Conversations around drug prices are nothing new. What is new, however, is the tenor of the debate. From the Turing Pharmaceuticals debacle, to the unfolding Valeant crisis; from Hillary Clinton’s drug price-control proposal, to strong-arm negotiations between PBMs and biopharma companies; and lawmakers’ efforts to subpoena drug company execs to defend pricing, the drug-pricing debate has reached the tipping point. It’s not going away anytime soon.
Last week, two respected thought leaders, William W. Chin, MD, Chief Medical Officer and Vice President of the Pharmaceutical Researchers and Manufacturers of America (PhRMA) and Peter Bach, MD, Director, Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, joined the conversation. Drs. Chin and Bach each published an article addressing the issue in the most prestigious medical journal in the U.S.—the New England Journal of Medicine (NEJM).
One journal, two opinions, three facts
NEJM is known for its publication of articles about major medical breakthroughs, state-of-the-art clinical care and research milestones. It has been at the forefront of medical news for more than 200 years. NEJM published ground-breaking content at the height of the AIDS crisis, as well as the recent Ebola crisis—and now this high-impact journal is turning its attention to drug prices.
Perhaps most interesting is not the fact that Dr. Chin and Dr. Bach disagree about pricing mechanisms and the direction of healthcare in the U.S., but that they agree on the basic facts that underscore the conversation. Here’s where they stand.
Fact #1: The percentage of healthcare spending devoted to retail prescription medications has remained roughly the same for the last 55 years.
Chin makes the point that 14 cents out of every healthcare dollar is spent on prescription medications—a percentage that has not changed since 1960. He emphasizes that this long-term trend is forecast to continue through 2024, even when nonretail medications, such as biologics, are factored in.
Bach also acknowledges that drug spending as a percentage of health care has been stable, but he says that the trend is changing. The reason: For years, the standard paradigm is that the most expensive drugs, such as oncology drugs and drugs used to treat rare diseases, are used in small populations, while cheaper drugs, including generics, are used to treat prevalent conditions, such as hypercholesterolemia and hepatitis C.
First the good news—the advent of new treatments for both hypercholesterolemia and hepatitis C address longstanding medical needs for large numbers of patients. But the costs of these drugs, such as Praluent for high cholesterol, which has a list price of $14,000 per year, and Harvoni for hepatitis C, with a price point of $94,500, are much higher than the drugs that were previously used to treat these conditions, but the treatment population remains substantial.
Bach sees the stable-percentage trend starting to shift already, citing a projected 13.6% increase in spending on total drug expenditures between 2014 and 2015—but only a 5% increase in overall healthcare spending.
Fact #2: Within the last decade, the number of drugs approved by the FDA has accelerated, resulting in an influx of new drugs into the market.
For Chin, the fact that the FDA has approved more than 500 new medications since 2000 is a reason to celebrate—an example of innovation at its best. For example, as a result of the introduction of new medications, the five-year survival rate across all cancers has increased by 42% since 1975. Chin also points out that the U.S. is more efficient in using generics compared with other countries and that soon biosimilars will be widely available. In fact, according to the latest report from the Generic Pharmaceutical Association, 88% of all prescriptions dispensed in the U.S. last year were generics.
Chin also views the introduction of new drugs as a way to avert more costly long-term outcomes. Citing the HIV-AIDS crisis of the early 1980’s, Chin makes the case that until an effective treatment was introduced, increasing numbers of patients required costly, acute, end-of-life care that could have bankrupted the healthcare system. Instead, the FDA approved zidovudine in 1987, making it possible for HIV-positive patients to live longer, healthier lives.
For Bach, the fact that the FDA approval rate has increased from 56% to 88% in the last seven years is not necessarily a bad thing. The problem from his perspective is that many of the newly approved drugs are too expensive, even those that seem deceptively cost-effective.
Using cancer drugs as an example, Bach points out that it’s not only the cost of the drug being used, but the cost of all of the drugs used along the clinical pathway. By the time a patient starts to receive treatment with a third-line agent, they have already been treated for months with medications that often cost more than $10,000 per month. As a practicing oncologist, Bach concedes, “The prices of new cancer drugs are increasing far faster than the benefits they offer.”
Fact #3: The drug-pricing debate all comes down to value. By figuring out the way to sync price with value, the problem can be effectively addressed.
It is Chin’s opinion that the current market-based healthcare system is “working well.” He also emphasizes that the actual prices of drugs are generally lower than list prices once rebates and discounts are factored in. Plus payers demand demonstration of value and use a variety of methods, such as tiered cost-sharing, prior authorizations and step therapy, as cost-containment strategies. Add to that the fact that generics enter the market at the end of a brand-name drug’s lifecycle and it all balances out. Chin contends that adopting a centralized government-purchasing model “would result in drastically limited choices for physicians and patients.”
On the other side of this conversation, Bach points out that now that there are high-priced drugs for highly prevalent diseases, the entire model has been turned upside down. In fact, Bach predicts that allowing large numbers of patients to be treated with high-priced drugs for prevalent conditions “could end up eviscerating the budgets of health programs.”
There are solutions, however, based on Bach’s analysis of the ‘value’ issue. The Institute of Clinical and Economic Review (ICER), which provides value-based benchmarking by factoring in the effect of a new treatment on a payer’s budget along with cost-effectiveness estimates, can generate costs that not only reflect the value of a drug, but also the price at which the drug is affordable for the system. Bach cites the example of ICER’s analysis of Novartis’s new heart failure drug, Entresto.
ICER’s cost-effectiveness analysis for Entresto valued it at $9,500 per year; however, because heart failure affects more than five million Americans, the drug would need to be priced at $4,200 per year in order to be affordable from a payer perspective. When Entresto was approved in July, Novartis announced that it would be priced at roughly $4,600 per year. Most likely, at this price, reimbursement won’t be a problem—and Entresto is poised to become a blockbuster drug.
The conversation around drug pricing is contentious and complex, but in the end it comes down to some mix of three core elements—value, access and innovation. The trick is finding the right balance.