Time to Change the Way We Price Drugs
The U.S. should develop a different system of pricing drugs, Peter Bach, MD, said at a forum here on high prescription drug prices hosted by The Atlantic.

WASHINGTON -- The U.S. should develop a different system of pricing drugs, Peter Bach, MD, said at a forum here on high prescription drug prices hosted by The Atlantic.

"Every other country uses a formal technology assessment to figure out how much to pay for drugs -- we don't," Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center in New York City, said at the forum on Tuesday, which was sponsored by Express Scripts, a pharmacy benefit management (PBM) firm. "And this is the only sector where the monopolist sets the price."

Value-based pricing would be a good start, said Michael Pishvaian, MD, director of the phase I clinical trial program at the Georgetown Lombardi Cancer Center here. "We think a lot of approvals should be linked to cost [and] value -- [that includes] extension of life plus what it means to the patient in their stage of cancer, plus the side effects that come with that -- that whole concept should be evaluated."

By that score, the newer hepatitis C drugs such as sofosbuvir (Solvaldi) "have great value because this is a disease that was leading to liver cancer for many patients and now, all of a sudden, patients are being cured of this virus," he said.

The $475,000 Treatment

One drug much discussed at the event was tisagenlecleucel (Kymriah), a CAR-T therapy approved recently approved to treat pediatric leukemia in patients who fail to respond to other treatments. The drug, which is given in a single dose, will be priced at $475,000.

The price of Kymriah "has broken the trend line," said Bach. "Price inflation on cancer drugs over last 50 years is up 100-fold, adjusting for inflation and a standardized [period of] therapy ... We're in the $100,000-$150,000 range for typical duration treatment course for a cancer drug, so this has completely broken the mold."

These drugs may be breaking the cost barrier, "but you're talking about potential cure, and in an advanced incurable cancer you're talking about drugs that would let a patient lead an otherwise normal life," said Pishvaian. "How do you price that? It's really hard to put a limit on that life."

One reason drugs are so expensive is that consumers are also paying for all of the drugs that never made it to market, said Lori Reilly, executive vice president of policy and research at the Pharmaceutical Research and Manufacturers of America (PhRMA). "Ninety percent of what we do fails," she said. "How can we make investment of $3 billion [on a drug] that fails if we can't recoup cost not just of those who make it to market, but the ones that never make it to market?"

The U.S. also is making up for the low prices charged in other countries that have the ability to negotiate, said Matt Eyles, executive vice president of policy and regulatory affairs at America's Health Insurance Plans. "We are funding the rest of the world; there's no doubt about it," he said. "That trend is not changing, especially as other countries clamp down on pricing in a way we are not ... We need basic transparency to understand how these prices are being arrived at, what the inputs are, and what makes sense."

Supply Chain Markup

Another issue is the markups that are charged all along the supply chain, said Reilly. "A recent study ... found that for every dollar of the list price of a prescription drug that is sold, the brand-name manufacturer gets about 62 cents of it. The rest goes to other people in the supply chain."

For instance, "a big chunk of it goes to discounts and rebates to health insurance companies, mandated government rebates, and costs to pharmacy benefit managers, pharmacies, and wholesalers," she continued. "We'd like to see transparency ... across the entire supply chain, including the hospital setting where drugs are commonly marked up as much as 600% over the price charged. So transparency is great, presuming it applies to everyone."

Value-based pricing -- paying based on the outcome of a treatment -- is often touted as a solution to the pricing problem, but there is a lot of skepticism about whether that will lead to lower prices, said Eyles. "The jury is definitely out about how those [programs] will impact pricing," he said. "The insidious problem we have is that there is year-over-year inflation of 9%, 10%, 20% ... when the rest of the healthcare system is much much lower. That's not great corporate behavior, and when that's rampant across the branded industry [we wonder] what's going on here."

It's true that initially there maybe apparent costs to value-based pricing, said Rep. Patrick Meehan (R-Pa.). But the overall goal is to look down the road and see what the costs are to non-adherence and the unavailability of breakthrough drugs which can change outcomes."

"If we can find ways to deliver drugs that work on individuals ... that's going to hold down overall costs to the system in addition to patient suffering," he continued. But there are impediments to implementing such pricing programs, "like the [anti-]kickback laws that I'm working to get around."

Increasing Competition

Increasing competition is another solution to look at said Sen. Amy Klobuchar (D-Minn.). She cited the large price increases instituted by the manufacturer of the EpiPen epinephrine auto-injector as an example of what can happen when there is no competition for a drug. "If we believe in capitalism, we have to have competition; otherwise this is never going to work."

Klobuchar is co-sponsoring a bill with Sen. Chuck Grassley (R-Iowa) that would put an end to one type of anti-competitive move: so-called "pay for delay" deals in which a brand-name manufacturer of a particular drug pays a generic drug firm to delay entering the market for that drug with its generic version.

"I think it will [get traction]," she said of her bill. "If we have a vote, I can't see people, like lemmings, voting with the pharmacuetical companies -- when you have to explain to constituents that you're going to allow a practice that allows pharmaceutical companies to keep drugs off the market."

Allowing importation of cheaper drugs from foreign countries is another option, said Klobuchar. This could be done in one of three ways: "you could straight out allow it, or allow it [from] certain countries -- like the bill I have with Sen. [John] McCain (R-Ariz.) to allow importation from Canada -- or you could do it like the bill Sen. [Mike] Lee (R-Utah) and I have with a trigger -- that is, for a drug with no competition or limited competition, you could allow a safe drug to be imported from another country."

Negotiating drug prices is another possibility, said Meehan, although he added that he didn't think the government should do it. "This is probably best left to those that are in a position to negotiate effectively," like PBMs, he said. "They can work on volume, and they can work on other kinds of incentives."

And there's one other idea: slowing the volume of direct-to-consumer advertising, said Michael Sapienza, CEO of the Colon Cancer Alliance. "Let's say any drug that comes to market, [the drug company] is spending about $250 million on direct-to-consumer ads... [but] you're not targeting that specialty population," he said. By working with patient advocacy groups and other patient forums, "you could take $2-3 million and target a specific patient population -- I would think you'd get much better bang for your buck."

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