Experts discuss high prescriuption drug prices

Public health experts discussed the issue of high prescription drug prices in the U.S. at the event “Prescription Drug Pricing: New Solutions” on Tuesday in Sheldon Hall at the Bloomberg School of Public Health. The talk was part of a series of five seminars held to mark the school’s centennial anniversary. It included representatives from the government, public health professors and pharmaceutical companies.

According to the co-director of the Center for Drug Safety and Effectiveness, Caleb Alexander, the U.S. spends more on prescription drugs than any other country, spending over $400 billion and increasing at eight percent annually.

High drug prices prohibit low-income Americans from receiving more expensive treatments. All of the speakers agreed that the healthcare industry needs solutions that balance profit and innovation with drug access and affordability for consumers. The discussion focused on how to reform current practices of drug pricing to provide the maximal benefit to the consumer.

The market for new drugs and biologics, drugs produced by biological sources, is responsible for most of the increases in drug prices, said former U.S. Representative and former Chairman of the House Oversight Committee Henry Waxman, who is currently a Centennial Policy Scholar at the School of Public Health. He began the event by answering a series of questions given by physician and health policy historian Jeremy Greene.

Waxman tackled problems with drug prices in the 1980s and helped to pass the Orphan Drug Act of 1983, which encourages drug companies to develop cures for rare diseases, and the Drug Price Competition and Patent Term Restoration Act, or the Hatch-Waxman Act of 1984, which streamlined the procedure for placing a generic drug on the market. He also played an important role in passing the Affordable Care Act (ACA) of 2010.

He asserted that Hatch-Waxman, a bipartisan effort, prevented companies from monopolizing new drugs and allowed for more generic alternatives to go onto market, which lowered the prices for consumers.

“Prior to that law, for generic to be approved, it had to go to the FDA and go through the tests of safety and efficacy as if it were a brand-new drug. We did not have a way for generics to be approved quickly. The brand-name drugs, when efficacy was attached to the requirement for approval, the company had to spend a lot more money during the approval of the drug. They argued they were not able to benefit off of their patent,” he said.

But new problems are arising today. Waxman noted that the prices of new drugs that provide breakthrough treatments are too high. The fraction of biologics in the drug markets is increasing. For example, Opdivo, which treats melanoma, costs $150,000 per year. Orkambi, which treats cystic fibrosis, costs $259,000 per year.

“Eighty percent of drugs in this country are generic, and [Hatch-Waxman] has been a huge break for those consumers,” he said, “but the high prices are in the biologic drugs and in other places where pharma has been very clever in seeing a new direction to take.”

Waxman noted that high drug prices are not desirable from a public policy standpoint either. His view was supported by experts from major government healthcare programs, including Deputy Administrator and Director of the Center for Medicare at the Centers for Medicare and Medicaid Services (CMS) Sean Cavanaugh. Medicare, the healthcare program for the elderly and disabled, pays for prescription drugs through a roughly $60 billion plan called Part D.

“High prices mean a restriction to access, which can stimulate a higher price.” —Joshua Sharfstein, Bloomberg School Associate Dean

Cavanaugh compared Part D with a less-discussed plan known as Part B, which covers drugs administered by physicians in the hospital. Part B costs $22 billion in comparison, although its costs have doubled since 2007, according to Cavanaugh. However, he noted that it is much less expensive than Part D because of a newly implemented bundled drug payment model that holds providers accountable for patient outcomes.

This change was a result of the Bundled Payments for Care Improvement (BPCI) initiative of the ACA. It has taken the place of fee-for-service, which has been criticized for rewarding providers based on quantity, not quality of care.

“We pay for prescription drugs in our hospital costs through a bundle that most people don’t hear about it,” Cavanaugh said of BCPI. “A lot of the problems aren’t there because providers are close to the providing of care, and they can make good decisions on drugs.”

The government now has a greater role in managing the high price of drugs in Part B, but it has no negotiating power with companies over the self-administered drugs that are covered in Part D. Waxman expressed regret over this fact earlier.

“The Republicans devised a Part D to pay for prescription drugs. The unique way they devised was that private pharmaceutical companies would decide the prices, and they wrote it in there that government cannot decide the prices,” he said.

Currently, Part B reimburses doctors based on what they simply choose to prescribe. Cavanaugh emphasized that in order to ensure that beneficiaries of the program receive the best quality of care, the healthcare sector needs more incentives to focus on outcomes rather than reimbursements from Medicare.

The value-based approach to reducing drug costs has also been tested through Medicaid, the state-run health coverage programs for low-income Americans. States can restrict the amount of coverage served in order to deal with high drug prices and gain negotiating power with drug companies. States are reimbursed for the money they spend on drugs, which is not the case for Medicare.

According to John Coster, Director of the Division of Pharmacy Center for Medicaid and Children’s Health Insurance Program (CHIP) Services, Medicaid used to suffer from high drug costs, but this was resolved through the Medicaid Drug Rebate Program.

“We worked on a drug rebate program back in 1990, which requires drug manufacturers to pay a rebate back to states for drugs dispensed to Medicaid payments,” he said. “That happens for all drugs and that program has brought in billion dollars for the states. It’s good public policy as usual.”

Coster believes that the success of statutory rebates can be extended to Medicare. However, he noted that states still struggle with the high cost of newly launched drugs.

“Back when the first anti-retroviral drugs entered the market, the states had a shell shock. If we treated everybody with [Hepatitis C Virus], we couldn’t treat anybody else with any other condition. While some say [Medicaid] shouldn’t pay for it, others said it would reduce the costs of care down the road from Hep C,” he said.

Coster and Cavanaugh agreed that implementing a value-based approach to drug payments faces several regulatory challenges. Government healthcare programs in other countries consider the cost-effectiveness of drugs when designing their plans. But Congress prohibits the Patient-Centered Outcomes Research Institute, which was created by the ACA and advises Medicare on treatment options, from considering cost-effectiveness in its metrics.

“There’s no one overseeing whether physicians are choosing the most effective drugs, and patients aren’t considering lower-step options for care. We want physicians to focus on outcomes rather than reimbursements,” Cavanaugh said.

Associate Dean for Public Health Practice and Training Joshua Sharfstein said that the public and private sector can work together to increase access to improve conditions. While the discussion focused on drug pricing, he wanted to consider the health of the general public as well. He believes that focusing on improving access will lead to lower drug prices.

He cited the Center for Disease Control’s (CDC) Vaccines for Children program, in which the federal government negotiated with vaccine makers to lower prices. But by promoting vaccination, the government gave the companies a captive market.

“You take a step back and you see a vicious circle. High prices mean a restriction to access, which can stimulate a higher price. If it’s an important public health drug, then it’s particularly bad for the public because very few of the people who need it get it,” he said.

Alexander summarized 48 policy proposals from a recent report he co-authored entitled “Reducing Prescription Drug Spending: A Review of Policy Options.” It focused on five main areas: reforming the patent system, encouraging research, altering pharmaceutical regulation, decreasing market demand and developing a new drug pricing model.

Many of the experts said that the first step to lowering cost is to gather more information about the role that drug pricing plays in the market and in R&D. According to Alexander, hospitals and physicians do not consider the cost-effectiveness of various therapies. He called for greater transparency from companies to disclose their R&D expenditures, since it is argued that price reductions will reduce R&D.

If experts can better deduce the true value of drugs, prices won’t be so artificial, he noted.

“Drug pricing does not follow usual economic behavior. Price does not vary with dose, it has inelastic demand, prices may change with little correlation in input costs, and there exists information asymmetry between pharma and consumers,” he said.

Antonio Trujillo, associate professor of International Health at Bloomberg, used an analogy to demonstrate fair drug pricing.

“Is it fair to raise significantly the price of snow shovels during a snowstorm? Some would argue yes, it’s the market at work. Someone will come up with a better way to shovel snow. Some would argue that it is price gouging because there is only one place to buy shovels,” he said.

James Millar of GlaxoSmithKline, a British pharmaceutical company, said that they have attempted to improve transparency and control of drug prices by disclosing outcomes for drug trials, not paying physicians for promotions and pricing launch medicines at a lower amount.

“We think we’ve found the right balance,” he said. “We believe that innovators should be able to be in a profit, but on the other hand, patients should be benefited.”