BioPharm Executive: Here's How The Drug Industry Will Finally Hang Itself

Here's How The Drug Industry Will Finally Hang Itself
May 27, 2015
By Karl Thiel for BioSpace.com

For decades, pharma and biotech companies have been vilified for excessive prices. The dance of accusation and justification has become yawn-worthy to most industry watchers. Leaders know that, despite some wear and tear on their public images, they'll come out just fine. And so things never change—until they finally do.

Price reform isn't around the corner; in some ways, the danger now seems lower than ever. But it is coming eventually and there are some good reasons for executives to sit up and take notice.

Why worry about it now?

1. Because states are starting what Congress won't.
The pharma industry is a powerful lobbying force, and Congress has perhaps never been less likely than it is right now to act meaningfully and cooperatively to control prices. But that very paralysis, and rising frustration, is leading states to get more aggressive. And state legislatures tend to be less gridlocked, are often more populist, and depending on their location, are less beholden to the pharma lobby.

In the past months, we've all seen bills put forward in California, Massachusetts, North Carolina, Pennsylvania, and Oregon—all aiming in various ways to make drug pricing more transparent. While some have been defeated (at considerable expense to the pharma lobby), others are moving forward.

And it's worth noting that the Obama Administration is fighting to give Medicare the authority—denied in the 2003 bill that created the prescription drug benefi—to negotiate on price. It almost certainly won't happen during President Obama's term of office, but it's likely to have some legs after the 2016 election, particularly if it's fueled by state efforts.

2. Because pharma takes the blame for high prices, even when it's not the industry's fault.
Indeed, one major factor behind the rising price of cancer treatments is not pharma but hospital systems. They are buying up physician practices and calling them "hospital outpatient centers," which allows them to charge more for overhead. It is estimated that chemotherapy costs as much as 53 percent more in outpatient centers than in a doctor's office.

3. Because the industry risks becoming a victim of its own success.
With last summer's launch of the hepatitis C drug Sovaldi, Gilead became the poster child for excessive drug pricing—which is pretty off the mark, considering that the drug costs about the same as earlier, less effective treatments and saves money over the long term but preventing hospitalizations, surgeries, and so on. The real difference is that Solvaldi, Harvoni, and some competing meds are cures, and our system simply isn't able to cope with cures even if the price is attractive versus alternatives. This is becoming more of an issue as the industry creates more cures or treatments that turn deadly disease into chronic conditions.

4. Because the old talking points justifying high prices is wearing thin.
Everybody can recite this in their sleep, right? Bringing a drug to market is incredibly expensive and companies must recoup their expenses or there'll be no future innovation. Except that's not how companies go about setting prices, and insisting on this logic for decades has led to some of the state bills mentioned above—all aimed at picking apart research budgets and seeing how prices match up to costs.

5. Because the pressure release valve is jammed.
The healthcare system can deal with high drug prices when there are alternatives to fall back on, like generics. But thanks to industry consolidation and a decrease in competition, among other factors, the price of many commonplace generics is skyrocketing, sometimes by thousands of percent. Ten percent of all generics saw their prices at least double in 2014. That leads to profound affordability problems for millions of consumers and heightens the scrutiny on drug prices. While there's some indication the rate of increase is slowing down, prices are for now remaining stubbornly high.

6. Because old alliances are crumbling and truces are falling apart.
A couple years ago, doctors effectively managed to halve the price of the cancer drug Zaltrap by refusing to prescribe it. When thought leaders from Memorial Sloan-Kettering went public with their complaints, even Sanofi listened. Diverse stakeholders like the National Coalition on Health Care have begun to call out the industry.

Now pharmacy benefit managers are in open war with drug companies over prices, and emboldened by Express Scripts' success in securing large concessions from Gilead on hepatitis C drugs. CVS is already positioning itself for a battle over the price of PCSK9 inhibitors—the as-yet unapproved class of cholesterol drug that could not only be widely prescribed but that patients will likely stay on for the remainder of their lives. In its most recent quarter, Celgene blamed lower-than-expected sales of some of its drugs in part on demands for higher rebates.

What should industry do? If it's looking to avoid eventual legislative control of drug prices, it ought to consider a few steps now, including:

• Support a competitive generic industry that keeps prices low, and support biosimilars to show that the same virtuous cycle that kept drugs both innovative and cost-effective for the last four decades can work for biologics, too.

• Look for creative ways to finance drug costs. The cost of cures—particularly ones that bring in large numbers of patients over relatively short periods of time—could perhaps be amortized over time.

• Conduct cost-effectiveness research and base pricing on it. Get ahead of the issue before the U.S. adopts a system similar to the U.K.'s National Institute for Health and Care Excellence (NICE).

• Back common-sense regulatory reform and policy changes. Lack of transparency creates huge spreads between list prices and what insurers actually pay, mostly benefitting middlemen. Medicaid's best price rule gets in the way of creative financial arrangements. All if it is tied together and will be a mess to unravel, but industry should lead instead of follow.

Of course, it's part of human nature to avoid acting before crisis looms, and right now Congressional gridlock is probably making a lot of pharma execs feel pretty safe. Impunity could make the eventual crisis worse.

-Karl Thiel

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