Consultant Floats Plan to Cut Costs of Prescription Drugs

Published: Aug 08, 2018 By

Prescription Drug Cost

Addressing the high cost of prescription medications will continue to be a hot-button issue as stakeholders in the industry grapple with consumer and political pressures to lower the list cost of many life-saving drugs.

Earlier this year, Alex Azar, secretary of U.S. Department of Health and Human Services, put forth an idea floated by the White House to address those cost concerns. The administration’s plan tackles the idea of removing the middleman role that pharmacy benefits managers play in setting drug prices. Pharmacy benefits managers negotiate rebates and discounts to reduce the list price drug manufacturers set. The administration argued that those rebates force drug companies to artificially increase the price of their medications in order to maintain a significant revenue stream. At the time, Azar suggested the possibility of shifting to a system without rebates, where companies negotiate fixed-price contracts, CNBC reported in May.

While the administration and other stakeholders explore the ideas floated, Dean Erhardt, chief executive officer of D2 Consulting, is floating an idea that could offer a solution to pricing concerns. Erhardt’s idea builds on the Azar notion, but goes a bit further to secure support of the pharmaceutical industry. In exchange for the fixed pricing, Erhardt suggested that the government provide an extension on the patents of new drugs. Providing a few additional years of patent protection would ensure a steady revenue stream for the companies. Such a plan would provide a long-term lower cost to drug manufacturers, Erhardt said in an interview with BioSpace.

Erhardt noted his idea is not fully formed and that government and industry stakeholders are not actively plotting out such a scheme. Still, he remains convinced that the idea has some merit that would provide long-term answers to pricing concerns. If a company launches a new oncology drug with a list price of $500,000 (the price before rebates and discounts are factored in) Erhardt said companies might be willing to drop that price to $300,000 if they are provided with two or three additional years of patent protection. The price could be further reduced if additional years are offered, Erhardt speculated.

“If it can reduce costs, it is something that should be sussed out,” Erhardt said.

Erhardt said there might be some resistance to the idea from generics manufacturers, and that would be something that would have to be explored before implementation. He noted that generics companies like Sandoz and Mylan would want a seat at the table during discussions. Erhardt added that gene therapy and biosimilar manufacturers would also need to be part of the discussion.

“This is an idea that has to be fleshed out with a number of stakeholders,” Erhardt said. “You’d have to get stakeholders in alignment to understand the return.”

Erhardt pointed to President Donald Trump’s recent public chastisement of Pfizer over price increases that forced that company to rescind the price increases of 40 drugs. Following that, other companies publicly expressed pledges to not raise prices this year, or to at least not significantly raise prices. While that was a positive victory for the president, Erhardt said threats like that can only work in the short-term, and his proposal could be a long-term solution.

Erhardt said his plan, should it ever gain any traction, would take years to implement. As pricing concerns will likely remain in the forefront of public conversation, Erhardt said it’s likely that D2 Consulting will begin publicly discussing the proposal with clients and other industry stakeholders.

“Everyone is trying to come up with some form of cost-cutting and this is a logical discussion to have,” Erhardt said. “We want to be part of the brainstorming aspect of this discussion.”

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