Paying for the Future of Medicine

May 20, 2014
Ben Comer

Pharmaceutical Executive

The three leading justifications for sticker-shocking drug prices in the US.

Is the hallmark of innovation higher drug prices?

The three leading justifications for sticker-shocking drug prices in the US, from the biopharma perspective, are: 1) it costs a lot to bring a drug to market;* 2) drugs – even very expensive ones – are cheaper in the long run since they prevent complications, hospitalizations and other acute care services; and 3) drug revenues fund research efforts (indirectly, in the case of licensing and acquisitions) for tomorrow’s innovative therapies.

Panelists at The Atlantic’s Future of Medicine: A Conversation on Cost and Value conference, held at the Newseum in Washington DC on Wednesday, attempted to poke holes in these justifications, or defend them, depending on job title.

The Atlantic’s Future of Medicine conference at the Newseum

Most of the discussion centered on Gilead’s Sovaldi, an oral hepatitis C therapy that appears to be curative, at a cost of roughly $84,000 for the 12-week, full course of treatment. Sovaldi earned $2.3 billion in its first three months on the market, and also earned a Congressional inquiry and many worried headlines about the unsustainable costs of prescription drugs. (Gilead execs have said they underestimated the demand in the market, which suggests that Sovaldi’s price might have been lower, if only they’d known how successful the drug would prove to be, and the scrutiny that would follow).

There are many drugs on the market, mostly for cancer and rare diseases, that cost more and do less than Sovaldi, but the latter’s short course of therapy means payers have had to shoulder a very heavy cost burden all at once. “By May [2014] we’d spent double our hepatitis C budget,” said Sharon Levine, associate executive medical director, at the Permanente Group.

One top of that, Steven Pearson, president, Institute for Clinical and Economic Review and a visiting scientist in the Department of Bioethics at NIH, said the “downstream savings are not enough to offset upfront costs.” Levine agreed: “Liver transplants might save $1 billion…that’s cost avoidance, not cost savings.” Sara Radcliffe, EVP, health, at the industry trade group BIO, insisted that Sovaldi would “ultimately save the system money,” but admitted “we don’t know how companies price their drugs.”

For physicians treating hepatitis C patients, “the art is in choosing which patients to treat tomorrow,” said Donald Jensen, director of the Center for Liver Diseases at the University of Chicago. Not everyone with hepatitis C will get Sovaldi immediately, even though it may be the best choice for most patients. Pearson acknowledged the difficult conversation that is happening in exam rooms across the country: we could cure you now, but we have to wait.

Americans seem determined to block cost discussions – whenever possible – from treatment decisions. By statute, the Patient Centered Outcomes Research Institute (PCORI) isn’t allowed do cost-effectiveness analyses, but Rena Fox, a professor of medicine at the University of California, said physicians should be trained, in medical school, to talk about money. Physicians should “at least be aware of health economics, it should be part of the bedside manner…great doctors need to be aware of how costs effect their patients.”

Reflecting on Germany’s Institute for Quality and Efficiency in Health Care (IQWIG), Germany’s former Federal Minister of Health Daniel Bahr said Germany would no longer pay for a new drug simply because it’s new; it must show an added benefit to the standard of care, and be cost effective. Bahr described Germany prior to IQWIG as a “paradise” for pharma companies, but said it wasn’t sustainable. Of the 61 drugs seeking an entrance into the largest drug market in Europe over the last two years, Bahr said 39 of 61 showed an added benefit, and five drugs were pulled from the review process by their sponsors, due to an unacceptable reimbursement price. But that’s okay, says Bahr. Germany spends 11% of its GDP on health (the US spent 17% in 2012) and Germans will get access to the drugs that really matter, he said.

John Castellani, PhRMA’s president and CEO, wondered if the US insurance model is the real culprit when it comes to pharma’s pricing-related reputation problem. “Drugs are only 10 or 12 percent of the total healthcare cost, but they’re 40 percent of patients’ out-of-pocket costs” – that’s where the negative perception comes in, he said. Steve Miller, SVP and chief medical officer at Express Scripts, countered by saying that prices go down over time in every other industry – he used computers as an example – but in pharma, “prices only go up.” Castellani responded that drug prices haven’t gone up more than other healthcare services. Miller also called for innovation in drug manufacturing and a reflection of that innovation in the price tag. He said Regeneron Pharmaceuticals, for example, brought three drugs to market for under $1 billion, due to the company’s innovative platform technology for R&D. On clinical development costs, Castellani said industry can “only be as innovative as our regulators.”

Like a Greek chorus, the Affordable Care Act floated several times across panels and conversations, and panel moderators wondered what if any effect healthcare reform will have on drug costs. Addressing this question from the audience after his panel, Steven Pearson, from NIH, said the evidence points to status quo. “In 10 years, it looks like we’re still doing fee-for-service for drugs,” he said.

In the last panel of the meeting, Lowell Schnipper, clinical director of hematology and oncology, Beth Israel Deconness Medical Center, said “the personal bankruptcy toll in cancer is terrible.” However, research shows that patients don’t like doctors making treatment decisions based on societal or systemic costs, noted Matt DeCamp, assistant professor of bioethics at Johns Hopkins University.

With specialty drug spend trending up, by double digits, each year, everyone agreed that something has to give. Schnipper said the focus must be placed on value and not cost, a phrase familiar to anyone who’s attended any healthcare conference in the last few years. “Everything in our economy reflects gradations of value,” said Schnipper. “Except healthcare.”

 

*PhRMA’s John Castellani upgraded the well-known $1 billion figure – industry’s go-to number for the average cost of bringing a drug from discovery to launch – to $1.2 billion. A cost of living adjustment, perhaps?