The solutions to America's drug cost dilemma (and why they won't happen)

October 2, 2016


Patients are complaining their drugs are unaffordable. Insurers are protesting that specialty drug costs are forcing them to jack up premiums. State Medicaid directors say spiking pharmacy costs are forcing them to make painful coverage trade-offs.

Congress has been grilling drug company executives over their big price hikes. Democratic presidential nominee Hillary Clinton has proposed unprecedented federal review of price hikes. Both Clinton and GOP nominee Donald Trump favor letting consumers buy cheaper drugs from foreign countries. Both also have said Medicare should negotiate prices with drugmakers, though Trump's campaign website doesn't mention this.

But despite the growing political furor, the odds of significant federal action on drug costs this year or next are slim, experts say.

That may surprise voters, given the torrents of rhetoric and promises from politicians. Yet the issue of how to make drugs more affordable for individual patients and society is so complex and sensitive—and drug industry opposition so formidable—that a comprehensive, politically viable approach to solving the problem has yet to emerge.

The impasse has left patients, insurers and healthcare provider groups pushing for immediate relief from the most egregious price spikes, like Mylan's 550% list price increases over eight years on EpiPen epinephrine auto-injectors, a must-have product for counteracting allergic reactions.

Some are hoping the EpiPen brouhaha will mark a tipping point in the debate. “This affects families and children, and it's a potentially life-threatening situation,” said John Rother, CEO of the National Coalition on Health Care and head of the Campaign for Sustainable Rx Pricing, a broad coalition of groups advocating market-based approaches to curbing drug costs. “It's a simpler problem to understand than the issues raised by other drugs.”

Public opinion clearly backs quick action. A Kaiser Family Foundation survey last month found 77% of Americans say prescription drug costs are unreasonable, with 82% backing giving Medicare the power to negotiate drug prices.

And the mounting public pressure has produced some results. One drugmaker, Allergan, recently promised to voluntarily limit price hikes on its products to once a year and keep them to single-digit percentage increases.

But those are the exceptions—not the rule. Other drug companies are shifting the blame to insurers, arguing that health plans are pushing excessive costs on members through high deductibles and copayments.

Making policy action tricky is that rising prices for generic, brand-name and biologic products each have different causes, and each requires a different set of policies to bring under control. And each category has its own set of stakeholders ready to thwart decisive action that would bring down prices.

With brand-name drugs, many stakeholders have bought into the idea that lower prices will reduce the financial incentives for developing new breakthrough products. With biologics, patient and physician groups worry that potentially cheaper biosimilars may not have the same efficacy as the brand-name biologics they replace.

There has been a greater willingness to target profiteering on generic and older branded products, where triple-digit price increases seem absurd on their face. But rising prices for generics have been triggered by a variety of factors, including a shortage of producers for harder-to-manufacture injectables. That leaves the remaining manufacturers with hard-to-counter market power.

Ideology also gets in the way. Even after the election, it is unlikely Republicans and Democrats will reach an agreement on drug-cost legislation. That's particularly true for Democratic plans to give Medicare the power to negotiate prices for the Part D drug benefit program. There's at best an outside chance they could come together on narrow measures to enhance competition in the generic market.

The powerful drug industry traditionally has been able to fend off government efforts to counter price hikes. It successfully lobbied Congress in 2003 to bar Medicare from negotiating prices in the new Part D program. The industry has been aided by opposition from physician and patient advocacy groups, who fear that cost-benefit calculations will be used to cut them off from high-priced but effective medicines.

Indeed, fierce criticism from doctors and patients has the CMS taking a second look at its recent proposed rule to reduce Medicare Part B payments to doctors who administer expensive drugs in their offices, the most common mode for cancer chemotherapy drugs. Shifting to a lower mark-up and a higher facility fee was seen as a way to nudge them to use cheaper, equally effective alternatives.

“Prospects for legislative change are not high and are probably a little ways off,” said Dr. Aaron Kesselheim of Harvard Medical School, who co-authored a recent JAMA article surveying various reform proposals. “But maybe things are starting to change in a way that might provide an opening for some reform.”

“It's hitting the point where the drug cost issue has got everyone's attention, but I'm not sure what the coalition would be that would support heavy-handed government intervention,” said Chip Kahn, CEO of the Federation of American Hospitals, which is participating in the Campaign for Sustainable Rx Pricing.

Outside the legislative arena, there is growing support for the idea that drug prices should be based on the value they provide for patients. A few private insurers and drug companies are experimenting with outcomes-based arrangements.


MH TAKEAWAYDespite growing outrage over the past two years' price spikes on specialty drugs, biologics and generics, a political solution seems as far away as ever. And drug industry lobbyists are planning a major post-election campaign to keep it that way.

But these private-market initiatives are moving slowly because stakeholders are far from reaching a consensus on how value should be calculated. That was demonstrated by recent drug industry attacks on efforts by the not-for-profit Institute for Clinical and Economic Review to assess whether particular drugs are worth the price.

“No one knows the answer to the question of value,” said Dr. Joshua Ofman, a senior vice president at Amgen, during an American Enterprise Institute panel discussion on drug pricing last month.

That panel featured a contentious exchange between Ofman and two prominent advocates of value-based pricing, ICER CEO Dr. Steven Pearson and Dr. Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, New York. “We showed you our numbers; you show us your numbers,” Pearson said. “Let's all wrestle with that in public.”

At stake in the battle is a U.S. drug market worth more than $350 billion a year. Prescription drug costs now account for about 17% of total U.S. healthcare spending and were the fastest rising component of that spending over the past year.

List prices for prescription drugs rose more than 12% in 2015, although net prices rose only 2.8%, according to IMS Health. This year, most large drug companies reported that price increases boosted their revenue. Per capita spending in the Medicare Part D program rose 11.6% last year, more than in the past due partly to price spikes for brand-name drugs, according to the Medicare trustees' report.

Despite all the talk about the need for action, when someone proposes or implements even relatively modest measures to address drug costs, there's often a furious backlash. One multiple myeloma patient wrote in an op-ed responding to ICER's critical evaluation of the prices of drugs to treat his cancer condition: “I'm horrified by ICER's cost-cutting proposals, which … would cost the lives of 44,000 myeloma patients over the next five years. I don't intend to be in that number.”




Patents: Limit patentability of trivial changes in innovative medicines

Antitrust: Prohibit anticompetitive deals that delay generics

Prices: Empower Medicare to negotiate Part D drug prices; require drugmakers to provide Medicaid level rebates for dual-eligible beneficiaries in Part D

Formularies: Exclude high-priced drugs that have cheaper, comparable alternatives

Value: Base prices on clinical outcomes

Generics: Boost FDA funding to speed generic-drug reviews; encourage the FDA to OK products approved in other advanced countries; ease generic companies' access to brandname drug samples to increase alternative therapies

Biologics: Review standards for determining bioequivalency 


Substitution: Pass mandatory generic substitution laws with limited carve-outs; eliminate patient consent requirements

Medicaid: Allow state programs to test value-based pricing and restrictive formularies

Discounts: Empower state programs to pay no more than the rates negotiated for drugs by the Veterans Affairs Department

Price hike reviews: Require drugmakers to report and justify significant planned increases

Source: Modern Healthcare reporting; JAMA

Emotional criticisms like this suggest that the American public may be unprepared for explicit efforts to evaluate whether a drug or other type of treatment is worth the cost—unlike in other advanced countries such as Great Britain that openly weigh costs versus benefits in making coverage decisions. “This is a no-go zone,” lamented Yevgeniy Feyman, a health policy researcher at the conservative-leaning Manhattan Institute. “Everyone immediately jumps to rationing and death panels.”

Despite the sensitivity of the issue, Democratic standard-bearer Clinton has offered an ambitious package of measures to reduce drug costs. A bipartisan group of senators has offered legislation to make it easier to bring generic products to the market. A separate bipartisan Senate group introduced a bill to require drugmakers to tell HHS in advance why a price increase of more than 10% is justified.

Major stakeholders also are weighing in. The Campaign for Sustainable Rx Pricing, which includes providers, insurers, employers and consumer groups, has outlined measures to boost price transparency, competition and value-based pricing. But even such market-based approaches may need federal legislation to provide funding and establish a data infrastructure, Rother said.

Drug industry trade groups, aware that their public image has been tarnished, are rolling out major public relations campaigns. They are also massively boosting their lobbying to shoot down unwanted legislation and regulation.

The Biotechnology Innovation Organization recently unveiled an “Innovation Saves” ad campaign featuring patients who have been helped by its members' products. The Pharmaceutical Research and Manufacturers of America trade group, according to Politico, is planning to spend hundreds of millions of dollars on a post-election ad campaign.

“We're under pressure and scrutiny like never before,” Jim Greenwood, BIO's CEO, told Bloomberg. “We want to make the point that these drugs, whether they're expensive or not, do save lives.” At the same time, he blasted insurers for hurting consumers with high deductibles and coinsurance, and ripped pharmacy benefit managers for profiteering.

Given pharma's clout in Washington, some drug price warriors are turning to the states. California and Ohio voters will decide ballot initiatives in November that would require state government programs to pay no more for prescription drugs than the prices paid by the U.S. Veterans Affairs Department, which negotiates rates and currently gets a 24% discount off average manufacturer prices.

Pharma groups are spending tens of millions of dollars to defeat those ballot measures, arguing they would hurt patient access to innovative drugs. Independent observers caution that forcing drugmakers to offer big discounts to state programs could lead them to raise prices for private-sector customers.

Elsewhere, Vermont recently passed a law requiring drugmakers to justify price hikes, while Maryland, Pennsylvania and other states are considering various price transparency measures.

Those favoring action to curb drug costs hope public outrage triggered by the recent EpiPen controversy continues to boil. Spurred by widespread anger over price hikes, Hillary Clinton last month proposed a federal review process to determine if “outlier” price increases for long-established prescription drugs are justified. When the increases were deemed not merited, the government could buy and provide alternative therapies to patients, allow temporary importation of lower-priced drugs from foreign countries and fine the drug companies involved.

Pharma groups and congressional GOP leaders quickly signaled their strong opposition to Clinton's proposal. “The Clinton approach to healthcare drives you to a one-payer system, and drives you to rationing, drives you to a place where most consumers don't want to go,” Ian Read, CEO of Pfizer, told investors last month.

Clinton and other Democrats also have proposed letting HHS negotiate Part D prices. Experts warn, however, that this would have little impact unless Congress also authorized the agency to exclude certain drugs from the Medicare drug formulary, as the VA does.

As an alternative, Republican leaders are touting legislation that will speed Food and Drug Administration approval of new drugs and devices; it was passed by the House and is pending in the Senate. “The most important way to keep prices down is … to pass the 21st Century Cures bill, which will move new treatments and drugs through the regulatory … process more rapidly and reduce their cost,” Republican Sen. Lamar Alexander, chairman of the Senate HELP Committee, told Morning Consult.

But most experts say that legislation would have little downward impact on drug costs, with some saying it could actually increase costs by expanding the number of me-too and marginally effective products on the market. “Candidly, most Republicans would acknowledge it doesn't do much on drug prices other than encouraging more competition,” the Manhattan Institute's Feyman said.

There may be better prospects for bipartisan bills to boost competition in the generic market. Republican Sen. Chuck Grassley of Iowa and several Senate Democrats recently introduced a bill to make it easier for generic producers to gain access to brand-name products to conduct testing of generic versions prior to the branded product's patent expiration. 

“Everyone should be able to agree that drug companies shouldn't use regulatory processes as a way to delay competition and keep prescription drug prices high,” said Democratic Sen. Amy Klobuchar of Minnesota, who co-sponsored the bill with Grassley.

Grassley and Klobuchar also co-sponsored a bill to make it illegal for brand-name and generic manufacturers to enter into purported payoff agreements to delay the introduction of generic products. 

While strengthening generic competition could be the low-hanging fruit in tackling drug costs, ICER's Pearson cautioned that in pharmacy policy and politics, nothing is ever simple. “Even the no-brainers end up being more complicated than we think they are,” he said.

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