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Bitter pills
Jessica Perry//December 9, 2019
From politicians’ calls for price caps, to an estimated $198 billion in foregone sales by 2024 because of patent expirations, pharmaceutical companies in New Jersey and elsewhere face some serious challenges. But they’re not burying their heads in the sand, according to some experts.
There’s no doubt that the “commercial environment is getting harsher,” according to a report – From vision to decision Pharma 2020 – by the global audit and assurance, tax and consulting firm PwC. A
mong the trends, “health care payers are imposing new cost constraints on providers and are scrutinizing the value of medicines more carefully.”
Elected officials are also turning the screws, with legislation like the “Lower Drug Costs Now Act (HR3)” which was introduced by Democratic U.S. Rep. from New Jersey Frank Pallone in September. Among other requirements, it would have the secretary of Health and Human Services “negotiate the prices of ‘as many as possible’ of the 250 most expensive drugs marketed in the United States that lack at least one generic or biosimilar competitor,” according to a report issued by Kaiser Health News. The proposal would impose steep penalties for drug makers “who refuse to negotiate or comply with the outcome, equivalent to 65 percent of the drug’s annual gross sales, escalating up to 95 percent over time. There would also be penalties for overcharging, for example.”
The Lower Drug Costs Now Act “levels the playing field by ensuring that Americans are not forced to pay three, four or ten times more than people in other countries for the same drugs,” according to a statement Pallone released in mid-October. “This transformative legislation will also save taxpayers hundreds of billions of dollars that we can reinvest in the search for new cures and treatments and strengthening our health care system.”
Not everyone agreed with that. “We are very concerned about bills like HR3, which are basically price controls,” said Dean Paranicas, president and chief executive officer of the Healthcare Institute of New Jersey. “Measures like this would have an adverse impact on the ability of pharmaceutical companies to innovate, and would mean patients have less access to medical advances. “
In September, Paranicas said “[a]s the medicine chest of the world, the potentially catastrophic economic impacts of this bill would be substantial for New Jersey. Our state’s biopharmaceutical jobs, vendor spending, construction activity, tax ratables, charitable donations and other workforce and economy issues are all at risk of being seriously and adversely impacted.”
Part of the problem is defining “price,” under HR3, Paranicas told NJBIZ. “The cost to develop drugs is a long and complex process, with many participants in between. There’s the list price that the manufacturer establishes, but that can be quite different from the actual price that’s ultimately paid by the patient at the pharmacy counter,” which can be far lower.
Instead of capping prices, he added, “It’s better to cap the cost paid by patients, by requiring insurance companies to fully cover the price of medications, and by a faster approval process for generics. There’s no shortage of proposals at the state and federal levels; some would cap out-of-pocket costs to patients, while others would promote value-based contracts. But as of now, I’m not aware of one piece of proposed legislation that would target all of the costs related to pharmaceutical companies.”
A ‘devastating impact’?
Right now the industry is balanced on a knife’s edge, said Debbie Hart, president and CEO of BioNJ.
“The biopharmaceutical industry has entered a promising new era of discovery where breakthrough innovations are attacking the root cause of disease and altering the trajectory of many life-threatening illnesses such as cancer, heart disease, asthma and diabetes and providing patients with newfound hope,” she said. “It is critically important that these innovations not be threatened by legislative proposals, such as price controls, importation or direct price negotiation by government. These proposals jeopardize the development of innovative treatments and will have a devastating impact on patients by limiting funding for innovation thereby constraining and reducing the discovery and development of treatments”
A different view
Earlier this year, U.S. District Judge Brian Martinotti gave the go-ahead for a proposed class-action lawsuit filed by 67 diabetics, accusing three drug makers of consumer-fraud tied to skyrocketing insulin prices. Consumers are frustrated over high drug prices, but the real problem isn’t necessarily greedy pharmaceutical manufacturers, wholesalers, retailers, insurers, or pharmacy benefit managers, said Gary Branning, an assistant professor of Professional Practice at Rutgers Business School. Instead, he argues, “it’s misaligned incentives.” “The central challenge facing the U.S. health care system is the motivation of stakeholders to earn a profit, as a result of the misaligned incentives among health care stakeholders,” Branning — who’s also president of Managed Market Resources, a health care consulting and medical communications company — wrote in an article for Am Health Drug Benefits, a trade publication. “Each stakeholder has different profit motivations that drive up the overall costs of health care.”
He noted, for example, that patients expect to pay little or nothing for their medicines, and are often not willing to take proactive steps to improve their health, like making a dietary change to reduce cholesterol levels. Instead they expect a once-a-day pill to achieve the same results.
To nudge them, “[e]mployers and health insurers have begun pushing patients toward high-deductible health plans that require patients to pay more for their care upfront,” Branning told NJBIZ. “Although these plans reduce spending in the short-term, they may discourage patients from seeking necessary care, leading to costly complications down the road.”
The issue is compounded by the fact that patients typically pay a “disproportionate share” of the cost of drugs compared with other health care expenses, like a hospital stay, he added. “This discrepancy is the result of the patient’s health insurance pharmacy benefit design, which disadvantages pharmaceuticals, even though they may contribute to lowering hospital spending if used correctly.”
Other players, like pharmacy benefit managers, the third-party administrators of prescription drug programs, try to get reduced costs for their clients, while drug makers have to “charge a higher price for their drugs to account for payer coverage gaps, formulary placement and restrictions, and the rebates and discounts required in the distribution and reimbursement channel,” Branning said. “We need a new model, something that aligns everyone’s interests while keeping the patient as the center of the focus.” One option is the so-called Netflix model launched earlier this year in Louisiana. Instead of paying for each prescription individually, the state proposed to pay a subscription fee to a drug company in return for unlimited access to an expensive hepatitis c drug, according to published reports. The model is similar to the way consumers pay a monthly fee to stream unlimited television shows and movies through Netflix and other services.
“Everyone’s trying to figure way to make drug treatments more affordable,” Branning said. “But it’s very complicated. For example, aggressive treatment with the right expensive drugs early on may save a lot of higher medical- and hospital-related costs down the road. But the way the models are currently structured, there’s not enough integration of medical and pharmacy benefits. A short-term focus on the pharmacy costs versus a long-term reduction in medical costs distorts the overall alignment on costs. Add to that the fact that we’re coming up to national elections next year, so legislators are making a lot of noise — but these politicians will tread lightly leading up a major election. Things could change after the 2020 elections.”
Targeted therapies for diseases such as Alzheimer’s, Parkinson’s and ALS, as well as rare diseases, “where the science is most challenging,” would likely be most affected by the introduction of these “onerous legislative proposals,” Hart added. “In fact, [a report from] Vital Transformation estimates that HR-3 alone will result in 56 fewer approvals for important new treatments over the next 10 years. Based on the fact that nearly 50 percent of all novel FDA drug approvals come from companies with a footprint in New Jersey each year, this would be devastating to the New Jersey economy.”
Hart wants to “work with all our health care stakeholders to ensure that innovation is supported and enabled. One solution lies in value-based agreements that involve biopharmaceutical companies and payers coming together to improve health outcomes, ensure better access to treatments and ultimately reduce out-of-pocket costs at the pharmacy counter.”
These types of agreements ensure that the cost of treatment is determined by how well a medicine performs and that the right patients get access to the right treatments when they need them, Hart said.
“By moving from a system focused on volume to a system focused on the value of a medicine, we can ensure that our health care system gets patients what they need while rewarding innovation and controlling costs.”
Her organization is committed to “working with policymakers to focus on practical reforms such as capping out-of-pocket costs, sharing negotiated savings with patients and promoting value-based contracts,” she added. “BioNJ believes we all have accountability and responsibility to improve our health care system and to ensure that patients have meaningful access to the right medicine at the right time. This will require that we work together to pursue practical, bipartisan policies and solutions that prioritize lowering out-of-pocket costs for patients, ensure innovation is fostered and that the cures of tomorrow are discovered today, because patients can’t wait.”
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