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A Test Case on Sanity of Drug Prices

In both traditional healthcare and pharmaceuticals, the phrase “value-based purchasing” is all the rage. Rightfully so, we want to spend our precious healthcare dollars on the care that is most valuable. In other words, we want to pay for care and drugs that are effective and not pay for those that aren’t. Like everything else, the shortest path to value is a truly competitive market. The gorilla in the room is that healthcare, and especially pharmaceuticals, severely lack this fundamental capitalist feature that we have benefited greatly from.

American healthcare dwells in never-never land. We have neither explicit price controls through regulation nor implicit controls through a functional market, resulting in the worst of all possible worlds: a system that’s entrenched, opaque and dysfunctional. It gets worse when we narrow our focus on the drug market. We don’t even understand what it is that we are purchasing because buyers neither spend much time understanding drug effectiveness in the real world nor tie effectiveness to payment. Instead, in an attempt to save dollars, employers, health plans and the government have turned to intermediaries, pharmacy benefit managers, to manage the problem on their behalf. PBMs’ efforts to manage pharmacy costs rely on typical buzzwords like “formulary management,” “prior authorization” and “step therapy.” And 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.”

See also: 9 Key Factors for Drug Formularies  

This leads us down an unintelligible labyrinth of perverse financial incentives, with zero transparency for the payer or patient on the actual costs, alternatives for therapy and individual outcomes. That’s a problem especially in specialty pharmacy, the fastest-growing sector of pharmacy spending. Only a few years ago, specialty drugs composed a reasonable-sounding 10% of our overall drug spending. Last year, it bloated to 38%, and by 2018 it will be an astounding 50%, which is an increase of $70 million a day!

Contrary to what we often think, there are better options even for many specialty drug therapies. 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 since Sovaldi hit the market at a price point of $1,000 a pill (never mind that you can purchase it for $4 per pill in India). Eighty percent of patients with Hep C can do an eight-week course versus alternatives manufactured by companies like Gilead and Merck, which generally require 12 weeks. Mavyret is the only drug that works for genotype’s 1-6 and has a list price that is less than half of what competitors charge, even after factoring in middleman shenanigans such as rebates. The final cost to cure a patient of Hep C is approximately $26,000. If that sounds high, consider that specialty medications for chronic conditions such as psoriasis are now $60,000 to $120,000 or more per year.

If you’re like most payers, our current system locks you into paying more for drugs for your members that are less effective than proven, cheaper alternatives like Mavyret. For starters, your PBM may only provide more expensive drugs on its formulary because of large manufacturer rebates, the majority of which they retain. Formulary decisions, of course, are not based on what is most effective for the patient or cheaper for you, the payer.

We feel the financial pain of this broken system every day, but it doesn’t have to be this way. Two decades ago, the internet revolution made the travel agency obsolete for most Americans. Uber and Lyft have done the same to parts of the transportation industry, and Amazon continues to do this to many others. What have these disruptive innovations taught us? That we might, in fact, be able to make better decisions ourselves, without non-value-added middlemen. It is time for this type of disruptive innovation to hit the pharmacy world.

Today’s system focuses on controlling suppliers through PBMs, which in reality just limit our choices and prevent the functioning of a real market. Instead, if we were to focus on value, we could use patient data to give us an objective understanding of whether the patient was getting the right outcome at the right price. This scenario represents an opportunity for better health outcomes and savings compared with the status quo. Here’s the catch: To enter this world, we have to start saying “no” to the current “travel agents” and their obsolete model.

See also: Opioids: Invading the Workplace  

In many ways, Mavyret is like the canary in the coal mine. If this drug isn’t successful – we know it is better for the patient, more effective and costs less – what signal does this send pharmaceutical companies? Don’t bother discovering better drugs that cost less because they won’t sell!

We salute AbbVie for doing what is right for patients and payers. America is the leader in driving innovation and investment in new drug discovery, and our inability to make the right choice not only reduces therapy choices for millions of Americans and their physicians but also for billions of others around the world who depend on us for leadership. Now is the time for payers to demand a functional market and stop overpaying for less effective therapeutic options.

Our Real Problem With Drug Pricing

Over the past few months, many of us have heard of the abuses surrounding Martin Shkreli (who is in the news again after a judge set a 2017 trial date for his securities fraud case) and separately, Valeant Pharmaceuticals, which was recently under fire for drug price increases. What we haven’t heard is that these sensationalized cases are truly insignificant when compared with the enormity of the problem facing America.  Only a few years ago, specialty drugs composed a reasonable-sounding 10% of our overall drug spending.  Last year, it bloated to 38%, and by 2018 it will be an astounding 50%, which is an increase of $70 million … a day.

See also: Cutting Prices of Drugs Dispensed by Doctors  

The reason we pay many multiples more than other countries for the same drug is because we have a rigged system in which America is the only globally unregulated market. Worse, we have actually created laws to protect large healthcare monopolies. So, we as Americans have the worst of all worlds: neither a single payer system with explicit price controls nor a free and fair market.

Consider the hepatitis C drug Harvoni, which sells for about $95,000 in the U.S. for the required 12-week course. The same therapy costs less than $1,000 in India, for products that are officially licensed by Gilead, the manufacturer of Harvoni.

The argument that this is a result of us having to subsidize drug R&D costs for developing countries is a farce. In developed countries such as France, Harvoni is available for about half the price we pay in the U.S.

Unfortunately, the same dynamic extends beyond specialty products into other commonly used drugs. The price for a 30-day supply of Crestor is about $200 at most U.S. drugstores, but the price in India is only $6 for a product that in both cases was manufactured in Puerto Rico by AstraZeneca.

I’m excited that VIVIO Health, which I’ve joined as CEO, is tackling this large and complex problem. We represent the vast majority of Americans, who pay far more than they should for healthcare. I dream of a better country for my three children, and I know you do the same for yours.

I have been asked whether I feel like Don Quixote. No question, reforming how healthcare is purchased in America is a daunting task, but our team has clarity on enough of the puzzle pieces to make a difference. Reform is an achievable goal, with many precedents in other industries, such as travel, stock brokerage and retail.

See also: AI: The Next Stage in Healthcare  

The VIVIO Health solution reimagines the way we buy, use and measure specialty drug therapies. Our solution starts with the outcome and works backward, collecting data at every step. We’ve reversed the current purchasing model that starts with profitability for intermediaries and suppliers and instead prioritize the best alternatives for both patients and employers who foot the bills. The data we collect coupled with external data allows us to answer perplexing questions surrounding cost, efficacy and choice.

We foresee a day, with everyone’s participation, when America saves billions on healthcare costs.  We need your support and are asking you to join us in saying NO to legacy and YES to a better system.

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