Sunday, October 26, 2014
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Controlling drug cost, part deux

Researchers concluded that although restrictive formularies may be a step in the right direction, they won't do enough to bend the rising cost curve on medications.

Controlling drug cost, part deux

In this space a couple of weeks ago, we made the point that restrictive formularies represent a useful approach to controlling drug prices.  It was especially instructive to then see an article written by two researchers from CVS/Caremark in the Journal of the American Medical Association (JAMA) that appeared a week later.  They concluded that although restrictive formularies may be a step in the right direction, they won't do enough to bend the rising cost curve on medications.  

By their calculations, formulary restriction can reduce prices approximately 40 percent, but that’s not enough.  Pharma's effort to concentrate in specialty medications can bust the budgets of all payers, whether private insurers, Medicaid,  Medicare or large, self-funded employers.  The current controversy over the hepatitis C medication, Sovaldi, offers a preview of that.  

Pharma's strategy of substantially raising the price levels in medications for chronic, non-life threatening conditions will also break budgets and help make health care unaffordable.

The emerging PCSK-9 category represents a good example.  These compounds are monoclonal antibodies for treating elevated LDL-cholesterol in patients who don't benefit from statins or can't tolerate them.  In this country the estimates claim that somewhere between seven and twenty million people are potential PCSK-9 candidates.  Pharmas and equity analysts figure that premium pricing could generate sales between $2 billion to $5 billion a year for each of the three or four PCSK-9 pipeline compounds.

The size and imminent danger posed by pharma's pricing plans make it that much more urgent to adopt another approach advocated here for controlling drug costs.  That involves payers and providers aggressively stratifying patient candidates to determine which ones require costly, newer medications instead of less expensive treatments.  In other countries, agencies within the respective national health ministries regularly conduct this sort of work as part of cost-effective research (CER).   

The prices that national health systems overseas pay for prescription drugs is based on the CER done by agencies such as the Institute for Quality and Efficiency in Health Care (IQWiG) in Germany, the National Authority for Health (HAS) in France, the National Institute Care Excellence (NICE) in Britain and Australia’s Pharmaceutical Benefits Advisory Committee (PBAC).  A similar government agency here isn’t likely because of this country's reverence for buccaneering capitalism and pharma’s extraordinary payments to both Congress and the executive branch.  But it is feasible for the major payers and/or their agents (e.g., Pharmacy Benefit Managers) to do CER and, thereby, function as a NICE or IQWiG in private hands.

How else can Americans thwart pharma's extortionate pricing?  Adopting a single-payer system represents the most effective approach, but that will have to wait a few years until the Affordable Care Act shows its inability to provide universally available, high quality health care that the country can afford.  In the meantime, Congress can repeal its egregious giveaway to pharma by allowing Medicare to negotiate drug prices.  Congress and the administration should also declare medical therapies a matter of national security and permit private purchasers to acquire brands at the VA/Medicaid price.  

Other fixes to hold down drug prices?  Congress can require pharmas to win price approvals for all compounds the companies develop with the benefit of a federal subsidy or assistance from NIH.   

Pharma's intrinsic corruption offers another avenue for moderating prices.  Congress can considerably stiffen penalties for off-label marketing, defrauding Medicaid, bribing prescribers and the many other legal violations that pharmas routinely practice.  These enhanced penalties can include a disgorgement provision that requires a company to return all profits on the product that benefitted from the transgression during the years it occurred.  In the frequent cases where particular companies act as repeat offenders, it would be useful to craft legislation allowing the Justice Department to declare compulsory licensing (i.e., breaking the patent) on any one of the company's products.  The recovered funds could then be disbursed to payers on a pro rata basis to help defray drug reimbursement costs. 

The peril that drug pricing represents to the U.S.'s health care system is both foreseeable and inevitable.  It is then all the more unfortunate that many people must suffer physical harm and financial setbacks before lawmakers feel pressured to fix things.  The fact that they are in thrall to large corporations and wealthy donors probably rules out any preemptive remedy.


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Daniel R. Hoffman, Ph.D. President, Pharmaceutical Business Research Associates
About this blog

Check Up covers major health events in our region and offers everything from personal health advice to an expert look at health reform. Read about some of our bloggers here.

For Inquirer.com. Portions of this blog may also be found in the Inquirer's Sunday Health Section

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