On the eve of FDA's deadline for acting on the first of an expensive new class of cholesterol therapies, the chief medical officer of the nation's largest pharmacy benefit manager weighs on what steps it is taking on behalf of customers in this changing landscape.
The pharmacy benefits manager (PBM) Express Scripts has made news in recent months with its novel strategies for containing drug costs. Steve Miller, MD—the company’s senior vice presi-dent and chief medical officer—explains to Andrew Smith why costs have risen so fast, which new drugs could break the bank, and how payers might be able to keep prices reasonable without stifling innovation.
What factors really determine drug prices?
In recent years, pharmaceutical makers have been shifting the rationale they give for the high price of drugs. In years past, they said that (drug development) failures and R&D (research and development) and manufacturing costs justified the price of drugs. More recently, however, they have begun saying they deserve all the value created by their drugs— that is, if the medications prevent liver transplants, if they prevent hospitalization, the drug makers are saying that they should get all that value. Thank goodness this line of thinking wasn’t used with the polio vaccine in the 1950s and 60s, or nobody would have been able to afford it.
In real life, a lot of it just seems to be that drugs are priced at what the market will bear. Drug companies and Wall Street analysts clearly believe that if you have a unique therapy and if you have the patent, then you have almost unlimited pricing power. In the past, that was held in check by a social contract that drugs would be introduced at prices reasonable enough that patients would be able to access them. That contract has broken down recently, leading to extraordinarily high drug prices that are entirely dissociated with the investment needed to develop the drug.
What does Express Scripts do to slow cost growth?
When we look at our formularies, ev-ery drug falls into 1 of 3 categories. There are certain drugs out there that are unique in the market and beneficial to patients, and we will always include them on our formulary—that’s the first category. We pretty much have to accept the company price for those drugs. The second category contains older drugs that still have their FDA approvals, but there is no longer any good reason to use them. We don’t include these in any formulary because there is no good reason to have them. And finally, the third and largest category contains 85% of drugs that are clinically useful but not clinically unique. For example, there are 10 penicillins out there that are essentially interchangeable, which gives us an opportunity to go and ask the drug mak-ers, “Which of you will give us the best price to get access to our patients?” On most drugs, we pit drug maker against drug maker to get the best price, and that’s how we help payers and patients.
How are you trying to change that without discouraging innovation?
PBMs reward innovation. If you have a “me too” drug, we punish you on the price of that drug, but when something is truly unique, that drug maker can command superior prices. That said, you can only command top prices un-til something similar arrives, even if it’s not a generic. Our specific tactics for encouraging price competition have been evolving. A decade ago, we checked Lipi-tor off our formulary, and that gave us the first big opportunity to show that we could move market share. That one move saved members and clients about a billion dollars because it was such a big drug. This last year with hepatitis C virus (HCV), we were able to align our clients behind the idea of excluding one of the products, and in turn negotiate a substantially better deal on an equally good drug. By having that pre-commitment from our membership, we were able to negotiate at a level that’s never been achieved before, and that’s why we had such great success. (Editor’s Note: Express Scripts negotiated a steep dis-count on AbbVie’s new HCV treatment, Viekira-Pak, by agreeing to steer virtually all its patients toward that therapy rather than competitors from Gilead Sciences.)
This last week (May 27, 2015), we announced something to take it to the next level. Historically, we all have negotiated prices at the drug level. What we are going to try going forward, and we will start with cancer, is adjudicate down to the indication level. We will be reimbursing for drugs differently based upon their efficacy for particular conditions. Historically, this has been tried, without success, but we think we have figured out how to do it properly. This could potentially be a very powerful next-generation tool for getting value for our patients.
How willing have pharma companies been to do this?
Just as with hepatitis C, we got our clients to precommit to this. We got them to accept, in advance, the notion that a drug might technically be on the formulary but generally unavailable for a par-ticular indication, if the company that makes the drug is unwilling to reduce its price for that indication to reflect the fact that a drug performs differently in different situations.
The differences here are dramatic. Tarceva extends the life of lung cancer patients by about 5 months, and that is the indication that brought it to the marketplace and justified its pricing. Tarceva was then approved to treat pancreatic cancer. Unfortunately, according to the guidance on the Tarceva web page, the drug only extends life for patients with pancreatic cancer by about 12 days. Nevertheless, we currently pay the same premium for Tarceva regard-less of whether it’s used in patients with lung cancer or patients with pancreat-ic cancer, and we think it’s only fair to change that.
This idea has generated an unbelievably good response from plan sponsors, which is how we got them to commit to it. As for pharmaceutical companies, we have just now started preliminary discussions, but many of them have been quite interested. They have been asking for years for prices that reflect value.
Isn’t there already a discount with less effective cancer medications because the patient dies sooner?
You do pay less overall, but you pay the same amount per pill, and many of these medications do much more for certain types of patients on a per pill basis than they do for others. The price the pill costs should realistically reflect what you expect it to accomplish for any given patient.
Do you begin negotiating prices before drugs are approved? We have always talked to pharmaceu-tical manufacturers all through the de-velopment process, but we definitely increased the emphasis on early discussions during the development of the new hepatitis C drugs. We saw that drug companies heard much less from payers during the development process than they heard from investors, advisory boards, doctors, and patients, and we decided that providing a stronger voice for payers, as early as possible, was nec-essary for a sustainable process.
There has been a sharp increase in potentially important new drugs and drug classes nearing approval. The old social contract, as I said before, has broken down, which is why we’ve recently seen pharmaceutical makers charging orphan drug prices for mass market drugs. We clearly couldn’t afford to have things continue on that path, so we reached out more aggressively than before and said we wanted to discuss a way that we could reward innovation without costs spiraling beyond what payers can en-dure. We have been gratified to find that the drug companies have responded. We are having more conversations than ever, at higher levels than ever. We are talking to CEOs and boards of directors at pharmaceutical manufacturers about value-oriented prices. Some of the most important of those discussions have revolved around PCSK9 inhibitors, which have the potential to have a major im-pact on how we treat high cholesterol.
How big an impact do you expect that class of drugs to have on pharmaceutical expenditures?
A significant impact. You have what appears to be a great group of drugs. They’re the first new type of cholesterol medication in 20 years. There are 71 million Americans with high cholesterol. Now, we know that not all of those people are going to need these new drugs, but if you look just at those patients who face high risk of strokes and heart attack and don’t meet targets with existing medications, you could have 10 million people on this class of medica-tion. There are 3 big variables that we’re working on with the pharmaceutical companies and our payers. Number 1 is the price. That’s an enormously important point. Number 2 is the indication. A lot of that will be determined by the FDA labels. How broad or narrow those are will help determine use. Number 3 is the use management program that makes sure that the right patients use these drugs and that patients who should not be on these drugs do not use them. These variables let our payers calculate how big the impact is likely to be and take steps to prepare themselves.
Overall, this single drug class has enormous ramifications. A competitor of ours forecasted the price to society to be $150 billion a year. We don’t think that our clients are going to be spending anywhere close to that level, but even if you say it’s just going to be $15 billion per year, that would have a major impact in overall drug spending, all by itself.
Is there any chance PCSK9s will create net savings on healthcare expenditures?
Whenever new technologies come into healthcare, the common refrain is that they’re going to save us money. I’ve been in healthcare for 30 years, and I know the savings rarely materialize. CT scanners came in and the doctors said, “I’m going to be able to look into your body and do more precise diagnoses and prevent unnecessary surgeries and the cost of healthcare will come down from this technology alone.” That promise was never fulfilled. You hear the same argument about a lot of drugs. They are going to improve patient lives and reduce complications and there will be tremendous cost offsets and these drugs will pay for themselves. A CMS administrator told me that if all the cost offsets promised by new technology materialized, Medicare would not cost the nation anything. It would actually make us money.
The reality is that very few technologies have had a cost-saving effect. Patients are complex. If you take patients who are at highest risk of heart disease, high cholesterol is generally just 1 of the comorbidities that put them at risk. Even if you remove that risk factor completely, a patient’s hypertension doesn’t go away, a patient’s diabetes doesn’t go away, a patient’s lack of exercise doesn’t go away, a patient’s smoking doesn’t go away, and a patient’s poor diet doesn’t go away. I don’t think we want to overstate the benefit and lull ourselves into false expectations until we prove that there is a savings.
Looking forward, what other drug classes are likely to have a major impact on expenditures?
There are many, but I’ll give you 3 disease categories, starting with NASH (nonalcoholic steatohepatitis), which is not on anyone’s radar screen. It’s a liver disease that is more common than hepatitis C, and data from trials indicate that new drugs could make a big difference. The next category, and a more important category, is cancer. There are 7000 drugs in the pipeline, and over a quarter of them are for cancer. The new pricing model has cancer drugs at very high costs, and there are a number of immunomodulating drugs that look like they could extend lives by many years. Trouble is, it’s unclear how long the patient has to stay on many of these drugs, so you could have patients on combinations of these drugs for long, long peri-ods of time, and the costs could become extraordinarily high. The final category that people have to be on the lookout for is Alzheimer’s drugs. Biogen, about 6 months ago, published an incredibly exciting study. They have a product that not only caused a regression of the plaque in the brain but also produced stabilization of cognitive decline. Obviously, they would have unlimited pricing power for a drug like that. If you consider the 4.5 million people who have Alzheimer’s and all of the people who are over 65 who would like to prevent Alzheimer’s, the potential costs are incredible.
That gives you a flavor of how great some of the innovation in the pipeline is, but also how threatening it is to drug expenditures.