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Think Tank

What To Do About High-Priced Drugs?

Is it possible to put a price tag on good health? How much is too much to pay for feeling good?

These aren’t new questions, but on the cusp of two new eras, they take on new urgency and new meaning.

The two new eras:

  • New drugs — with new, large price tags — are making significant improvements in treatment for several maladies including hepatitis C, cystic fibrosis, cancer, high cholesterol and heart disease; and
  • Health care reform that aims to provide affordable health insurance for every individual is changing the alchemy of who pays for what. With more government-subsidized coverage, taxpayers are being asked to pay for a larger portion of their neighbor’s health coverage.

According to an analysis released last month, California taxpayers could pay as much as $5.1 billion a year to treat hepatitis C patients in state-funded programs.

The report, commissioned by the California Association of Health Plans, estimates the annual cost for hepatitis C medications for patients in Medi-Cal, prisons, state hospitals and other state programs could range from $512 million to $5.1 billion, depending on the number of patients and drug discounts.

Lawmakers and politicians are grappling with the issue.

A bill in the California Legislature asking pharmaceutical manufacturers to explain their prices died this spring in the face of stiff opposition. Thought to be the first legislative attempt of its kind in the country, AB 463 — by Assembly member David Chiu (D-San Francisco) — would have required drug makers to report profits and production expenses for any drug or course of treatment costing $10,000 or more.

On the national front, Congress convened a special investigation on drug pricing and President Obama has proposed that Medicare be allowed to negotiate prices with drug makers, a practice expressly forbidden by current law.

An analysis by Avalere Health estimated that 10 new breakthrough therapies could cost the federal government up to $50 billion over the next decade.

New York Times editorial urges policymakers to do something about “runaway drug prices,” citing several examples of high-priced specialty drugs, such as $311,000 for a year’s supply of a drug to treat cystic fibrosis.

Some experts and stakeholders say current policies dealing with drug purchasing are not sustainable and could eventually bankrupt the system.

What should policymakers do?

We asked consumer advocates, insurers, state health officials and pharmaceutical manufacturers to weigh in. We received responses from:

Public Is Missing in This Debate

Soon after the passage of the Medicare Modernization Act of 2003 and inclusion of Medicare Part D benefits, a Medicare scholar opined that the inclusion of prescription drug benefits without the ability to set or negotiate drug prices was OK because coverage was the first step and price regulation would follow.

Since then, the advances in development of biologicals and other specialized drugs have led to dramatic escalation in prescription drug expenditures with the promise of more to come. Other events, such as the expansion of coverage to previously uninsured populations under the Affordable Care Act, have sharpened the focus on the increasing costs of prescription drugs to Medicaid for public and private payers alike.

Private payers’ attempts to manage prescription drug expenditures have included payment tiers — instituting more restrictions in their use and increasing the cost-sharing by patients. The higher cost-sharing for biological and specialty drugs disproportionately impact the medically and financially vulnerable and has negative, unintended consequences. In recent legislative seasons in California, patient advocates and policy makers have attempted to pass laws that would protect patients from the consequences of upfront and prohibitive cost-sharing for specialty drugs.

The variety of policy solutions such as improving price transparency of prescription drugs, allowing patients to import specific drugs for individual use, allowing Medicare to negotiate drug prices, or reforming drug patent laws to address the problem have not gathered sufficient momentum to lead to change. Neither have stakeholders coalesced around an approach that is palatable to all.

What is lacking is the irresistible force. Who can provide the momentum to elevate this issue from being a problem that affects a small number of unfortunate individuals whose lives depend on the newly developed wonder drugs to a problem that affects everyone at some point in the future? The public is missing in this debate.

'Magic of the Marketplace' Ain't Working

Imagine that you are diagnosed with a life-threatening illness — say cancer. Further, a cure drug has been found, but a year’s worth of it runs $120,000. If you are uninsured but lucky enough to have some savings or a retirement account, drug costs could easily wipe you out. If you have health coverage, you should be fine, right? Wrong.

Increasingly “specialty drugs” — high-cost drugs that treat conditions like cancer and multiple sclerosis — are being placed in the highest tiers of cost-sharing in insurance policies.

Luckily, the Affordable Care Act has placed a maximum on the amount consumers may pay out-of-pocket: $6,550 per year for individuals. So, it is good news that your maximum is capped. But $6,550 is more than most Californians have sitting around to spend each year, on top of premiums. Consumers who need these drugs are left with hard choices to make every month: whether to pay the rent or pick up the prescription that could save your life. Studies repeatedly show that when cost-sharing for prescription drugs gets too steep, patients either skip doses, split pills, or don’t fill the prescriptions at all.

Covered California convened a work group of consumer advocates and plans to think through potential solutions to the cost squeeze. The result was to cap co-insurance monthly at $250 per 30-day prescription and to bar plans from placing all drugs for a condition in the highest tier, if there are at least three available. It is a good beginning; a pending bill, AB 339 by Assembly member Rich Gordon (D-Menlo Park), which Consumers Union supports, incorporates that standard into law for all policies in California. AB 339 passed the Senate health committee before the legislative break.

While we work to make prescription drugs more affordable for consumers, critical mass is building for solutions that go to the root of the problem: unfettered drug company pricing. Last week, more than 100 prominent oncologists posted a petition for a grassroots movement to stem the rapid increases of prices of cancer drugs.

On the state level, disclosure of underlying costs of development, marketing, and profits is a first essential step.  An additional approach that would help the state budget is limiting the purchase price of specialty drugs for government-related programs to the price paid by the best negotiator, usually the federal Department of Veterans Affairs. A third path to explore is for California to join forces with other states for a multistate purchasing alliance to leverage mass purchasing power. On the federal level, Congress should allow Medicare to negotiate the price of these drugs. The “magic of the marketplace” may never work when it comes to prescription drug pricing, but it doesn’t have any chance when negotiating is barred altogether. And it may be time to realize that a total overhaul of our drug development and marketing system on which prices rest is warranted. Lives depend on it.

Treatment Advances Help Control Spending

In 1989, a New York Times story titled, “AIDS Treatment Costs Put at $5 Billion a Year,” claimed HIV/AIDS would “bankrupt the system” and America would have to “ration” health care. Clearly, neither of these bold predictions actually came true. Instead, we have transformed HIV/AIDS from an acute, fatal disease to a chronic condition with treatments that cost far less than ever anticipated.

As Aetna’s Chief Medical Officer Ira Klein explained in 2014, “We used to think HIV costs would overwhelm us … but we figured it out and let drug development progress.”

Unfortunately, it seems that many people have already forgotten the lessons of the HIV/AIDS case study. We’re hearing fearful warnings daily about how medicines for hepatitis C, a debilitating disease that impacts millions of Americans, will cost billions and bankrupt our health care system. We’re hearing inaccurate reports on the true cost of medicines, which include scenarios that do not reflect publicly reported discounts on the medicines and omit any context regarding the significance of these new medicines and their role in reducing overall health costs.

The truth is that these new medicines will not just treat hepatitis C, they can cure more than 90% of the patients who take them. These medicines are helping patients live longer and healthier lives while being cost-effective, according to experts.

It’s also true that spending on retail prescription medicines have accounted for just 10% of U.S. health care costs for 50 years — an amount that is expected to remain stable through the next decade. In Medi-Cal, prescription medicines accounted for about 3.5% of the $69.1 billion in total Medicaid spending in California in 2014. And the two hepatitis C drugs that were approved in 2014, Sovaldi and Harvoni, accounted for less than 0.08%. In contrast, hospital care accounted for more than 20% of total Medicaid spending, a total of more than $14 billion, according to data compiled by CMS.

In any conversation about drug prices, there must be recognition that treatment advances help to control health care spending. Access to medicines keep patients healthier and more productive and lead to fewer doctor visits and hospital stays, all of which translates to lower health care costs overall.

We understand concerns about the cost associated with bringing new medicines to patients. What we need to do is work together to promote a conversation that will actually improve our health care system and help patients.

Time To Demand Real Answers

Emboldened drug companies continue to test the willingness of consumers, employers and government agencies to shoulder six-figure prescription price tags without much justification. They point to the cost of research and societal value, asking us to ignore inconvenient truths about marketing dollars exceeding R&D spending and ballooning prices for drugs that have been around for a long time. We’re collectively asked to foot the bill for $100,000 medications with little to no rationale for the high price. As costs mount, it’s time to demand real answers.

Earlier this month, our association published a report analyzing the taxpayer bill for treating hepatitis C patients in state-funded health programs. Our report found that treating just 5% of this population with new hepatitis C medications could cost taxpayers $500 million — generously assuming a 50% discount. Treat even more people, and California taxpayers could pay as much as $2.5 billion a year. With one-third of Californians enrolled in Medi-Cal, taxpayer liability for these higher costs has risen significantly.

Gilead Sciences charges $1,250 per pill for Harvoni, or $94,500 for a 12-week treatment. If the estimated 408,000 Californians covered by state health programs and 3.2 million people nationwide with hepatitis C seek treatment, the price tag continues to climb. Harvoni is just one example on a long list of drugs that manufacturers expect us to pay for without any price justification.

Earlier this year, pharmaceutical executives testified that prices are based on the value to society and costs saved by preventing medical services rather than on research and manufacturing costs. Under this theory, the price of the measles, mumps and rubella (MMR) vaccine should be much higher than the $148 million spent per year nationwide because the cost of treating measles is estimated at $3.5 billion. Similarly, the human papillomavirus (HPV) vaccine has been made exceedingly affordable (about $170 per dose) — nowhere near the cost of treating cervical cancer. 

What’s clear is that bank-breaking prices aren’t sustainable. We need to ignite a broad public discussion about how to provide access to effective treatments without threatening the affordability of health care. Solutions will start with a system that sheds light on how drugs are priced. Without it, the bills will add up, but the answers will not.

State Must Ensure Equal Access

With the rise of high-priced drugs, much of the focus has been on controlling costs through utilization controls, drug pricing transparency measures, or more aggressive negotiation with pharmaceutical companies. High cost drugs are significant enough to the state budget that the administration established a statewide stakeholder group on the topic. Cost remains an important factor, but central to these discussions is equitable access for low-income consumers. 

Based on data from the Department of Public Health, only 1.07% of the estimated 200,000 Medi-Cal patients living with hepatitis C were treated with the new high-cost drugs in 2014. Although the utilization rate for individuals with other types of coverage is not widely known, the low utilization rate among Medi-Cal enrollees can be attributed to the Department of Health Care Services (DHCS) strict utilization policy. Prior to July 2015, DHCS limited hepatitis C treatment to Medi-Cal patients with advanced liver disease and those without mental health conditions or substance abuse disorder. 

Medi-Cal enrollees represent less than half of the lives the Department of Managed Health Care (DMHC) oversees, but the majority (52%) of independent medical review (IMR) decisions related to hepatitis C treatment originated from Medi-Cal enrollees. IMR allows consumers another opportunity to access previously denied treatment through an independent review made by medical professionals who are not part of the consumer’s health plan. Almost 90% of IMRs related to hepatitis C were overturned, meaning most of the time, health plans utilization practices were too restrictive.

Unfortunately, Medi-Cal patients who reside in counties with Medi-Cal health plans that are not regulated by DMHC, those in county organized health systems except for San Mateo, do not have access to an IMR. These two million Medi-Cal beneficiaries are not afforded the same consumer protections, so access to hepatitis C treatment may be further hindered by county of residence.

While costly, specialty drugs now have the potential to not just treat but cure previously fatal diseases. The cost of drugs is expected to rise, and the state plays an important role as both a purchaser (through Medi-Cal, the state prison system, and employer health insurance) as well as regulator. As such, the state must ensure there is equal access for consumers regardless of the type of insurance an individual has or where that individual resides.

Conversations About Trade-offs Needed

Rightly so, the rising cost of prescription drugs is receiving significant attention. The current trajectory of pharmacy costs, as with the current projections of other health care costs, is unsustainable. Also undeniable is that some of these new drugs are curing diseases and making the lives of patients with chronic diseases better.

These are critically important advances, but not all new drugs coming onto the market are in this category. Additionally, not all of these costly drugs are accompanied by an immediate, attendant decrease in other health care costs. These high-cost drugs increase health care costs now for purchasers and patients with only an expectation of reducing cost of health care in 20 or 30 years. This is particularly troubling when we are looking at drugs that address a condition that might cause a more serious condition down the road. However, that more serious condition also might not materialize and years of higher costs have been borne by purchasers and patients. 

There are reasoned, evidence-based factors and clinical standards that should guide the practitioner’s selection of any test, course of treatment, surgical implement, etc. However, there are financial incentives for many in the pharmaceutical industry to address every condition, no matter what the condition is or how effective the treatment may be for the patient. While a number of drugs improve our member’s health, some high cost drugs don’t meaningfully improve the short or long-term quality of life of our members over the impact of existing, less-costly drugs, yet end up increasing the cost to the purchaser, patients and the entire risk insurance pool.

There are ways to think about addressing these challenges, but they require open, honest, difficult conversations between practitioners and patients about the trade-offs between available courses of treatments, evidence-based guidance and cost: conversations that very few of us are currently prepared to have, but that are essential if we are to rein in unnecessary and inappropriate drug spend.

Finger-Pointing Must Stop

For the past couple of years when I have heard journalists and policymakers quipping about the cost of drugs, I compare this to 20 years ago when we actually had fewer medications to treat or even care for some of the most debilitating chronic diseases we see today. At the time, I sat on the board of major therapeutic field patient organizations and everyone was screaming that we needed to raise millions and millions for research.

More treatments were discovered and researchers scrambled to secure what they needed to complete the job and bring new drugs to market through a cumbersome FDA approval process. Health plans and government plans negotiated for the best deals and found that better prices were found by purchasing from larger pools.

So why are the plans disgruntled and the press beating up on the manufacturer while the patient advocates internalized in their own silo scream at both and call them foul? Pointing fingers isn’t the solution.

Chronic pain, advancing cancers, patients deteriorating and unable to care for themselves and families struggling to tackle the burden of caring for a sick loved one was the norm for many until the Affordable Care Act helped reverse that tide. But the job is not finished. Innovations in health delivery are being implemented to reduce fragmentation and incorporate coordinated care.

Incentivized payment reform and ways to expand uses of our health care providers and pharmacists are being developed. Many reforms and fixes are part of improving our system and patient outcomes. However, for this to happen, the finger-pointing must stop and all the players and stakeholders need to come to the table and discuss solutions from a level playing field that puts as the highest priority the individual patient, first and foremost.  That dialog is what will change things for the better.

Clearly, obtaining affordable access to medications should be easier for health consumers. I want to see that patients have affordable quality care and achieve a healthier and better quality of life and wellness. I want to see affordable health premiums with a policy that covers what that person needs to have a healthy life. I want to see the research continues and advances in stem cell treatments, biologics, and biosimilars. I want to see real precision medicine take hold. I also want to see regenerative medicine curing major conditions.

We at the California Hepatitis C Task Force are working together with the California Chronic Care Coalition to facilitate the dialogue. I can tell you that progress is happening and you can participate.


Pricing, Negotiations Should Be Open to Scrutiny

As patient advocates working to eliminate hepatitis C, a leading cause of liver cancer and transplants, my colleagues and I have been thrust into a fight between hepatitis C drug manufacturers and payers; a fight focused not so much on values of good health as each party’s bottom line.

Public and private payers currently restrict access to hepatitis C medications, often covering treatment only for people with advanced disease when irreversible damage has already been done. Payers claim they cannot provide access to everyone because hepatitis C drug costs will bankrupt them.

Manufacturers argue they need a high return on investment in successful drugs in order to pay for producing new ones. Some manufacturers note that they offer a blanket percentage discount to all payers and patient assistance programs to expand treatment access. Meanwhile, payers dispute these claims or state that discounts are insufficient.

The job of patient advocates is to ensure that people can access lifesaving medications by urging fair pricing of medications and appropriate coverage by payers. But advocates get caught in the middle of finger pointing between these two parties, both of which expect us to support them. There is no way for us to take an informed position when price negotiations and agreements between manufacturers and public and private payers are confidential. Payers’ analyses of costs to their systems do not consider essential factors, including the cost of patients’ deteriorating health and productivity, disability or death.

These analyses often overstate costs to taxpayers and the health care system. Fortunately, a recent analysis in Clinical Gastroenterology and Hepatology, “Why We Should Be Willing to Pay for Hepatitis C Treatment,” describes the value of hepatitis C treatment, the importance of treating all
hepatitis C patients, and confirms that the total budget for treating hepatitis C is reasonable given its impact on the U.S..

The fight between manufacturers and payers needs to shift to consider the best interests of people with hepatitis C and public health. We have the opportunity to eliminate hepatitis C, an opportunity as great as eliminating polio or the hope of ending HIV.

Manufacturers and payers should not be able to hide negotiations behind confidentiality agreements, especially for public programs. Innovative ways of delivering breakthrough drugs that spread cost equitably between manufacturers and payers need to be developed. Ultimately, people with a life-threatening condition should not have their hopes of cure caught in a fight between manufacturers and payers over profits.