Gabriel Perna | August 19, 2020
After an eventful 2019, it’s fair to say the drug pricing debate has taken a backseat in 2020 as the health industry has collectively focused its efforts to overcome a devastating pandemic. But to suggest consumers have forgotten about the issue is inaccurate. In fact, a number of recent surveys show that drug pricing is very much a prominent issue in the minds of many.
West Health Institute, a family of nonprofit organizations focused on seniors and lowering health care costs, found that 9 in 10 U.S. adults are “very” (55 percent) or “somewhat” (33 percent) concerned that the pharmaceutical industry will leverage the COVID-19 pandemic to raise drug prices. Another survey from Commonwealth Fund found that more than 90 percent of adults 18 and older said COVID-19 testing and treatment should be available to all Americans free of charge. A survey from Data for Progress found that over 70 percent of voters prefer a candidate who supports making COVID-19 treatments and vaccines free to everybody.
“When we look at our survey results during the pandemic, the level of concern from the populous where prices are now, what that means in terms of their ability to access care, and the further potential for this situation to deteriorate, it’s all polled in a way that suggests there are very real concerns. There have been before, but the concern has increased substantially since COVID,” says Tim Lash, chief strategy officer at West Health.
The price has gone up
It should be no surprise to health care CEOs that this remains top of mind for the American consumer. According to a study published in JAMA earlier this year, the net cost of prescription drugs — meaning sticker price minus manufacturer discounts — rose over three times faster than the rate of inflation over the course of a decade. Inmaculada Hernandez, PharmD, assistant professor of pharmacy at the University of Pittsburgh School of Pharmacy, was a lead author on the study. She says one of the main takeaways from this research is drug prices are going up because of a lack of competition. “Insulin has increased 10 percent year over year, sometimes more, and that doesn’t mean that it’s 10 percent more effective. It’s just means the market doesn’t have many other options,” she says.
A major factor in the cost of drugs, experts say, are the middlemen. Pharmacy benefit managers (PBMs), which operate as a third party in the process of bringing drugs to market, are often at the center of policy scorn. “When you understand who is in between the source of the drug and where it gets dispensed, there are a number of hands in the cookie jar that are basically building the price up to where it is today,” says Thomas Borzilleri, CEO of InteliSys Health, which offers a “real-time” prescription transparency platform.
Thomas Goetz, Chief of Research for GoodRx, a website that helps patients get discounts on drugs, says the company did research and found the price of drugs has increased more than any other commodity or service. They also have done research on insurance coverage of drugs. “What we found is the volume of drugs covered has shrunk from about 75 percent of drugs listed to about 50 percent drugs listed by a typical Medicare plan,” he says.
The issue has been at the forefront of policy discussion thanks in part to the White House and federal government. Not only was lowering drug pricing a campaign promise of President Trump, but it’s one area that he’s aimed to take on, albeit without any bipartisan legislation.
A few weeks ago, Trump signed three executive orders and announced a fourth one that were meant to lower the cost of prescription drugs. In a previous article, Health Evolution talked to a number of drug pricing experts who said shared skepticism about three of the rules, although they said the fourth one could ultimately be effective.
H.R.3 and other proposals
The good news is there have been a number of legislative proposals to lower the costs of prescription drugs. The bad news is none of them have passed and it’s unlikely that anything will advance to the President’s desk in an election year.
Most notably, the House passed the Elijah E. Cummings Lower Drug Costs Now Act (H.R.3), which was introduced and championed by prominent Democratic Congressmen, including Speaker of the House Nancy Pelosi (D-California). While the act stalled in the Republican-controlled Senate, many drug pricing experts have advocated for some of its policies, including the provision that would enable Medicare to negotiate the price of the top 250 drugs that have little competition. Research from Kaiser Family Foundation found that Medicare accounts for 30% of prescription drug pricing.
“Considering 50 percent of people are on some kind of government-based insurance in a COVID scenario, that’s a lot of negotiating power that’s not being brought to bear,” Goetz says. Lash adds that there needs to be a natural negotiation between the manufacturer and the payer to arrive on the value of the therapeutic. “Everyone is entitled to a fair profit but not necessarily to disproportionate returns on the backs of Americans,” he says.
The state-level action of drug pricing might be the best marker of how drug pricing can be aggressive, experts say. For instance, a bill in Kentucky passed that would require Department for Medicaid Services to directly administer PBMs. There was a similar bill that passed in Ohio. Some experts say the 340B Drug Pricing Program and Medicaid Drug Rebate Rule needs to be reformed to cut back on how much PBMs take in profit, whereas others say that doing so would increase insurance premiums.
One popular proposal is the creation of either a domestic or international (which Trump proposed in one of his executive orders) reference pricing index that can help determine the cost of both established and new treatments, compared to the cost of similar drugs at home and overseas.
Hernandez, who says that H.R.3. has some interesting concepts and could be effective, is also an advocate for the international reference pricing. She says it’s been used effectively in Europe, but she and others are skeptical anything will get done here in America because of the power of the pharmaceutical lobby. Borzilleri agrees and says it goes even further.
“There could be a legislative remedy but what kind of pushback would you get at the end day? You’ve got lobbyists that represent pharmacies. You’ve got lobbyists that represent drug manufacturer companies. You’ve got lobbyists that represent insurance companies. You’ve got all these lobbyists and they’re all jockeying for position and you can’t address the entire market at one time,” Borzilleri says.
Tim Lash, West Health Institute
Some like Borzilleri are skeptical about a legislative proposal to reduce drug costs, in part, because the problem is too comprehensive and crosses too many paths. Moreover, he notes that lowering costs is something that sounds good when it comes from a politician, but the reality is much more complex. But what about the private enterprise?
With the emergence of GoodRx, the Walgreens Prescription Savings Club, and benefit designs that incentivize cost-conscious usage of drugs, the private sector can potentially play a role in lowering costs. A study from Harvard Medical School published in JAMA in February showed the promise of a drug reference pricing program that incentivized employees to increase use of lower priced medications. By the end of the two-year study, after many patients had switched to lower-priced drugs, drug prices and patient cost sharing were generally lower.
Goetz says health care CEOs need to be more transparent with consumers and give them choices at the point of decision making. “Payers are starting to recognize this is something where they can give access to their members and patients and it can provide better care,” he says. “You have to make sure patients are engaged in a way that they make good choices and actually fill their prescriptions.”
But some experts are more skeptical about the power of the private sector in lowering the cost of drugs. At best, they say it can moderately reduce the cost. Many say the presence of PBMs will stand in the way of true drug pricing reform from the private sector. Others say it’s due to the lack of competition in certain areas.
“The market of drugs is very different from the ideal economic market and supply and demand. Those market forces don’t really work at all in the case of prescription drugs. There is usually one company that has most of the market share over a certain therapy class. It varies. Some areas have multiple therapies and others only have a few. Consumers are nonresponsive to prices because we really need drugs,” says Hernandez. “Few issues in the pharmacy world can be fixed by the market itself.”
Naturally, various stakeholders point the finger at each other. In a statement to Health Evolution, Juliet Johnson, deputy vice president of public affairs at Pharmaceutical Research and Manufacturers of America, says it’s in favor of advocate for reforms that would end the practice of compensating PBMs and other entities in the supply chain based on a percentage of the price of a medicine. America’s Health Insurance Plans (AHIP), however, has refuted that claim and says the problem is still with the price.
COVID and beyond
Going forward, the impact of COVID-19 on the drug pricing debate is unknown. As the survey from West Health Institute shows, there is a lot of fear in the public that the pandemic will lead to higher drug prices.
Lash says the pharma industry and federal government, in some capacity, need to foot the bill for whatever COVID-19 therapeutics are developed. In some sense, he says the pharma industry may be motivated by the public reaction or a backlash if they price people out of vaccinations. “The industry as a whole is very concerned how they behave on COVID-19 vaccinations as it relates to pricing could have a dramatic impact on Congress’ willingness to step in and drive broader reform,” he says.
During a recent hearing in Congress, some pharmaceutical companies made promises to make vaccines affordable, although very few are willing to do it at cost. Those who have said they won’t make a profit have been met with doubt by Congress.
Borzilleri says when it comes to the core cost of COVID-19 vaccines, the government will foot the bill. But over the long term, he is concerned that the tailing effects of those who contracted the virus may experience won’t be covered by the government. He sees a situation where costs for certain residual issues go up after the pandemic.
“The one thing that will never change is pharmaceuticals are a life dependent purchase. The pharmaceutical companies obviously know that, so do the insurance companies and so does the consumer. So there may be changes but I think that’s just part of the overall health care industry that will always be there,” he says. “Who knows, they may be forced to invest in new treatments that deal with the aftereffects of the virus. We don’t know. We’re in uncharted territory.”
For health care’s industry leaders, there is one thing that’s certain about the state of drug pricing in 2020 and beyond.
“People are ticked off. They are angry and scared. The cost of care is likely the first or second issue for voters in the November election,” says Lash. “CEOs in health care have an opportunity to think about how they respond right now, in terms of behavioral, pricing, and messaging, to repaint the picture of how they are perceived.”