose other than those for which it was approved, but doctors can prescribe it for any purpose. This off-label use flies in the face of ethical evidence-based medicine. With the exception of dispensing experimental drugs following an established protocol, off-label use of medicines must be stopped; it infuses variability in practices when the opposite — consistency and measurability — is required.
Hospital administrators complain about physician ownership of private medical and surgical centers while those doctors continue to practice at public hospitals. This results in lucrative orthopaedic, urology, or GI procedures (e.g., routine colonoscopy) “leaking to” private facilities while hospitals remain burdened with the complex, liability-prone, and cost-intensive procedures. The ethical question: Is the doctor a profit-driven entrepreneur or a professional charged with providing the best care for the patient at the lowest price? Healthcare facility ownership/deals must be closely vetted to ensure that patient interests are front and center; incentives are aligned; and risks of waste, fraud, and abuse contained.
PRICING & POLICY: DOUBLING DOWN ON TRANSPARENCY AND NEGOTIATION
Free markets work well for discretionary consumption products but less so for managed markets. Obfuscated discounts make already opaque pricing practices even murkier. To be sustainable, the industry must earn profits. But how are justifiable levels determined? And in managed markets, who makes this determination? Should an industry that defines itself as sustaining and improving life and improving healthcare systems be condoned for lacking transparent practices?
What would it take to bring transparency to commercial healthcare practices? Taxing pharma companies at the level of gross price? Indexing or taxing a portion of discounts? Punitively taxing PBMs where discount flows are not detailed? Allowing payers, purchasers, and governments (i.e., Medicare, Medicaid, Departments of Defense and Veterans Affairs) to negotiate volume discounts, the quintessential market-driven approach? Or can we restrict price increases to no more than national inflation?
Martin Shkreli (Turing Pharmaceuticals) and Elizabeth Holmes (Theranos) are anomalies not representative of the healthcare industry. But the lessons learned from these “bad actors” reinforces the need for the industry to demonstrate that everything healthcare companies do is centered on patient interests and making therapies sustainably accessible to all — not just the privileged few.
SURESH KUMAR serves on the board of Jubilant Pharmaceuticals and Medocity. Formerly, he was U.S. Assistant Secretary of Commerce and executive VP at Sanofi .