How Do We Deal With Rising Drug Costs?

The Wall Street Journal
How Do We Deal With Rising Drug Costs?
By Jonathan Rockoff
April 11, 2016
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It’s well known that spending on prescription drugs is growing. The question is, what can be done about it?

According to a recent report by federal health officials, prescription-drug spending rose 12.6% in 2014, the latest year for which data are available, and it is expected to rise 7.3% a year through 2018.

Big drug-price increases have triggered congressional investigations, criticism from both Republican and Democratic presidential candidates, and exploration of potential remedies.

How to fix the problem of soaring drug prices was the subject of a recent online discussion conducted by The Wall Street Journal.

Participating were Stephen Ubl, chief executive of the drug industry’s trade group, Pharmaceutical Research and Manufacturers of America; Marilyn Tavenner, chief executive of America’s Health Insurance Plans, a trade group, and a former administrator of the Centers for Medicare and Medicaid Services; and John Rother who leads the Campaign for Sustainable Rx Pricing and is a former AARP official. (The campaign is a project of the National Coalition on Health Care, which receives funding from groups representing hospitals, physicians, consumers, patients, businesses and insurers.)

Following are edited excerpts of the discussion.

Is there a problem?

WSJ: Do we really have a drug-pricing problem?

UBL: The share of spending on retail medicines remains the same as it was 50 years ago. In fact, government actuaries project that spending on prescription medicines will grow roughly in line with overall health-care spending through the next decade—despite the expected introduction of many new first-in-class medicines and a shift toward spending on so-called specialty medicines. This is possible due to a competitive marketplace for medicines where large, powerful purchasers negotiate aggressively, and generic utilization rates are nearly 90%.

ROTHER: Millions of patients have had their medications double in price over recent years, including common prescriptions like Crestor for high cholesterol, Abilify for depression, Lyrica for nerve pain, and on and on. Prices for drugs are rising faster than inflation year after year, and these escalating prices have nothing to do with value or recoupment of long-ago research-and-development costs.

TAVENNER: We need to fundamentally address the underlying prices being charged for these medications, and assess whether these prices reflect the true value to patients and the health system. That is why you see health plans doing everything they can to make sure patients are getting the treatments they need, and looking at more value-based payment arrangements that link price to improved patient outcomes.

UBL: We have seen a rapid rise in the number of patients facing high deductibles for medicines—doubling in just the past three years. For patients with a combined deductible of $2,000, they are faced with paying on average of 46% of their pharmacy costs out of pocket compared with just 28% of their hospital costs.

Data from insurer rate filings analyzed by Avalere Health LLC [a health-care consulting firm in Washington, D.C.] found prescription drugs represent a smaller share of premium increases than inpatient and outpatient hospitalizations, professional services, or taxes and fees. In fact, the largest driver of premium increases for 2016 was hospital services—accounting for roughly three times the contribution of prescription drugs. Let’s address the real cost drivers for patients.

ROTHER: A large portion of prescription drugs in the U.S. are purchased by the state and federal governments, which means even if people aren’t using a prescription, their tax dollars are paying the higher costs.

The real answer to getting costs down is empowering consumers through transparency. Now, patients and purchasers don’t have any hard data about research-and-development costs, performance or outcomes for a drug. With more information, patients could better decide the right treatment for their family and what price they are willing to pay.

UBL: The proposals we’ve seen robed as “transparency” aren’t aimed at providing information patients can use. Instead, most proposals are focused on isolating research and development costs for the relatively few medicines that make it to patients in a thinly veiled attempt to build a case for price controls.

Instead of focusing on proposals that won’t benefit patients, what if we collaborated to find ways to build on our competitive health system to make better use of today’s medicines while fostering the development of tomorrow’s cures?

Price disclosures

WSJ: Would insurers and pharma companies be willing to disclose the actual prices the insurers have to pay for drugs?

TAVENNER: We believe those private-sector negotiations between health plans and drug companies [about reimbursement rates for drugs] should continue without interference.

However, drug pricing, unfortunately, can be a black box. When health plans are negotiating on behalf of consumers to get the best value for their medications, and suddenly list prices go up 20% to 30% for no reason, those repeated price increases wipe out the cost savings from previous discounts. That is why transparency in pricing is so important.

UBL: Information about aggregate price discounts for medicines is available from investment reports and in many companies’ financial statements. There is no evidence to suggest further disclosure of rebates would reduce costs for patients, and in fact, the Federal Trade Commission, Congressional Budget Office and other economists have argued the reverse.

Medicare’s role

WSJ: Should Medicare be given the power to negotiate with pharmaceutical companies over how much it pays for drugs?

TAVENNER: To date, there is little evidence that demonstrates cost savings to patients or the health system with this type of government regulation.

UBL: Government regulation in the Medicare prescription-drug program won’t save patients money. That is because price negotiation already occurs effectively within the program. Large, powerful Part D purchasers negotiate discounts and rebates directly with manufacturers, and according to the Government Accountability Office, this private negotiation helps keep costs low for both beneficiaries and taxpayers.

ROTHER: Although many consumer advocates have called for empowering Medicare to negotiate drug prices, the issue is complex and not necessarily a saver. The current structure of Part D means that most price negotiations are in the hands of private-plan sponsors. Further, any successful negotiation is possible only when there is the ability to limit coverage or utilization of a drug when the price is unreasonable. Current Medicare law doesn’t permit this for many classes of drugs.

In sum, there is no silver bullet here. We need to balance affordability, access and innovation whether or not Medicare is directly involved in price negotiations. We can only strike that balance when the market has transparency and competition, and purchasers can pay for value.

UBL: We should look at ways to increase competition for older medicines. Increasing application-approval timelines and a submission rate that far outpaces the approval rate has led to a current backlog of about 4,000 generic-drug applications, up from a consistent level of 400 applications a year until 2002. Addressing this significant backlog will help bring savings to patients and the U.S. health-care system.

Rule proposals

WSJ: What do you make of proposals to eliminate obstacles, such as anti-kickback and best-price rules, which health insurers and drug companies say limit their ability to work together on ways to cut drug spending?

UBL: Health and Human Services should revisit regulations that are based on outdated regulatory models. This can make it more difficult for payers to plan ahead, understand the impact of medicines in avoiding other health costs and explore new types of common-sense payment arrangements.

For example, current FDA regulations about how manufacturers can communicate about their medicines before approval can chill important discussions with payers, since those discussions could be perceived as making claims about the efficacy or safety of an unapproved medicine. Yet payers need greater predictability and certainty as they set their premiums and formularies, often 18 months in advance, including clarity about the potential scope of the population that may benefit from a new medicine in development.

TAVENNER: We agree that regulatory barriers that inhibit progress toward paying for drugs based on value need to be removed. While value-based payments hold tremendous promise, however, there are still challenges to implement such arrangements in the treatment of real-world patients. For example, many patients have multiple chronic conditions and take multiple drugs, which makes it difficult to attribute health outcomes to a specific medication.

Looking ahead, we need to ensure that health plans and manufacturers have the flexibility to experiment with new value-based arrangements, ensure consumer safety, and have robust evaluations to assess the real-world benefits to patients and consumers.

Annual increases

WSJ: Do we need to take steps to combat year-over-year price increases?

UBL: Focusing solely on list prices inaccurately portrays spending on medicines by ignoring the discounts and rebates negotiated by insurers and pharmacy-benefit managers.

ROTHER: One step that the Department of Health and Human Services could take is to analyze drug-pricing information it already collects from the Medicare and Medicaid programs, and provide a detailed report of historical price increases for common drugs over the most recent 10-year period. This data would expose the bad actors and give patients and taxpayers crucial information to make smarter choices with respect to their health care.

UBL: List prices don’t tell the whole story. CVS Health reported that its spending on prescription drugs rose just 5% last year, in part because of aggressive negotiations with manufacturers. These announcements are evidence of the significant leverage large, powerful purchasers have in negotiations with manufacturers.

TAVENNER: While health plans are certainly negotiating with drug companies to deliver the best value to consumers, we cannot ignore the fact that drugmakers are forcing the starting point for negotiation at a far higher price than ever before.

WSJ: Pharma CEOs have distanced their companies from the likes of Valeant and Turing, whose price increases have been singled out by politicians as price gouging. Would you support uncovering the bad actors?

UBL: Turing and Valeant are essentially hedge funds masquerading as pharmaceutical companies. Yet some have used these isolated examples to advocate for sweeping change in public policies that risk slowing the progress we have made against disease and would delay the development of the next generation of treatments and cures for patients.