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Are We Finally Ready to Rethink Prescription Drug Pricing?
January 08, 2016

Are We Finally Ready to Rethink Prescription Drug Pricing?

Leigh Purvis is the director of Health Services Research in AARP's Public Policy Institute. She leads a team of policy analysts and researchers who work on healthcare issues that are relevant to the 50 population. In addition, Ms Purvis heads the Institute's work on prescription drug and mental health issues. Her primary areas of expertise are prescription drug pricing, biologic drugs, and prescription drug coverage.
A prominent cancer specialist made headlines when he openly criticized the prices of new cancer drugs. In a speech given before the American Society of Clinical Oncology (ASCO), Leonard Saltz, MD, argued that, rather than value, drug prices are “based on what has come before and what the seller believes the market will bear.”

Unfortunately, the concerns raised by Dr Saltz are not unique to cancer drugs. For example, a recent study found that the prices of existing multiple sclerosis drugs have risen from around $10,000 per year to about $60,000 per year despite increased competition from new products. The authors concluded that, rather than competing on price or value, manufacturers were simply increasing the prices of older products to match the prices of their new competitors.

In addition, the AARP Public Policy Institute’s Rx Price Watch reports have consistently found that brand name and specialty prescription drug prices are rising substantially faster than inflation. Such price increases have been accelerating over the past several years, even among products that face considerable competition.

In light of mounting evidence that Americans cannot rely upon normal market forces to regulate prescription drug prices, some experts have begun touting a novel yet commonsense solution: paying for value. One noteworthy example is the work of the Institute for Clinical and Economic Review, which developed a method of calculating value-based price benchmarks for prescription drugs. In addition, several professional societies—including ASCO, the American College of Cardiology and American Heart Association, and the National Comprehensive Cancer Network—and  have initiated efforts to compare treatments in terms of clinical benefit and cost.

We already have reason to believe that recognizing value can have an impact on prescription drug spending. For example, some pharmacy benefit managers (PBMs) have recently begun to exclude prescription drugs from their formularies when there are clinically equivalent, lower-cost options available. One PBM estimates that removing these drugs on its formulary will save plan sponsors approximately $1.3 billion throughout the year.

Focusing on the value of prescription drugs also fits neatly within broader efforts to introduce value into the US healthcare system. However, our country currently lacks an important resource that will be integral to such efforts: comparative effectiveness research, or studies that directly compare 2 or more similar treatments. Such research will be extremely valuable as we begin to assess the value of different products.

Several countries already require drug manufacturers to provide comparative effectiveness research as part of their coverage determination processes. Consequently, it would not be burdensome or even unusual if the US were to begin asking drug manufacturers to provide such studies for its healthcare system as well. 

Given prescription drug pricing and spending trends that are widely viewed as unsustainable, it is clear that “what the market will bear” is no longer an acceptable method of pricing prescription drugs. Most American consumers demand evidence that expensive products represent a value over their competitors; it is only fair to extend such requests to the pharmaceutical industry as well.

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