Fight With or Adapt to Rising Drug Prices? Economists Debate at the AcademyHealth Conference

Rising drug prices, the effect on the healthcare system, consumer push-back, and possible solutions were debated by the expert panel.

Rising drug prices, the effect on the healthcare system, consumer push-back, and possible solutions were hotly debated during a panel at the 2016 National Health Policy Conference hosted by AcademyHealth in Washington, DC.

The discussion, High Cost Drugs: Where Regulations Meet Opportunities, was moderated by Tricia Neuman, PhD, senior vice president of the Kaiser Family Foundation (KFF) and director of the Foundation’s Program on Medicare Policy and its Project on Medicare’s Future. She was joined by 2 health economists, Dana Goldman, PhD, professor of Public Policy, Pharmacy, and Economics, School of Pharmacy and Sol Price School of Public Policy, University of Southern California; and Steve D. Pearson, MD, MSc, FRCP, founder and president, Institute for Clinical and Economic Review (ICER). The third participant was Lynn Quincy, director, Health Care Value Hub, a policy group at ConsumersUnion, funded by the Robert Wood Johnson Foundation.

“Drug costs are projected to rise at a fairly rapid pace, with a steep cliff,” said Neuman. Sharing research data generated by the KFF for the period 2013-2014, she said that drug prices are the fastest growing portion of health spending, with specialty medications leading the way. The Foundation’s study showed a 9-10% rise in the annual health spending on drugs, with a 10% increase in retail drugs as a share of the national health spending and 19% increase in spending by employer-based national health plans.

But what has most caught people’s attention, Newman said, is Medicare outpatient drug spending, which till 2014 was steady, but has been on the rise of late. “Sovaldi had an unanticipated impact on Medicare Part D spending rather than the projected Medicaid spending,” she said. “Agreed that the drug has long-term benefits, but we have a short-term issue at hand,” Newman added.

These high prices translate into increases in health plan deductibles and premiums. A consumer survey conducted by the Foundation found that 73% of the population deem prescription drug prices unreasonable and 74% of the surveyed population primarily blame the drug manufacturers for the high costs, ignoring the other players in the game.

The Consumer Expectation

Agreeing with the statistic, Quincy said that while consumers have faith in the value of pharmaceutical innovations, “The fact that more than 50% of Americans take prescription drugs regularly…so prices are top-of-mind for consumers.”

1. Patients do not follow the doctor’s prescription

2. Patients procrastinate seeking care

3. Patients avoid filling out or refilling prescriptions

4. Patients cut back on daily requirements to afford taking medications

She listed a number of downstream effects of the high drug prices:

1. Immediate financial solutions for patients. A few states are already in the process of adopting these changes:

a. Cap monthly out-of-pocket cost and avoid front-loading by spreading the overall cost of care across the entire year. This, however, does not address the underlying reason of high drug cost.

2. Increase pricing transparency. Make data available on what payers negotiate for drug prices with manufacturers, as is common practice in Europe. Price justification bills, Quincy said, are being explored around the country.

3. Increase payer’s ability to negotiate. Medicare should be allowed to negotiate on drug prices with manufacturers. She also suggested that private health payers should band together to negotiate. In case of a single manufacturer, however, state-set limits on drug prices would be the path to follow.

Quincy offered a few solutions to help ease some of the issues:

Quincy said that while the general population may not understand the nuances of these policies, they do expect changes that would impact the bottom line.

The Patients Reap Most Benefit

Goldman, however, begged to disagree. “There’s a fundamental difference between our short-run and long-run view on costs,” he argued. “Any markup on a product will limit access. So, from a social policy perspective, we can set prices at cost of production. The problem is that in the long run, we need incentives for innovation.” Goldman explained that pharmaceutical R&D is especially risky, and financial incentives are necessary.

He presented HIV as a case study. In the mid-1990s, extremely effective and very expensive antiretrovirals were developed (highly effective antiretroviral therapy or HAART). Protests ensued over the high price of HAART, but subsequent global progress in the field resulted in dramatic effect on prices, and the survival curves for HIV patients shifted dramatically, Goldman said. “Life expectancy for infected patients increased by over 50% from 19 to 34 years.” The increased life expectancy multiplied with the number of lives saved argues for the rich benefit for patients, Goldman argued.

Goldman presented a similar argument for anticancer agents, especially the new immuno-oncology drugs. He compared profits flowing to drug manufacturers with the value for patients, which is quality-adjusted life years (QALY) times the number of years of survival—the calculations place the patients at an advantage.

“The lessons we have learnt from HIV and cancer are that innovators, especially when they develop breakthrough products, capture a small fraction of value, and using launch prices misses important dynamics of the population impact of drugs,” Goldman said.

He then moved on to discussing drugs that are disrupting the economics of health systems across the country, and globally: HCV. “Are the new treatments really expensive?” asked Goldman, adding, “How do you compare social with economic value?”

There are several questions that remain open ended, including should we restrict the new drugs to patients who have advanced disease or do we treat all cases of HCV? “Anthem is making treatment available for everyone,” said Goldman.

According to Goldman, there are several lessons to be learnt from the management of HCV:

  • Misalignment of costs and benefits create access problems
  • The advantage of short term costs for long-tail benefits
  • Cost-effectiveness of treating 1 person is not the same as the cost-effectiveness of treating everyone (especially in the context of infectious disease, where we can avoid the infection from spreading further)

“The playing field is currently tilted against prevention and cures: a result of short-term budgeting and price-per-dose reimbursement,” said Goldman, while suggesting 2 policy changes: flexible, dynamic pricing and value-based reimbursement.

Policy Options to Rising Drug Prices

Pearson, the last to present, presented his conceptual approaches to “fair” pricing of a product:

  • Free-market supply and demand
  • Costs of development add production planning
  • Value for the patient

Explaining ICER’s value-assessment framework, he said, “Our framework considers clinical effectiveness, incremental cost per clinical outcome achieved, other benefits or disadvantages, contextual considerations, and the resulting “care value” that may be considered high, intermediate, or low.”

Value assessment, according to Pearson, can be based on the following value-based pricing benchmarks:

  • Long-term cost-effectiveness, using a range between $100,000 and $150,000
  • Potential short-term budget impact.
  • 5-year potential uptake of unmanaged care
  • Annualized net potential budget impact
  • At what added cost would there be discussions on affordability? Cost contributing to healthcare costs > anticipated growth in gross domestic product + 1% For 2015-2016: $904 million/year for each new drug

Pearson then went on to suggest the following policy prescriptions to reduce drug costs:

1. Set penalty zones at a pre-specified value-based amount

2. Mandates for brand transparency

3. Changing part B payments for physicians

4. Benchmarking pricing similar to that by the Veteran’s Administration

5. New or increased use of value-based pricing