from Healthcare Economist at http://bit.ly/2BXduXb on February 28, 2019 at 08:03AM
Seven CEOs from large pharmaceutical firms were brought before Congress today. And they got an earful from both Demogratic and Republican Congressmen. The executives were critique for selling too many opioids. They were critiqued for legal manuevers to extend brand name drugs’ patent life. But most of all, they were critiqued for high drug prices.
“”The system is broken…Patents are abused. Prices are raised without justification.” –
Sen. Richard Blumenthal,
So how did the pharmaceutical CEOs respond? They basically said the system, rather than themselves, is too blame.
“If you bring a product to the market with a low list price in this system, you get punished financially and you get no uptake because everyone in the supply chain makes money from a high list price,” Frazier said.
Is this justification really true? Well, we do see form a Schaffer Center report by Sood et al. (2017), middlemen (insurers, PBMs, pharmacies, wholesalers) take about 59 cents out of every dollar from pharmaceuticals.
Additionally, because PBMs make money based on rebates, they do in fact have an incentive for drugs to charge high list prices so that can create high rebates to bring a treatment back to a reasonable net price. Another reason is that payers have been pushing back on drug price increases. Dana Goldman’s three part pricing model, recommends increases prices over time if the real-world evidence on effectiveness and safety provides support for this additional value.
So what is the solution? Centralized price setting may be problematic for the U.S. market with a wide variety of payers and significant information requirements to set prices. Pure free-market approaches may not work well because the end users (patients) bear a small cost of the drug’s actual cost (due to insurance). A better approach may be to allow negotiation between pharmaceutical firm and payers, but to prices based on a treatment’s value. Organizations such as the Innovation and Value Initiative (IVI) and the Institute for Clinical and Economic Review (ICER) are creating tools and reports to help measure value and inform the pricing negotiation. Additional transparency and more closely linking prices to value may be a compromise individuals from the left and the right can (largely) agree on.