I spent last week working out of our Cambridge, MA office. While there, I had the opportunity to meet with a group of journalists in Boston to discuss Advera Health and what we do to help our clients lower costs and improve patient safety.

Inevitably, the conversation turned to the hot-button topic of the day – Drug Pricing. Or, more specifically, the outrageously high price of drugs. It’s been truly fascinating to watch this discussion emerge from a wonkish, conference-circuit discussion to full blown international media s**t-storm over the past year.

For those of you not already following along, the debate over high drug prices first came to light with the approval and marketing of Sovaldi and its $84,000 price tag. There have been a number of other new, high-priced drugs that have come to market over the past year with less furor, including Sovaldi’s successor Harvoni and its $94,500 treatment cost. But the brewing tempest exploded into full-fledged Cat 5 tornado levels over the past couple of weeks with the news of Turing Pharma’s decision to raise the price of its Daraprim by some 5,000%. Part of that escalation in outrage was due to Turing’s unorthodox CEO and his “unique” media dealings.

I did my best to make two points to the team of journalists in Boston:

  1. While the outrage is justified, so are the pricing policies. It is unbelievably expensive to create a new medication, weave it through FDA approval, market it well, and generate profits. And most developmental stage drugs never make it to market. So the “winners” have to subsidize the “losers” within a company’s portfolio. Is an overnight 5,000% price increase justified? No. Do I believe that the company needs those increased revenues and margins to subsidize new R&D? Absolutely. It’s easy to blame “big, bad pharma”, but they’re not solely responsible. This is a systemic problem that needs the buy-in of government, private enterprise, health providers, and patients. Socialized medicine has already proven to be a failed experiment. People and companies need to take risk to develop new products and deserve to be rewarded when that risk turns into success.
  1. The current debate over drug pricing is missing the bigger picture. While certainly the up-front “pill cost” is a big headline-grabber for media, presidential candidates, and patient advocates, everyone is still missing the boat on the other side of the expense equation – the downstream medical costs. In almost every other manufactured product category, we as consumers are trained to think about the long-term costs of buying a product. It’s why most consumer goods come with warranties, or why certain car manufacturers now include regular maintenance for free, or why Apple’s Genius Bars are so successful in supporting the sale of their new products. In almost every other circumstance, we either ‘add-in’ the long term costs of ownership when making a buying decision or expect the seller to absorb those costs for us. That doesn’t happen with medications. If a patient takes a drug, has a serious side effect, and ends up in the hospital, that’s an added burden to the system (the hospital, the patient, and the insurer) of upwards of $10,000. If millions of patients are taking that drug and any sort of decent percentage of patients is experiencing that sort of outcome, the systemic costs get to be enormous.

At Advera Health, we’ve conservatively estimated the annual medical cost to the healthcare system from drug side effects at $25 billion.

Put in perspective, sales of Sovaldi and Harvoni will generate about half that much this year in revenue for Gilead Sciences, the company that owns the drug.

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Brian Overstreet

Brian Overstreet

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Brian Overstreet

Written by Brian Overstreet