Tag Archives: drug prices

How to Disrupt Drug Prices

These days, we’re not surprised to open the paper and see another headline about the latest Epi-pen, Martin Shkreli or yet another new drug with an exorbitant price tag that has no basis in reality. Since Sovaldi, a pill to treat Hepatitis C, hit the market at a price point of $1,000 (never mind that you could purchase it for $4 per pill in India), it has become acceptable for mass-market therapies to suddenly become very expensive — often to the tune of $100,000 per therapy per patient per year.

So it might blow your mind to open up a newspaper (or your web browser) and learn that a new, more effective drug is significantly cheaper and better, especially if it is a cure for Hepatitis C.

Mavyret, manufactured by AbbVie, is the first example of a new, brand name Hepatitis C drug that is actually better for patients and costs far less. Eighty percent of patients with Hep C can do an eight-week course, versus the alternative, manufactured by companies including Gilead and Merck, which requires a 12-week course.

Mavyret is the only drug that works for genotypes 1-6, and it has a list price that is less than half of what the competitors charge, even when you factor in the bizarre middleman shenanigans. It ends up costing about $26,000 to cure a patient of Hep C. If that sounds high, just consider the fact that all the specialty meds for chronic conditions such as psoriasis are now $50,000-100,000 or more per year! Mavyret sounds too good to be true, right?

In the world of specialty pharmaceuticals — an intentional labyrinth of perverse financial incentives, with zero transparency for the payer or patient — it is actually not too good to be true. But clients and their employees probably still won’t reap the benefits. Unfortunately, our current system probably locks them into paying more for a drug for employees that is less effective, even though a cheaper alternative exists.

See also: Stop Overpaying for Pharmaceuticals  

Most of our efforts to manage pharmacy costs rely on working with a pharmacy benefit manager or PBM, which uses strategies like formulary management, prior authorization and step therapy. PBMs are, as Bloomberg News explains, “the middlemen with murky incentives behind their decisions about which drugs to cover, where they’re sold and for how much.”

For starters, your PBM may have contracted to have the more expensive drug on their formulary because that manufacturer offers them better rebates. This decision, of course, is not based on what is most effective for the patient, or cheaper for the payer. It is based on the formulary and written into the contract, so you are stuck with it. And with the bizarre economics of rebates for manufacturers, Gilead and other makers of Hep C drugs can argue that their post-rebate prices are only 50% to 60% of their list price, so they really aren’t committing too much highway robbery.

The New York Times recently reported that, contrary to conventional wisdom, an increasing number of patients are being steered away from lower-cost generic drugs toward brand name alternatives because this is a better financial arrangement for the PBM, thanks to steep rebates from manufacturers trying to “squeeze the last profits from products that are facing cheaper generic competition.”

We feel the financial pain of this broken system every day. Only a few years ago, specialty drugs composed a reasonable-sounding 10% of our overall drug spending. Last year, specialty dug spending bloated to 38% — and by 2018, it will be an astounding 50%, which is an increase of $70 million a day!

The system is opaque and perverse — and it’s the only system we know. But it doesn’t have to be this way. Almost two decades ago, the internet revolution made the travel agency obsolete. Uber and Lyft have done the same thing to parts of the transportation industry, and Amazon continues to do this to many industries. What have all of these disruptive innovations taught us? They have taught us that we might, in fact, be able to make better decisions ourselves, without a middleman.

It is time for this type of disruptive innovation to hit the pharmacy benefit world. Today we have a system that focuses on controlling suppliers: PBMs that use profitability levers like formulary management, prior authorization and step therapy that, in reality, just limit our choices and prevent the functioning of a real market.

See also: Open Letter to Bezos, Buffett and Dimon

What if instead of focusing on supply, we focus on value? What if we begin by asking “is this drug really working for this patient? How well? And how does it compare with the alternatives?” This scenario represents an incredible opportunity for better health outcomes and savings compared with the status quo. What makes sense and saves cents at the same time isn’t being locked into a formulary choice, but the brave new world of opportunity for employees to get well sooner and pay less for a therapy like Mavyret.

As a benefits professional, breaking out of the status quo isn’t easy. After all, 10 years ago, it wouldn’t have worked to turn to your travel agent, taxi cab driver or storefront manager and tell them, “I need a new model for your industry, and I don’t need you anymore.”

Organizations that have a bit of flexibility to experiment can, should and will be the early adopters of better ways. Some already exist. Don’t settle for the status quo. Keep asking vendors, “What have you done for my clients and their employees today?”

Challenging Drugs’ Moonshot Price Tags

Q: Some American pharmaceutical companies are well-known for pricing drugs at whatever the market will bear. In oncology, some specialty drugs seem to have price tags completely unrelated to the proven effectiveness of the drug. Your company has been taking a lead in confronting this problem. What do you envision as possible solutions?

A: New oncology therapies carry astronomical price tags—most people know this. Receiving far less attention is the question of actual therapeutic value. Drug manufacturers spend billions on advertisements and PR, but unfortunately, real-world patient results are frequently unimpressive. Two recent articles in BMJ make this point, 1) No evidence of benefits for popular oncology therapies and 2) Do cancer drugs improve survival or quality of life?

Why do high-cost oncology therapies with questionable results continue to be prescribed? Let’s examine a situation my company is dealing with right now. VIVIO Health received a request for neratinib, an FDA-approved extended adjuvant therapy for early-stage HER2 positive breast cancer. Our system analyzed all available performance data from sources such as the FDA, ICER and NICE. The drug approval was based on a newly created surrogate endpoint called invasive Disease-Free Survival (iDFS), which only scored 94.2% vs. 91.9% in the placebo arm. Even worse, 29% of the patients dropped out of the trial due to adverse side effects, 16.8% for diarrhea alone. Not surprisingly, the FDA committee patient representatives voted against approval.

See also: ‘High-Performance’ Health Innovators  

Neratinib’s manufacturer PUMA Biotechnologies provided data on the current standard of care, trastuzumab, showing a disease-free survival (DFS) rate of 89%. Interestingly, the use of iDFS as an endpoint led to an increase in the placebo arm of ~3%, which is larger than the neratinib-to-placebo arm difference of ~2%. Ultimately the creation of a new endpoint made a larger impact than the therapy itself. The trial design itself had been altered so many times; the FDA suspected the trial had been “unblinded” and attempted to determine statistically whether unblinding had occurred. Even with these highly questionable results, the FDA approved neratinib in July.

After being shown the questionable data and asked, “Why neratinib?” the requesting oncologist explained that it’s an FDA-approved drug and that “MD Anderson is giving it to everyone.”

Granted it’s hard, but physicians should have the courage to do the right thing. In the context of high-dollar, high-tech therapies and billion-dollar windfalls for pharma execs like Puma CEO Alan Auerbach, physicians must be America’s frontline ensuring that only the right therapies get to the right patients. Using neratinib as an example, here are seven steps every physician should consider before prescribing oncology therapies:

  1. Police endpoint games. Don’t allow drug companies to define arbitrary and meaningless endpoints for your patients. Prescribe medications with objective data on meaningful endpoints such as life expectancy. Anything less should be considered experimental at best, and pharma should pay for that.
  2. Do the math. In the case of neratinib, a 2% probability of potential benefit means that for every two patients who might be helped, 98 are subjected to real side effects or other harm. In the neratinib trial, this equates to the “lucky” 33 out of 1,420 total patients, which is quite a needle in the haystack.
  3. Consider the actual cost. Spending $5 million per patient “helped” with such uncertain outcomes makes no sense.
  4. Consider societal opportunity cost. Spending money on therapies that don’t work diverts dollars away from developing therapies that do.
  5. Stop listening to key opinion leaders (KOL). Dig deeper and make your own decision. A KOL’s opinion isn’t data and is too often wrought with conflict.
  6. Require companion tests. Don’t prescribe low-probability therapies without some form of a companion diagnostic and insist that the drug company provide it for you.
  7. Prescribe therapies as if you’re the patient and you’re spending your own money.

See also: U.S. Healthcare: No Simple Insurtech Fix  

Physicians, you hold the key to changing the cost curve for ineffective therapies. Drug companies will get the message when you refuse to prescribe treatments that don’t work and cost too much.

Little-Known Loophole Inflates Health Costs

The rising cost of insurance is putting a squeeze on American families. And this problem could get even worse if lawmakers don’t fix a little-known federal drug program called “340B.”

Created by Congress in 1992, 340B was originally intended to provide low-income people access to needed medications. This program allows hospitals, clinics and other healthcare providers
serving large numbers of poor and uninsured patients to buy drugs at a deep discount. The idea was that these facilities would pass along those savings to their patients.

But 340B is not working as intended. Instead, it’s being manipulated by hospital systems to increase profits. It isn’t helping the poor. And this exploitation is driving up health insurance costs for all Americans.

Price Disparity

The program’s major flaw is it doesn’t actually require healthcare providers to pass along those drug discounts to low-income patients. Participating facilities are free to buy huge volumes of cheap medicines and then sell them at full price to insured patients — and pocket the difference.

That’s exactly what many participants are doing. Duke University Hospital has accumulated $280 million in profits from 340B over the last five years. The drug chain Walgreens is projected to make a quarter of a billion dollars off the program over the next half decade.

Established hospital systems have increased their revenue from 340B by buying up specialty clinics. These smaller practices often use a high volume of expensive drugs. By acquiring these clinics, hospitals can purchase even more discounted medicines through 340B and further boost profits.

In 2012, hospitals enrolled more clinics in 340B than in the previous 20 years combined. A new University of Chicago study shows that most of these clinics are located in relatively affluent areas. In other words, they aren’t even pretending to serve the low-income and uninsured populations 340B was intended to help.

Unfortunately, lawmakers have not responded to these abuses by fixing 340B’s structural flaw. Instead, they’ve blindly expanded the program. Back in the early ’90s, just 90 health care facilities participated in 340B. Today, that figure is more than 2,000.

The acquisition of smaller clinics, precipitated by 340B, will seriously drive up insurance costs for average Americans. Large, established health providers tend to charge more than smaller, independent clinics. And insurance companies respond to these higher treatment expenses by raising premiums.

Indeed, a study from three Duke University researchers published in the October issue of the journal Health Affairs looked into the price disparity between key cancer drugs provided at both corporate hospitals and clinics. Researchers noted that, between 2005 and 2011, the proportion of cancer services administered at independent clinics dropped by 90%. They found that the price gap between the two settings can be as much as 50%.

Pharmaceutical manufacturers are now incurring heavy losses from 340B abuse. In 2010, this program cost the industry $6 billion. By 2016, that’s expected to more than double, to $13 billion. Simple economics forces firms to compensate for losses by raising their prices, leading to higher medical expenses for average patients.

Noble Purpose

340B has a noble purpose. But it’s not fulfilling its mission to provide vulnerable patients with discounted drugs. Instead, 340B is being exploited by rich hospitals to boost their bottom lines. And these abuses are leading to higher insurance costs for everyone else.