It’s often difficult to pinpoint the moment a revolution starts, but when it comes to the issue of drug pricing it’s quite possible that we’ll look back at December 6, 2013 as the day that everything changed.
That was the day that Gilead’s Sovaldi was approved for sale by the FDA. Sovaldi’s launch – and its $84,000 price tag – set off a tsunami of media attention on the issue of medication costs. Never mind that Sovaldi has an incredible cure rate, all of the attention fell squarely on it $84,000 price tag.
Since then pharmaceutical drug pricing has been a regular media hot topic. There was coverage of a recent study that found older drugs were being priced higher in an apparent attempt to keep their prices in parity with newer alternative treatments. That was followed by a report in the Wall Street Journal about how pharmaceutical companies buy the rights to drugs from other manufacturers and then dramatically increase prices:
“On Feb. 10, Valeant Pharmaceuticals International Inc. bought the rights to a pair of life-saving heart drugs. The same day, their list prices rose by 525% and 212%.
Neither of the drugs, Nitropress or Isuprel, was improved as a result of costly investment in lab work and human testing, Valeant said. Nor was manufacture of the medicines shifted to an expensive new plant. The big change: the drugs’ ownership.”
There was also Bloomberg chronicling how supposedly competitive drugs are being priced in a not-so-competitive way:
“On May 30 last year, the price for a vial of the blockbuster diabetes medication Lantus went up by 16.1 percent. On the next day, Lantus’s direct competitor, Levemir, also registered a price increase -- of 16.1 percent."
The pattern repeated itself six months later when Lantus, from French drugmaker Sanofi, was marked up 11.9 percent, and Levemir, made by Novo Nordisk A/S, matched again exactly.
In 13 instances since 2009, prices of Lantus and Levemir -- which dominate the global market for long-acting injectable insulin with $11 billion in combined sales -- have gone up in tandem in the U.S., according to SSR Health, a market researcher in Montclair, New Jersey.”
In the Wall Street Journal article, Erin Fox the director of drug information services at University of Utah Health Care says that this all seems like “highway robbery”. The Bloomberg article calls the price-matching policy “shadow pricing” and multiple reputable sources arrive at the conclusion that this supposedly competitive market is anything but.
So, what does all this coverage indicate?
Many years ago, back before I got into the healthcare analytics space, I was an investment banker and subject to the rules and regulations laid down by the SEC and FINRA. In that business, we had to be aware of potential client red flags like market manipulation and insider trading. Maybe it’s the training that’s kicking in here, but when I see stories like those strung together above I can’t help but feel like someone’s getting one over on someone else. And while I’m a tried and true capitalist who believes in letting market demand dictate pricing, its’ evident that this pharma pricing strategy may have pushed too far.
Related Read: The Non-Negotiable Cost of Drugs
This constant media drumbeat is revealing a system that is cracking at the seams, as healthcare decision makers – doctors, pharmacists, hospitals, health systems, and insurers become more vocal in expressing increasing anger and incredulity at every newly announced price increase or launch price. And we’re starting to see this questioning lead to a demand for pricing justification.
What many healthcare professionals have come to realize is that these high prices actually have little to no bearing on the safety, efficacy, or comparative effectiveness of the drug. The upfront drug costs criticized in these articles definitely don’t take into account the total cost of a drug (the true cost of prescribing one drug over another, taking into consideration side effects and their ripple effects). For example, look at the differences in total downstream medical costs in the case of Eylea vs. Lucentis in the highly competitive Wet-AMD market that we analyzed recently.
A recent study on “Super Spending” in U.S. healthcare by Express Scripts estimated that over 500,000 Americans spent more than $50,000 each on prescriptions in 2014 and nearly 140,000 Americans spent more than $100,000 in 2014, with the total cost impact from these two groups over $50 billion a year. As those numbers skyrocket, so does another healthcare cost – the downstream medical costs from drug side effects, estimated at up to $25 billion a year.
Talking as a whole, the media coverage on drug pricing is revealing how the system is starting to push back. Companies like Express Scripts are putting their foot down on basic drug pricing and are demanding more information and data regarding the overall cost and safety of drugs. But we also see an emerging trend among payer and provider clients that are now realizing the huge impact that the shadow costs from drug side effects have on their bottom line and patient outcomes, and they too are demanding more transparency in financial and safety drug data in order to make more effective and accurate drug purchasing decisions.
Related Read: The Cost of Drug Safety
We expect the national debate around drug pricing to intensify and morph to include evaluating drug pricing based on their “fully loaded” costs. After all, it’s we as taxpayers who foot the bill for the bulk of these expenses through the Medicare and Medicaid systems. And we as patients who suffer because we simply can’t afford needed medications anymore.
Wouldn’t it be nice to know if the high price is really worth it?