Calling PhRMA’s Bluff: 15 Ways To Bring US Drug Costs Under Control

Posted on | September 28, 2016 | Comments Off on Calling PhRMA’s Bluff: 15 Ways To Bring US Drug Costs Under Control

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Mike Magee

Historically, U.S. insurers have been relatively permissive when it comes to pharmaceuticals. Most drugs were covered and reimbursed generously. That reflected two realities: drugs were a relatively small piece of the over all health care cost, and denying certain drugs coverage on formulary lists was almost always a public relations nightmare, angering both doctors and patients. But as a recent JAMA review article so clearly delineates, evidence suggests we’re entering a new era, and PhRMA’s innovation bluff, when it comes to drug pricing, may soon be called.

Here are a few of the facts the authors shared:

Pharmaceutical drug spending has increased approximately 20% over the past two years, compared to an 11% increase in overall health care costs. Employer costs for health care drugs now approach 1/5 of their total health care expenditures.
A recent analysis showed per capita drug spending in the U.S. was $858 compared to an average $400 in 19 other developed nations.
Post approval patent monopolies average 12.5 years for every day discoveries, and 14.5 years for the more novel ones.
With patent loss, the entry of two competing generics forced price reductions of 45%. Add a third competitor, and 67% of the cost was shaved. By the time 15 generic companies competed, consumers were paying as little as 15% of the original cost. These kind of savings led to 86% of all filled prescriptions being generic by 2012.
But, as generic prices were falling since 2008, prices on patented protected drugs increased by 164%.
New biologics have been part of that story. And some of these high cost new entrants, like Gilead’s Hepatitis C drug, Sovaldi (vs. the cost of liver failure and liver transplant), have carried the day, and earned listing on covered drug formularies. But much of the cost has more to do with old unpatented “has-been drugs” whose prices have been manipulated by unscrupulous hedge-funders.
The poster boy for these is 33 year old hedge-funder, Martin Shkreli, founder and CEO of Turing Pharmaceuticals. In September of 2015 he purchased the manufacturing rights to produce the off-patent anti-parasitic drug, Daraprim, which had been selling for about $13 a pill. It had originally been approved by the FDA in 1953. The purchase price from Impax Pharmaceuticals was $55 million, and included an agreement with Impax to restrict distribution of Daraprim. The drug’s major use at the time was for the treatment of toxoplasmosis in HIV patients. Shkreli promptly raised the price to $750 a pill (a >5000% increase), and then unapologetically appeared before Congress in February, 2016, taking the Fifth Amendment repeatedly. Discovering his voice on his way out of Washington, he tweeted, “Hard to accept that these imbeciles represent the people in our government”.
Shkreli’s Turing was not the first to invent the tactic of buying old, off-patent products, eliminating competition and then jacking up the prices. That honor likely goes to Valeant, a company that, through a dizzying array of outright purchases, mergers and acquisitions beginning in 2006, landed in front of Congress as well in 2016. Valeant’s transgressions are too numerous to count, but two 2015 cardiovascular drug price hikes, immediately following purchase, give you the idea: Nitropress up 210% and Isuprel up 520%.
The current controversy over EpiPen pricing has nothing to do with innovation, biologics or manipulation of old generics. Rather, it is a case where control of a delivery device, which was originally designed for fast delivery of nerve gas antidotes, and approved by the FDA in 1987, has moved through the hands of multiple pharmaceutical companies over the years to ultimately land on the doorstep of Mylan in 2007. At the time, Mylan’s brand of autoinjector, the EpiPen, controlled 90% of what was a $200 million US market.
By 2012, Mylan’s CEO, Heather Bresch, daughter of Senator Joe Manchin (D-WV), decided to go full in on an integrated public relations and government relations strategy that would greatly expand the market for auto-injectors. Hiring the same firm that managed the movement of Medtronic defibrillators into public places, Mylan worked the angles to build the case that anaphylaxis was everywhere and Americans needed to be prepared. While petitioning the FDA to broaden the indications for the device, Heather Bresch, enlisted the aid of the president of the National Association of the State Boards of Education, who just happened to be her mother, Gayle Manchin. The goal was to “help state boards of education as they develop student health policies regarding anaphylaxis and epinephrine auto-injector access and use.” It worked.
On the federal side, legislation titled, “School Access to Emergency Epinephrine Act”, protecting all using the EpiPen on school grounds from liability, passed with Joe Manchin’s support in 2013. It included financial support for select schools to stock the product. In the meantime, one competitor dropped out of the market after some dosing problems, and the generic house TEVA’s potential entry failed to gain FDA approval in June, 2015.
By 2015, the market was a $1.5 billion a year success story with EpiPen still controlling 90% of the market. (29) The dual pack price had been increased from $100 in 2007 to over $600 in 2016. (The online price for a pair in the UK 1s about $116 US dollars and in Canada under $200 US dollars.) When the price hiked in the summer of 2016, just as parents were getting kids ready to return to school, Bresch found herself way over her head and in full crisis management mode. The dust still hasn’t settled, and various reparative offerings by Mylan continue to be rejected by a fed-up public.

Overall, the market is beginning to signal a limit to public support for feigned innovation as employer’s costs of pharmaceuticals have approached 20% of their overall health care costs. But as the JAMA authors suggest, most of that response is falling on the shoulders of consumers in the form of rising deductibles and co-payments. These user taxes are not only rising on everyday drugs, but now a special category is appearing for “specialty biologics”, including cancer drugs, which nail consumers with coinsurance payments that amount to 20% to 33% of cost. While this may save employers and insurers money, it’s also escalating the rates of non-adherence, and with that rates of acute hospitalization. Studies show that non-compliance generates additional health costs exceeding $100 billion annually.

The slow but steady implementation of the Affordable Care Act has moved the US one step closer to universal coverage. But at that same time, it has increasingly exposed the weaknesses of our remarkably disintegrated, inefficient, easily corrupted, and spotty health delivery system. Pharmaceuticals, as they are both measurable and trackable, as witnessed in the recent analysis of the manmade opioid epidemic, will likely be the leading edge of rationalization of health care delivery in the United States. The need for real competition, government involvement, physician restraint in prescribing, and consumer engagement is increasingly obvious to all.

To view 15 strategies to lower U.S. drug costs, derived from the JAMA article, go HERE.