THE HIGH COST OF PRESCRIPTION DRUGS – Part B

Last week,  we discussed how much prescription drugs are costing you and what the drivers were for those high prices. (Read: “The High costs of Prescription Drugs, Part A”).

In this, Part B, of my blog talking about the high cost of prescription drugs, we continue that discussion …

nationally voters rank health care as the top issue

RESEARCH AND DEVELOPMENT  

To be fair, there is a cost associated with research and development. The cost of developing a prescription drug that gains market approval was $2.6 billion recently. This represents a 145 percent increase (correcting for inflation) over the estimate made in 2003, which was $1.4 billion. [1] [2] That said, “there is no evidence of an association between research and development costs and prices.”[3]

A drug in the pipeline can take 10-plus years to reach production. Big pharmaceutical companies have turned more to mergers and acquisitions. The combination of investor pressure and a narrowing window of opportunity for making a return on their investment have driven this industry change in this direction. Pharmaceutical companies have changed course as changing business wisdom seems to indicate that “mergers and acquisitions” are the only way to meet their investor’s expectations on ‘earnings.” [4] [5]

By that I mean, buy the next blockbuster drug rather than doing it the old-fashioned way of developing it in-house. “Although prices are often justified by the high cost of drug development, there is no evidence of an association between research and development costs and prices”[6] In the United States, the price of prescription drugs are based primarily on the basis of what the market will bear.

THE “MARKET VALUE” OF A DRUG

It would appear that determining the market value of a newly minted pharmaceutical takes both science as well as “the art of the deal.” There is no prescribed evidence-based route available to determine the retail price of these block-buster drugs. In the articles I have read, the spokesperson cites such considerations as how effective is their pharmaceutical in helping patients live longer or in an improved state of health. What is not mentioned openly may be the other market driven factors of variability that are also at work.

What are these market driven factors of variability also known as the real reasons? “How does it compare to competitors? Are there competitors? Will payers pay for the drug? Can patients afford the copay? What is the average copay for a patient? What are other drugs priced at? How much will the company have to give in government-mandated discounts, such as the 340B clause in Medicaid? What are the cost-of-doing-business discounts to PBMs or wholesales

So, “where’s the beef?”  It would appear to be in the eye of the beholder.

THE TECTONIC PLATE

And the tectonic plates keep coming. In this example we are dealing with a specific type of pharmaceutical-a biological.  Biological products include a wide range of products such as vaccines, blood and blood components, allergenics, somatic cells, gene therapy, tissues, and recombinant therapeutic proteins. In contrast to most drugs that are chemically synthesized and their structure is known, most biologics are complex mixtures that are not easily identified or characterized.

The Trump administration has issued a policy change that could drive up prices of certain biologic drugs, implementing a new industry-backed measure that overturns existing regulations that promoted lower prices.  “The rationale (for the previous administration’s policy) was that steering doctors to lower-priced products would compel drug-makers to cut prices to capture market share.”This administration’s emphasis appears to be elsewhere.  Even in the face of escalating prescription drug prices, this policy is a win for the drug makers.[9] In this case we have a new policy which ends a well thought out and cost reducing idea. The drug makers argued the old rule would discourage investment in the generic counterpart called “biosimilars.”

The “beef” here is that “Drugs lacking generic competition (NO in the illustration below) represent vast majority of spending, but only a third of administrations to patients. Spending on expensive biological medicines dwarfs their usage among patients.” [10]

At the end of the day, even though generics are being prescribed, the percentage of the dollars still flowing into the coffers of the original manufacturer of the antecedent legacy biological dwarfs the dollars being spent on the biosimilars, in spite of the fact that the generics are prescribed to two-thirds of the patients on such medications.

chart on biosimilar drugs

 Lowering Drug Prices

We discussed your concerns about the cost of prescription drugs previously. What I didn’t do was offer some advice as to what might be done to lower these costs. Clearly, the present administration is going in another direction. And the drug industry is relieved by the price proposals.[11]

The President’s initiatives fall short of more reaching ideas. Even though there were fifty initiatives, they did not include importation of lower cost prescription drugs nor allowing Medicare to negotiate directly with drug makers.

So, if I may be so bold as to turn to the Kaiser Family Health Tracking Poll for some possible solutions for addressing your concerns about lowering drug prices.[12]

lowering drug costs chart

Another possible approach is to require Pharmacy Benefit Managers to pass drug rebates directly back to the customer be it the employer, the payor (such as Medicare) or to the actual consumer. Drug manufacturers of brand-name drugs pay rebates to insurers and pharmacy-benefit managers (PBMs) to offset the retail prices. These rebates go to lowering the PBM’s costs and lowering the premiums they charge their employer clients. Why not send these rebates directly to the consumers who take the drugs? Currently, only a small fraction goes to offset your premiums or to reduce your out of pocket costs at the pharmacy window [13].

drug rebates refunded chart

FOOTNOTES:

[1] https://www.scientificamerican.com/article/cost-to-develop-new-pharmaceutical-drug-now-exceeds-2-5b/

[2] https://thefreethoughtproject.com/harvard-study-govt-pharma-monopoly/

[3] http://worldofdtcmarketing.com/no-evidence-association-research-development-costs-prices-prescription-drugs/as-i-see-it/

[4] http://fortune.com/2015/07/28/why-pharma-mergers-are-booming/

[5] http://www.bain.de/Images/Bain_MA%20Compendium_2014.pdf

[6] IBID https://thefreethoughtproject.com/harvard-study-govt-pharma-monopoly/

[7] http://www.newsweek.com/prescription-drug-pricing-569444

[8] https://khn.org/morning-breakout/it-may-soon-be-end-of-an-era-for-standalone-drug-middlemen-but-that-doesnt-mean-theyre-losing-power/

[9] https://www.wsj.com/articles/trump-policy-change-is-a-win-for-drugmakers-1521716400

[10] https://www.wsj.com/articles/trump-policy-change-is-a-win-for-drugmakers-1521716400

[11] https://www.wsj.com/articles/trump-unveils-proposals-to-slash-presecription-drug-prices-1526064902

[12] Kaiser Family Foundation Health Tracking Poll (conducted April 17-19, 2017)

[13] https://www.wsj.com/articles/unitedhealth-will-pass-drug-rebates-directly-to-some-consumers-1520337601

By | 2018-10-04T11:18:27+00:00 October 3rd, 2018|Categories: Healthcare|Tags: , |0 Comments

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