MICHELLE WILLIAMS: Welcome to The Forum,
live-streamed worldwide from the Leadership Studio
at the Harvard T.H. Chan School of Public Health.
I'm Dean Michelle Williams.
The Forum is a collaboration between the Harvard Chan School
and independent news media.
Each program features a panel of experts
addressing some of today's most pressing public health issues.
The Forum is one way the school advances
the frontiers of public health, and makes
scientific insights accessible to policymakers and the public.
I hope you find this program engaging and informative.
Thank you for joining us.
CAROLINE HUMER: Welcome.
My name is Caroline Humer.
I'm a correspondent, I work for Reuters.
And I'm your moderator today.
We're here today to discuss US drug prices.
Why are they so high?
The US spends the most per capita on prescription drugs
compared to other high income countries, according to a 2017,
Commonwealth Fund report.
Companies that astronomically hike prices on some drugs,
such as the infamous 5,000 percent
increase on the antibiotic Daraprim in 2015,
grab headlines.
And some Americans are still struggling
to cope with their medical expenses.
Sometimes they skip their prescriptions altogether,
or they ration it and take less than the recommended dosage.
Yet US prescription drug spending
as a share of total national health expenditures
is in keeping with other countries.
So what's going on and why does it matter for public health?
To help us unpack the complicated picture,
we've brought together an esteemed panel.
And starting from my immediate right, I'll introduce them.
We have Aaron Kesselheim.
He's associate professor of medicine, Harvard Medical
School, Brigham and Women's Hospital,
and director of the program on Regulation, Therapeutics,
and Law.
To his right is Richard Frank.
He's professor of Health Economics
in the Department of Health Care Policy at Harvard Medical
School.
Next to him is Steven Pearson, president
of the Institute for Clinical and Economic Review.
And at the end is Leemore Dafny.
She's a professor of Business Administration at the Harvard
Business School.
Today's event is being presented jointly with Reuters.
And it is part of the Dr. Lawrence H and Roberta Cohn
forums.
We're pleased to welcome the Cohn family today.
Thank you.
We're streaming on the websites live now on The Forum
and on Reuters.
We're also streaming on Facebook and on Reuters TV.
The program will include a brief Q&A.
And so you could email questions to The Forum at Harvard--
no.
The Forum@hsph.harvard.edu.
And you can participate in a live chat that's happening
right now on The Forum website.
So prescription drug costs have entered the political arena.
In May, President Trump unveiled a blueprint
meant to address lowering drug prices.
Let's take a look at the announcement.
DONALD TRUMP: Today, my administration
is launching the most sweeping action in history
to lower the price of prescription drugs
for the American people.
We've wanted to be doing this, we've
been working on it right from day one.
It's been a complicated process but not too complicated.
And today, it's happening.
We will have tougher negotiation, more competition,
and much lower prices at the pharmacy counter.
And it'll start to take effect very soon.
My administration has already taken significant steps
to get drug prices under control.
We reformed the drug discount program for safety net
hospitals to save senior citizens
hundreds of millions of dollars on drugs this year alone.
We're also increasing competition and reducing
regulatory burdens, so drugs can be gotten to the market quicker
and cheaper.
We're very much eliminating the middle man,
the middle man became very, very rich.
Right?
Whoever those middle men were, and a lot of people never
even figured it out, they're rich.
CAROLINE HUMER: Well, despite this announcement,
A Politico Harvard Chan poll this summer
showed that just over 27% of adults
had heard or read about the blueprint.
And among those who were aware, about four in 10
think that it will lower prices.
And in 2018, recent reporting shows that drug prices
are still rising.
So as we will hear, the blueprint
is not the only plan in town.
Democratic proposals call for giving Medicare
the power to directly negotiate with drug manufacturers.
That would open the door to cheaper Canadian imports
as well.
And they want to impose fines on drug makers
for the kinds of dramatic price hikes that have made headlines.
So let's get into it a little bit and start with Aaron.
Can you describe the prescription price
setting landscape in the US?
AARON KESSELHEIM: Sure.
So first of all, it's a pleasure to be on this panel.
And thanks for inviting me to be a part of this.
So prescription drug costs in the United States
make up about a $450 billion market
and take up about 20% or so of health care dollars.
And some private payers are indicating
that they now account for about a quarter
of all their spending.
And prescription drug spending in general
is driven by brand name drug prices, which make up--
brand name drugs make up about 10% of prescriptions,
but 72%, 75% of prescription drug spending overall.
And the sort of fundamental reason
why brand name prescription drugs are so costly
is that the drugs are priced at whatever the market will bear.
That's the sort of general fundamental principle for drug
pricing in the United States.
And in fact, the market bears a substantial amount.
And that's because it's a very inefficient and ineffective
market.
And I just want to sort of focus on a couple of reasons
why that is.
So first of all, there is a disconnect,
a fundamental disconnect between the physicians
that are prescribing the drug and the patients that are then
taking and paying for the drug.
And oftentimes, physicians don't know what drugs costs.
And then many patients have prescription drug insurance
to cover the costs of their products.
So they only are exposed to a small amount
of the cost of the product.
And many patients then also therefore
don't know necessarily what the full costs of a drug is.
And then, of course, when you talk
about the insurance and the payer market
for prescription drugs, there is a range of different payers
that we use in the United States to pay for drugs.
There are government payers like Medicare and Medicaid.
And we have various laws in place
that restrict the ability of those kinds of payers
to negotiate with pharmaceutical manufacturers.
And then there are, of course, private payers as well.
And they try to negotiate individually
through systems of complex confidential rebates
and other mechanisms, and that is not necessarily
a very effective mechanism.
And so, you know, fundamentally what we have--
brand name prescription drugs are protected by patents,
they're monopoly markets, and we don't have an effective way
of negotiating on the other side of that in order
to provide a counterweight.
And so I think what we'll talk about a little bit today
are some of the mechanisms that we could use to better do that.
But the sort of minor changes that
are mentioned and by Trump and the blueprint
are not necessarily going to get at that fundamental issue
until we--
And we're going to need to take some much more substantial
steps because the outcome of all of this inefficiency
and these high prices is that patients
have trouble affording the essential medications
that they need.
And so price-related medication non-adherence,
when patients don't take the essential medications they're
prescribed, is way too prevalent in the United States.
It leads to worse patient outcomes.
People with diabetes are unable to afford the insulin
that they need.
Patients with cancer are unable to afford the cancer
drugs that they need, and that will help them.
And so, you know, I think that that
presents sort of an ethical imperative
to try to take care of this issue.
CAROLINE HUMER: Thanks, Aaron.
It does sound complicated.
Richard, you have talked about diagnosing the problem
of high drug prices.
What's your assessment of what's going on?
RICHARD FRANK: Well, like Aaron, competition actually
does a pretty good job at harnessing the prices
when it's there.
And the question is, why isn't it there more often?
You know, the place that it doesn't do well
is when people are almost completely
covered by their insurance.
They don't pay very much out of pocket.
And where there isn't much competition,
either due to a patent monopoly or due to some variety
of other either regulatory factors or market factors
that keep competitors off the market.
And so when you have people that are fully
insured facing a monopoly where they
don't have a choice, an alternative essentially,
you have a recipe for high prices
and rapidly growing prices.
The Medicare Part D program, which
is the place where everybody is focused on for negotiation,
is sort of a really interesting example of this.
It essentially consists of two pieces.
One piece is you have specialty pharmaceutical insurance
companies competing to cover people.
And they in turn negotiate with prescription drug makers
for prices.
And if they pay more for a drug, that
comes out of their pocket, that comes out of their bottom line.
There's a second part to Medicare Part
D, which is what people refer to as the reinsurance part.
And there, patients pay about 5% of the cost.
These prescription drug plans, these specialty insurers
pay about 15%, and the government picks up 80%.
So are very little on the hook for that extra cost
of the drug.
And therefore, in those circumstances,
the incentive to fight hard for good prices
is dramatically weakened.
And so again, what you see is very high prices
in that section of the benefit.
And in fact, the entire growth of the program--
well, not the entire growth.
Almost the entire growth of the program over the last,
say, eight or nine years, has been
due to the growth in that reinsurance
part of the program.
Where, in fact, the competition is most likely to break down.
And it actually turns out to be a relatively small number
of drugs that are generating all the costs.
In Medicare, 90% of the prescriptions are for generics.
And generic drugs continue to fall in price for the most
part, with some exceptions, like the one you noted.
But there's about probably 10, 20 drugs,
maybe 25 drugs that cost more than $1,000 a month.
And that's where the problem really is.
And so that has been the focus of a lot of policy attention.
CAROLINE HUMER: Thank you.
Steven, let's dig a little bit deeper and talk a little bit
about, you know, brand name drugs.
How they're priced here, how they're priced in Europe.
What's the difference there and what's going on?
STEVEN PEARSON: Sure.
There's a big difference.
I mean, when a new drug is approved by the FDA, not all
the time, but we often have the chance to celebrate science
and, you know, an achievement that
will really benefit patients.
And that does capture a fair amount of media.
But what's interesting is that every time that happens,
something else has occurred.
Either that day or in and around that time.
And that's a kind of uniquely-- in an economy,
a company gets to name its price.
And that price is the price that the government
will pay for what that company has developed
without any direct negotiation.
Now, to be fair, the prices are thought about for years
and then kind of a final phase happens just before the launch.
And companies do have to think about
the competitive landscape.
So you know, if they want a certain amount of market share,
just like any other kind of marketplace,
they have to think about how their price will compete
given its relative advantages for patients
versus another drug.
The reason that hasn't led to a lot of control
on costs, certainly compared to Europe,
is because drugs are not easy to walk away from.
It's not like a cell phone or a car where you can go next door
and get a different brand.
And it's essentially the same thing.
And you can make your own trade-offs.
Drugs really do have slightly different characteristics.
And so, we as patients and we as physicians,
we as health systems, want to make
a broad variety of the developed drugs available.
So that tilts the kind of the dynamics of the market,
if you will, on top of having a patent system that
at launch will give a company, again,
a certain number of years during which it may have the landscape
entirely to itself.
So think of name your price as a simple overly simplistic,
but that's kind of the way it happens in the US.
The reason that they don't charge $10 million
is because Congress would probably get a whiff of that
and want to have a special hearing.
And you know, the whole system might come crumbling down.
Europe does it differently.
And I'm using Europe very obviously stereotypically.
But it's every other developed country.
So you can start at the South Pole and go to the North Pole.
Many middle and developing countries
also have some system of doing three things.
And like any good slogan, it rhymes.
They aggregate the buying power.
They evaluate the clinical and cost effectiveness.
And they negotiate.
So they aggregate, evaluate, and negotiate.
Aggregation means that they pool, basically
either in a national health insurance system
or by cobbling together the existing private market in very
specific ways, to have basically all the weight of having all
the patients or all the members of a country
kind of have the weight of that in the negotiations.
So that you can say, well, if we pick your drug
or we do make your drug more available,
it's going to get a lot of uptake.
Whereas if we don't, you're really
going to hurt in this country.
So that lends to a different dynamic in negotiation.
They evaluate the evidence.
Every other developed country has a federal instituter agency
that takes a close look at the comparative clinical
effectiveness of drugs at or near the time of launch
to help inform that process of what comes
next, which is negotiation.
And negotiation looks very differently
in different countries.
It really does, they have different structures.
But ultimately, the key part about negotiation
is that these countries are willing to stick with it.
They're willing, in some cases, to say no.
If the price doesn't seem to mean
that it's a reasonable value for them and it's affordable,
they're willing to play hardball.
And you can have some very famous examples.
One going on right now is around cystic fibrosis drugs
in many different European countries.
There is a real roadblock going on between governments
and the manufacturer.
So they aggregate, they evaluate,
and they negotiate, and they mean the last phase
to have teeth.
And I think that's one of the biggest differences
that I see in how drugs are priced in the US
versus in Europe.
CAROLINE HUMER: Thanks.
Leemore, Richard spoke a little bit
before about how consumers in the government programs
are protected by this structure.
You have also researched the impact of rising drug
costs on consumers, and surprisingly
found that many consumers in commercial plans,
ones offered by employers or other institutions,
may not be feeling the hit of these higher drug
prices in the way that we think they are.
Can you tell us more about that?
LEEMORE DAFNY: Sure, absolutely.
First of all, thank you for having me here today.
And I'm going to echo some of the themes that have already
been mentioned.
But a very little known fact is that they share that consumers
are spending for their drugs today
is actually lower than it was over 10 years ago.
And in fact, I looked up the statistics this morning,
national health expenditures, and discovered
that the absolute dollar amount that we are spending out
of pocket for retail prescription drugs
has gone down.
OK?
So that is true in spite of the fact that prices are going up.
And I'm not just talking list prices,
I'm saying spending is in fact going up.
And I believe that this protection of sheltering
consumers, just as Richard mentioned,
sheltering consumers from the actual cost
of these medications is part of what is
driving the growth in prices.
And there are various mechanisms that pharmaceutical companies
can employ to shelter consumers.
Including co-payment coupons for the commercially insured,
patient assistance programs for Medicare enrollees.
And those are mechanisms that tamp down the demand
sensitivity to prices.
Now, that's not the only component.
Another component is then it disables
the ability of pharmaceutical benefit managers
to try to negotiate for better prices in exchange
for preferred tier placement on their formularies.
Because if I'm not paying much out of pocket because I have
a coupon I can use, then I don't really
care if it's a tier 4 drug.
And therefore, that manufacturer just
wants to make sure that the drug is on a formulary,
but is sort of indifferent to the pressure,
doesn't have pressure to keep the price low.
And so I'm currently trying to do some research
to try to quantify the effect of these programs
in driving prices up, but I believe it's significant.
There are two other factors that I'm
hoping to mention in addition.
One was echoed previously, which is there are some really high
priced drugs without strong therapeutic substitutes that
are driving high spending.
And in the past, we've benefited from generic entry
when we were talking about chemical compounds
bringing down the prices of drugs.
But now these drugs are primarily biologic compounds.
And we haven't seen the same entry
of biosimilars in the United States
or adoption of biosimilars, let alone any
of the willingness to take hard bargaining stances
as Steve Pearson has mentioned.
So that's, I think, another key driver
of what we're seeing today.
And last, and hopefully we'll be able to discuss it
in somewhat greater detail as the panel continues, but there
are a fair number of strategies that
the pharmaceutical manufacturers employ,
which FDA commissioner Scott Gottlieb called shenanigans.
These are attempts to shield their products
from competition.
And also to evergreen their products
and create new formulations, but at the same time
avoid competition from generics.
And all of these are really important factors
in causing higher spending, even if consumers are not
themselves shouldering out of pocket a greater
share of that spending.
CAROLINE HUMER: Thanks, Leemore.
We will get back to talking about those shenanigans
for sure.
So we've heard a lot about the drivers of drug prices.
And now we're going to hear from a patient.
This is Pam Holt. And this video comes from the US department
of Health and Human Services.
PAMELA HOLT: My name is Pamela Holt. I'm a retired teacher.
I have in this last year had to pay over
$10,000 in medical costs for my drug to keep me alive.
I was a newly retired principal at an elementary school
and feeling pretty good about retirement.
Just kind of out of the blue was diagnosed
with multiple myeloma.
I had one drug specifically that was very costly.
Without the drug I am on, my survival rate is much less.
I need the drug.
I thought I had a comfortable retirement being an educator
and having social security.
But it turned out that this drug was more than I
could handle on my income.
It became very costly for me to the point
where just recently I had to refinance my home.
It's impacted my life seriously.
I have eight grandchildren.
I really would like to spoil them and take them
places and do things with them.
I can't do that.
I would love to see action done that
would help generics to come on the market
because that would help me personally.
And I feel strongly that drug companies are just
gouging patients who are dying.
VOICEOVER: American patients first.
HHS.gov/drugpricing.
Produced by the US department of Health and Human Services
at taxpayer expense.
CAROLINE HUMER: OK.
Well, let's talk now about ways that we
can address these drug prices.
You know, what can be done, what is already being done.
I think a good place to start here
would be with that Trump blueprint
that we referenced at the beginning.
That was announced in July.
There's about six weeks until the midterm elections.
And wondering if anyone on our panel
might just address, you know, whether or not
anything has come from that or if we should be expecting
anything from it in the next six weeks that could,
you know, answer some of these issues
for people like Pam Holt. Anyone?
AARON KESSELHEIM: Well, so I'll start.
CAROLINE HUMER: Thanks, Aaron.
AARON KESSELHEIM: So I think, I mean,
again, I think we all support Pam Holt
and want to see her do the same sorts of--
and want to have the same kinds of goals
that she has in trying to get drug
prices to a reasonable level.
The blueprint itself had, you know, had a lot of ideas in it.
It had a lot of ideas at a very sort of high, vague level.
There weren't a lot of specifics about particular interventions.
There were a lot of questions that
were asked where it seemed like the government was just
trying to get information.
There were some good ideas and then
there were some ideas that are probably useless or bad ideas.
And so I don't necessarily think that this
is a strategy or a clear path forward
for trying to address these issues.
But I do want to point out one of the positive issues that
was mentioned in the blueprint and that was mentioned earlier
by Leemore is the idea of getting competition
onto the market at a reasonable time.
And the only kind of competition that
substantially and consistently lowers drug prices in the US
is competition from interchangeable generic drugs.
And so when there are very expensive,
you know, biologic molecules where
you don't have that same kind of interchangeable competition,
then you can get high prices extended out indefinitely.
And so to the extent that the blueprint talked about it
as an aspirational goal to try to get
more interchangeable competition on the market,
I think that was one of the positive ideas that
was in that document.
CAROLINE HUMER: OK.
And that competition, it sounds, Leemore,
like you're talking about some shenanigans that prevent that
from happening.
Maybe you could just share that with us.
LEEMORE DAFNY: Before I go to shenanigans,
though we love to talk about them, with good reason,
I just want to piggyback on something that Aaron just
mentioned, which is the potential
to see more competition in the biologic space.
And what actions the administration
could possibly take to promote that.
And he touched on this issue of interchangeability.
And that's really the engine of success for generic drugs
because you get a prescription from your physician,
you go to the pharmacy, the pharmacy
can automatically substituted it for a generic compound
and for any manufacturer of that compound.
The FDA has so far chosen to reject calling biosimilars
by the same non-proprietary name as the biologic reference
product.
And so that change in the naming guidance
would help with this interchangeability
that was referenced.
And the FDA also could release guidance
on what is going to count as interchangeable
and ideally not make it as onerous as they
have suggested in the past.
So there are actions that could be taken to foster greater
competition in that space.
There are also actions that the manufacturers themselves,
the shenanigans that we talked about,
employ in order to maximize profits.
And one of those that has gotten a lot of attention of late
is choosing to withhold samples of their products from, I
should say, manufacturers seeking to copy them.
And you can understand competitively
why they would want to do that.
But the rationale is that these manufacturers don't
have a proper prescription for having this medication
and it might fall into the wrong hands.
And then the manufacturer might be
responsible for anybody who's mishandled or misused
the drugs.
And there have been many, many statements
by public officials saying that the law was specifically
designed to enable manufacturers to try
to copy these medications.
And the pharmaceutical industry continues
to resist legislation that would explicitly
require the samples to be provided at market prices.
CAROLINE HUMER: Just to skip back
for a second to that interchangeability,
is there any indication that the FDA,
that the commissioner, Scott Gottlieb,
is leaning towards the idea of interchangeability
in the new policies coming this fall?
LEEMORE DAFNY: You want to take that?
RICHARD FRANK: Do you want me to take that?
CAROLINE HUMER: Sure.
RICHARD FRANK: OK.
This has been a debate that's been going on since 2010
within the administration.
The Affordable Care Act, within the Affordable Care
Act was all the authority you need for the FDA commissioner
to, one, define interchangeability
and set the guidance for doing that.
Provide proprietary names, and even more importantly,
set up a sort of rapid process for review.
And all of those have been very sluggish.
Moreover, on the payment side, what
you could imagine being done and was proposed
was to put all of these drugs under one price,
under one code.
And so therefore, if you have a cheap drug and a high drug,
you get a much better deal if you go for the biosimilar,
or the generic in this case.
That hasn't happened.
And that's also not so much an FDA problem
but the Center for Medicare and Medicaid problem.
But all of those things are within the authority
of the administration and would have a dramatic effect
on competition.
CAROLINE HUMER: So to look a little bit at competition.
One of the things that comes up a lot, Steve, for you, I think,
is where should these drugs be priced at in the first place.
And you know, what are they actually worth,
what is the value of them?
Can you maybe just talk a little bit
about the idea of an independent evaluation
and how that might help fix the problem in the US
with these prices?
STEVEN PEARSON: Sure.
Well, as we've all been talking about, and as you mentioned,
this is a complex system.
So there's no one silver bullet.
No matter what you think it might be,
it's going to have to be a real sustained thrust with lots
of different features having to do with competition
and other aspects as well.
So I mentioned the way that drugs are kind of-- new brand
drugs have been priced.
It's kind of what I hope will be viewed as old school
more rapidly than not, because a very common way
to think about how the price should
be aligned with the benefit to patients is to measure that.
I mean, we get a lot of that data
from the trials that are used to get FDA approval.
We find out whether the drugs extend the length of life
for patients and/or improve their quality of life.
Sometimes that's by having fewer side effects
or whatever it might be.
Now, you can kind of just do a Gestalt
and say, well, it seems a little bit better or a lot better.
But you can actually do cost effectiveness analysis,
which really tries to measure it in a quantified way, not
just in the short term but really over the long term.
So we capture the real long-term benefits
to patients and the real long-term possibilities
that, even if it's expensive upfront,
it might reduce hospitalizations or doctor's visits
or other things that will kind of balance that out.
So you wrap that all together and you
can scale a price at how much higher it should
be than our best current care, if something is better,
by how much better it is.
And you scale it to the wealth of the country.
So we would actually-- one of your questions
is, why are the price is high in the US?
We're a very wealthy country.
For a given gain in health, we would pay more in this country
than they would in a poor country.
That's kind of OK.
So it doesn't bother me to see lower prices in some countries.
It's basically their ability to pay, their willingness
to pay, given their other societal needs.
Well, we do have other societal needs, too.
We have education and defense and the environment.
So we can't spend everything on health.
So again, you scale up the price so
that you get a reasonable additional cost for an added
health gain.
And that's a really good place to start,
I think, in part because it sends the right signals
to manufacturers.
We want you to go out and hit a home run for patients.
We want you to demonstrate that it really
improves their quality of life or length of life.
We're going to handsomely reward you if you do.
But if you come to us with this much,
and it's smudgy around the borders,
and you haven't done good studies,
and we're still in a system where
you can name your own price, again, that should be obsolete.
The fact that you could charge us a lot more even though it's
just like this, and we don't have many options
to do something else.
So I'm hoping that we're moving.
And I think we are seeing some movement, not
at the federal government level yet necessarily,
but in the private system and some of the state
Medicaid programs, I think we're starting
to see some movement towards seeing pricing as a way
to reflect the added benefit to patients as a good anchor
from which to start.
LEEMORE DAFNY: And if I could just summarize what you said,
the manufacturers do think a lot about the prices that they set.
But the purchasers, they don't think very much
about the prices they're willing to pay.
STEVEN PEARSON: I would say that's because, even if they,
traditionally, if they said, I'd like to pay $100 for this,
but the company is charging me $200,
the time they put into figuring out that 100 wasn't worth too
much, because they're going to have to pay 200 anyway.
LEEMORE DAFNY: Mmm.
STEVEN PEARSON: That's part of the problem.
LEEMORE DAFNY: And the reason they're
going to have to is they're not willing to make trade-offs
and evaluate what's the value added of this medication,
and this is how much it's worth to us.
We don't see a variety of products on the market--
an older formulation of insulin, newer formulation
with different prices, and then choices
for physicians and their patients.
So the demand side is very inelastic.
So of course, they end up paying.
STEVEN PEARSON: That's true.
AARON KESSELHELM: And not only that--
I think it's more than they're not
willing to make those choices.
I think that sometimes they're not able to make those choices.
We have laws and rules about not excluding certain drugs
from formularies.
Various states have laws about coverage of certain drugs.
And when you have rules about the way
that Medicare and Medicaid is implemented
that forces insurers to cover all these products,
then yeah, they could say, great, I'd
love to pay only $100, but the manufacturer says,
well, the law says you have to cover it,
and we have a patent so we're the only manufacturer that's
making the product, and so we say it's $200,
and that's what you're going to pay us.
CAROLINE HUMER: And I think that one drug we could talk about
along those lines is Humira.
It's the biggest drug in the US.
Their global sales are $19 billion.
There is competition, more or less.
There are other drugs out there to treat the same things.
It's the biggest drug for government spending.
And I know, Richard, that you have looked a little bit
at the issues.
This is a drug that the price goes up
every year in the double digits.
It hasn't stopped.
That's driven it up to--
basically, I think it's over $10,000 now a year
for that drug.
And what are some of the ways that the government,
as such a big spender and big payer, can harness its power
or change the way its buying drugs like this
to reduce the cost?
RICHARD FRANK: Yeah.
So I think, going back to the beginning,
there are really a limited number of drugs out there
that are really high cost, that have little or no competition,
that you can focus on through negotiation.
The question is, how do you do that?
Because you have, in a sense, two problems.
You need to have the system set up that sort things
out when there's disagreement.
And you have to have some protection that you're not
going to drive the price so low that, in fact,
there won't be any incentive for innovation,
and there won't be an ability to make enough money to get
a reasonable return.
And so there have been several ideas put forth.
One of them has been binding arbitration.
And we use that for a lot of other necessary services
in this country.
Like when police and firemen have
a labor dispute over wages, they're not allowed to strike.
So what you do instead is you submit to binding arbitration.
And there are rules that define that.
And we do it in the most important products,
which is the NFL.
And how we sort things out that way there.
So that would be one way.
Another way would be to, in a sense,
have a methodology set out along the lines
that Steve might design to set a fallback price.
And if there isn't agreement, then there
would be some analysis done that would then
define a fallback price.
But that wouldn't be known until after the negotiations failed
so that everybody would have an incentive
to come together and negotiate a fair price.
AARON KESSELHELM: Does that seem possible, Steve?
Could we get to that?
STEVEN PEARSON: Anything's possible,
depending on how challenging the budget issues become
and how much political pressure is focused
on any one particular area.
There's a lot going on in Washington any day
of the week or month.
But prescription drugs are particularly
relevant because over 50% of Americans take them every day.
And it's something that touches our families both clinically
and their pocketbook.
The problem is also that we all want innovation.
We all want the next great CAR-T drug
that's going to take a pediatric cancer patient who
was going to die in six months and is giving them
two, three years more, maybe it's a cure.
I mean, these are things that don't happen
with every new drug, but we have to make sure
that we have the resources to handsomely
reward and incentivize those kinds of home runs
and not squander them where we fail to discriminate,
as I was talking about before.
So I do think--
one thing-- when you hear about Medicare negotiation, it does
actually sound easy on the surface,
but once you get even one layer down, it gets really tricky.
Does that mean that Medicare would
have one national formulary and kick one drug out of the market
entirely to get the best price on another one?
If so, if they've got that much power,
why wouldn't they have, as you said,
maybe run the risk of driving the price down too low?
Because there's always more money to save,
if you drive the price down lower,
and if you're the only game in town.
So we are uniquely American in all good and maybe questionable
ways, but the idea of a national formulary
is hotly debated, even in progressive circles.
So arbitration is an interesting alternative,
or other options in which we try to let the free market work.
But again, I've heard about it called baseball arbitration,
where the two sides come together
and the ultimate arbitrator can't split the difference.
They have to pick one offer or the other
at the end of the day.
And that means that everybody has
to be as reasonable as possible.
And more likely than not, in that situation,
I think the companies will really
refer to data on how well their drugs help patients.
They won't make vague claims about needing a high price
to sustain future innovation.
They'll really kind of get down to how well their drugs really
work.
And the payers will probably do something quite similar.
So it all depends on the budgetary--
you know, how many years before we go
broke in Medicare and other ways.
But with an aging baby boomer population,
with fantastic innovation in the pipeline, which
is without a doubt--
the genetic science is coming to fruition--
I think we're going to have to figure out
some new ways forward, because what we want
is a grand bargain.
We want a fair price, and we want that drug to be accessible
so Pamela Holt doesn't have to pay
$10,000 each year out of her own pocket for it.
And we're not there yet.
So I really hope we wake up in five years
and we've achieved, one way or the other, some kind
of grand bargain, because that's the way that's
going to help real patients.
CAROLINE HUMER: And so far, those kinds
of arrangements between payers and drug companies
have been very limited to a few drugs where it's well known
that the drugs are working well.
So there's quite a road ahead to that.
And in the meanwhile, it seems that the pharma companies
are doubling down even on their co-pay coupon policies
to try to make the drugs more affordable for patients.
And Leemore, I just wanted to hear a little bit more
about how those programs affect people's price sensitivity, how
it affects this pricing, and what could or should
change there as well.
LEEMORE DAFNY: Sure.
Well, I think that regulators need
to give further thought to the policies
vis-a-vis co-pay coupons and patient assistance
programs because having the manufacturers of medications,
who are responsible for setting the prices,
also be the ones who are issuing coupons
and/or making tax-deductible donations to foundations that
then turn around and help patients
bear their cost sharing component of the drugs
is like having a fox guard the henhouse.
So if these co-payment coupons are
banned for Medicare and Medicaid,
although they have low co-payments,
but Medicare enrollees-- and the reason
is they're viewed as kickbacks.
They're not banned for commercial enrollees.
And I personally was able to do a study on one particular kind
of coupon, which are coupons for branded molecules
when there are generic bioequivalents available.
And unsurprisingly, availability of the coupons
leads to increase in utilization of the branded drugs.
It doesn't actually increase total utilization
of the molecule or any evidence of improved adherence.
It does increase spending substantially.
That's just the tip of the iceberg.
That's just when you know there's an identical copy
of the drug available.
A bigger issue is when there are a variety of drugs
without perfect bioequivalents and the coupons
prevent us from really caring how much the drug is priced.
And some of these programs will pay all of your deductible.
And you probably heard some stories
about how some insurers are fighting back and saying,
you know what, if somebody else pays your deductible,
it's not going to count--
these co-pay accumulator programs--
it's not going to count toward your deductible, and partly
why should a patient who takes a drug that has a coupon not
have to foot her deductible when another patient who
has to have expensive treatments that don't have coupons does?
So there's a lot of-- there's inequity in that.
And just even thinking about this,
you can imagine that it's entirely broken.
So the one thing in the Trump pricing plan
that kind of surprised me was to see
mentioned that maybe these co-pay coupons
should be permitted for Medicare enrollees,
because that would very likely lead to more price
inflation and higher prices.
So I'm kind of puzzled by that one.
CAROLINE HUMER: And I guess one of the parts of this new co-pay
back and forth between the payer and the drug company
is the consumer in the middle.
So have you noticed that that has increased their exposure,
if suddenly the deductible is not
covered by the drug company?
It seems like one day, you're not paying anything,
and the next, you are.
LEEMORE DAFNY: Right.
I mean, certainly consumers-- it's
the coincidence of the deductibles
and the rising prices of drugs that
has got this topic in the news so much,
because as I said before, the stats
show that we aren't spending more out of pocket,
but it's very visible to us because we
have the deductibles.
So there is some pressure on the manufacturers.
And if the insurers implement these accumulator programs
where they don't allow the manufacturers to offset
the spending, then we get a little bit more demand
sensitivity.
But the consumers in the middle, let me just be clear,
that isn't really the optimal way to go.
We don't actually want chronically ill patients
to be like Pam Holt. We don't want
them to be any more disadvantaged than they already
are.
So ideally, we wouldn't have a one-size-fits-all policy.
We would have value-based co-payments,
and we'd have patients with chronic diseases
taking high value drugs at very low cost to them.
CAROLINE HUMER: Great.
Thanks.
Lisa, do you have any questions?
LISA MIROWITZ: Caroline, thanks.
Yes, we have a number of them coming in right now.
So let's start with this one from Jacob
who's with the Special Committee on Aging with US Senate.
Are we seeing the European Federal Institute's agencies
you mentioned take US prices into account
while evaluating cost effectiveness of a new drug?
Specifically for specialty medications,
but also in the entire space.
STEVEN PEARSON: I should probably take that on.
No.
Basically, when you do a cost effectiveness analysis,
you would want to take the costs in your own health care system.
Actually, even sometimes the drugs
would be compared to a different kind of best standard of care
in a different country.
It can differ from what you see in the US.
So they would not.
They're aware that our prices are, in general, higher,
but that doesn't factor into their own consideration.
A few countries do kind of a crosswalk
just to make sure how their prices ultimately
compare to a basket of other developed countries.
To my understanding, for a while the US
was part of that basket for some countries like Canada.
But because our prices have become so high,
they've tended to kick the US out of their comparator
because they don't want to falsely peg themselves
to a higher price.
So they tend to peg themselves to other countries
where the pricing is more in line with their own.
LISA MIROWITZ: Great.
Great.
Thank you.
We'll take some from online and then
we can check the studio audience here.
Let's see.
I guess this might be a question for Richard.
What are your thoughts on the six protected drug
classes in Part D?
Do you think these should be eliminated?
RICHARD FRANK: The answer is some.
The six protected classes in Part D
touch on HIV drugs, psychotropic drugs.
And the original idea behind them
is that they were, at that time, mostly branded,
and they were different enough from one another
in the responses of patients who were different enough
that you didn't know it till they had taken
the drug, that people were hesitant to allow
for aggressive formularies to be applied in those areas.
The world has changed since then.
For example, antidepressants are now mostly generic.
So there's-- you don't need to go one way or the other on that
one, because there's lots of competition there now.
But to the extent that you wanted
to try to drive things down a little bit further,
it's probably not necessary anymore
to have a protected class there.
For anti-psychotics, it may be a little bit different.
And so I think when you start getting there,
you're talking about extraordinarily vulnerable
populations where there's a tremendous amount of harm that
can be done from the wrong causes.
But in principle, you'd like to have as few of those
as you possibly could.
STEVEN PEARSON: Sometimes I just-- if you don't mind--
if you can imagine the analogy whereby
the government-- private insurance and Medicare is
required.
Well, maybe pick the Defense Department.
What if they were required to buy Lockheed's new airplane
at the price that the company decides,
no matter how much better it was than the current plane
that they're flying?
I mean, you can imagine we would just kind of furrow our brow
and say, now, why would any government want
to pay for airplanes that way?
Now, drugs, as you said, in vulnerable populations
are very different.
But the economics of creating a market in which you
have to cover every single drug and you can't, in a sense,
compete them head to head, and you
have to accept the prices as determined by the manufacturer,
it's a perfect storm for the rising prices
that we tend to see in the US.
RICHARD FRANK: An important thing now to note
is that there are other tools available.
So for example, you can have various utilization management
techniques-- prior authorizations,
et cetera-- applied to those.
And so that gives the plans a little bit
of negotiating power.
But Steve is largely right, and it's really
a matter of how bad are the harms that you can possibly do
from being overly restrictive.
LEEMORE DAFNY: And you really diminish access with those--
RICHARD FRANK: Right.
That's what I meant.
LEEMORE DAFNY: --those programs.
LISA MIROWITZ: Thank you.
OK.
This is from Sanjeev Sriram How do
we help more Americans understand that they
are paying twice for drugs--
once when their taxpayer dollars fund NIH-backed research
on for medications, and again when the drug corporations
demands exorbitant prices for those medications?
Drug corporations are spending more on marketing
than R&D. We've had a couple of questions about this,
so I know--
AARON KESSELHELM: So it is the case.
And we've done a lot of research in our group on this topic.
The key transformational drugs that emerge in the US
and around the world originate, in many cases,
from publicly-funded sources.
And there is a substantial amount of taxpayer investment
not only in the basic science and translational side,
but sometimes all the way up into the product development
part.
And we talked about the CAR-Ts earlier,
and those originated in publicly-funded science
as well.
And then what happens is ultimately,
when a product emerges and is synthesized,
then there's a patent on it.
And the pharmaceutical manufacturers
then control the patent.
And so they're able to control the prices
and control much of the revenue that then comes in.
And then the question asker is very
true in that a substantial amount of spending
on drugs in the United States comes
from Medicare and Medicaid, which are funded by government.
Those are government dollars as well.
And so it is the case that there is a substantial amount
of support for a great deal of innovation,
particularly the most important key innovation
that comes through.
and that, I think, is something that
does need to be better recognized and then
also potentially taken into account as we're talking
about what a fair price is.
LISA MIROWITZ: Great.
Thank you.
Do we have any questions from the audience?
Does anyone want to ask a question?
AUDIENCE: Hi my name is Naomi Sephi.
I'm a health policy student here at the Chan School.
My question is regarding the European market.
A lot of the pushback that we see
from pharmaceutical companies, as he said,
is that lowering drug prices will stifle innovation.
Do we see that happening in European markets?
Are we seeing these companies drown,
or are they able to remain sustainable and continue
innovating even when the government is
able to negotiate prices?
STEVEN PEARSON: Views on that are so across the board.
So you've heard, and I've heard, passionate, eloquent, informed
arguments that we overpay only because the Europeans underpay.
I've heard passionate, eloquent responses from economists
that--
now, why exactly, if they paid more,
would the companies decide to charge us less?
Why wouldn't they keep charging us the same price?
Isn't more profit what they're supposed to do?
And on the other hand, I do believe
that the ecosystem for innovation
is unparalleled in this country.
Your ability to raise venture capital,
to link up to the NIH science--
the best federal funding for basic science in the world--
and to get that into the market, into the clinical trials,
to work with academics--
if you talk to people in Europe they salivate at what we have.
So my hope is that there isn't a black and white ultimate answer
to this, where we can make this kind of unlimited claim
that we need the prices as they, or even more, to sustain
the innovation that we've got and that any percent
off the top will instantly cripple innovation and stifle
it.
I think there are ways to believe
that the companies have generally very high profit
margins.
There's a lot of risk, and a lot of reward,
but I think we have a very healthy
pharmaceutical industry.
And I really do believe that many of them
feel that, ultimately, their strategic interest is
in having some more kind of reliable and universal system
in which the prices are maintained and scaled
in a way that's more sustainable for the economies in which they
live.
Because otherwise, it's a race to the bottom or the top,
depending on how you look at it.
And so I think we have some recognition,
even among the manufacturing community,
that old school pricing and old schools
ways of justifying it just aren't
going to cut it going forward.
RICHARD FRANK: Can I add some color to that?
So I think one really important thing to add to this
is that a French company like Sanofi, they
make money selling here.
It's not like they only sell in France
and, therefore, the only thing that's going on
is the money they make in France to fund innovation.
They sell to the United States.
So to the extent that they make a lot of their money here
and a lot of their returns here, then
that affects the investment in those companies.
But it's not because the companies
are French or German or Swiss per se that their innovation
prospects are different.
AARON KESSELHELM: I also think we should think about what kind
of innovation we want.
And if their system is set up, as Steve talked about earlier--
if the system is set up in the United States that you can make
a lot of money with a little bit--
basically, putting a little bit of risk
to make a very small amount of change to a product,
then as a for-profit manufacturer,
that's where you're going to invest
the lion's share of your money.
And so I think we not only need to think about innovation
in general but we need to think about what kind of innovation
that we want to try to incentivize
and whether or not the system that we have currently set up
is incentivizing the right kind of innovation.
And unfortunately, I think, in many cases, it's not.
STEVEN PEARSON: Caroline, can I return to a question
that you asked earlier, just because I--
CAROLINE HUMER: Yes.
STEVEN PEARSON: Because I know, sometimes,
even after a full hour, it just seems so complicated, right?
And the Trump blueprint won't fix it,
and nothing else will fix it by itself.
So people sometimes can feel this sense
of just kind of hopelessness.
I want to mention briefly two experiments going
on in the Medicaid system and in the private market that
shows that I think people are willing to take some risks
and experiment.
One is the State of New York's Medicaid program.
They did pass a law that allows them to create a target
spending cap for their drugs within the Medicaid system
so that they can make sure they have
enough budget for other things.
If they're exceeding that spending,
they are now allowed to pick out drugs that are contributing
to that excess spend and to identify
a fair value-based price that they will negotiate down
to to get an even deeper discount than Medicaid
programs usually do.
And this is the first example of a public insurer in the United
States explicitly using cost effectiveness
to help it identify what is a fair price linked
to the ability to help patients, and how
do we create levers and carrots and sticks
and things to try to get us there.
Briefly, in the private market-- now, this
is very controversial.
It was just announced about four to six weeks ago.
CVS, which is obviously one of the big pharmacy benefit
managers, it's also a large self-insured employer.
And it decided to change its health insurance
for all of its employees, and there
are a couple of other companies doing it too,
where if after they negotiate to the best of their ability,
the drug's price for a new drug that comes out
doesn't get down to a fair value-based price as determined
by actually reports from ICER, my institute,
then it won't be covered.
It's not covered.
So this sounds like a European approach, right?
If it doesn't meet our cost effectiveness,
it's not going to be available.
And it's an early experiment to see what happens.
Do we get the prices down so that they
can keep the broad access, or do we
have drugs that are excluded?
And really, how do we manage that kind of tension
in the US system?
So I don't mean to overly stress that these are the right ways
to move forward, but it's a sign that the market and the states
feel the need to move forward.
And so I think whatever does happen at the federal level,
they may end up learning from these experiments.
And I think we'll see a lot of change
over the next year or two.
CAROLINE HUMER: Thanks, Steve.
That is an interesting program.
And they're grappling with it right now,
with the new drug that came out to treat migraine
that's quite expensive.
It doesn't meet their barrier, so we're watching that closely.
And so I think we'll wrap up now.
It's been a great hour spending it with you.
Before we go, I want to hear from everybody--
one minute or less--
your biggest concern and greatest hope moving forward.
Let's start with Leemore.
Are you ready?
LEEMORE DAFNY: Yep, sure.
Absolutely.
Biggest concern is those ultimately deciding
what to cover and at what price won't
be willing to make difficult trade-offs-- very
exciting to hear that the State of New York
is willing to give it a stab.
We tend to be more willing to try these things out
on our indigent populations.
I'd like to see some more stringent activity
on the commercial side, and what CVS is doing is promising.
Greatest hope is that we will engage consumers
more in selection of their health plans,
selection of prescription drug plans,
give them the option to select stricter formularies.
And if they do so, then I think we'll see a market response.
STEVEN PEARSON: So I live just outside of Washington, DC,
so I have lots of greatest fears.
In this domain, it's that--
and this is true in Europe, in Australia,
wherever else you go--
these issues around drug prices and access and costs
and patient care, they're not easy.
There's no system that feels like, oh, this is just
a smooth process, we have a decision making--
everybody's happy at the end of the day.
It requires the deepest effort of a society
to really grapple honestly with trade-offs and with limitations
around what we can spend and for whom.
And that's never easy.
And so my greatest fear is that, at this particular moment
in our political discourse, in our public discourse,
this will be really hard for us to handle.
But my greatest hope is actually born out
of some of our experience with public meetings where
we've seen patient groups really come to the table,
not just for their piece of the pie
but seeing the bigger picture.
And people starting to talk about this as an ongoing issue
that we as Americans need to sort out, and hopefully
in a way that will work for everybody, because cures
are coming.
You'll hear about them if you haven't already,
but we're having some fantastic drugs nearing approval
that will provide miraculous treatments for patients
with long-term diseases like sickle cell, hemophilia.
And if we don't figure this out, we're
going to have a head-on train crash between price, cost,
and access.
So we have to get these systems and our dialogue sorted out
because we're going to have a great problem to deal with,
which is cures for patients that we really want to help.
RICHARD FRANK: I guess my greatest fear
is that the politics of Citizens United,
which is money and politics, will
come to dominate where we land in our solutions,
because they often have in the past.
My greatest hope is that we, I think,
now have started to recognize how important competition
is if we're going to have a market-driven system,
and that we will aggressively sweep away the things that
get in the way of that right now, including especially
with the biologics side.
AARON KESSELHELM: So my greatest fear also
is that a lot of the things that we're talking about
may require some legislative changes, grappling
with patents, trying to evaluate the way
that the government buys drugs.
And that is problematic in the current--
to get sort of these kinds of major things
done in the current political environment,
particularly when there is an extremely well-funded lobbying
organization on the pharmaceutical industry
side that actively poses a lot of these kinds of changes.
But on the other hand, my greatest hope
is the kinds of efforts that you see at the state level
and that come out of patients, because there are surveys out
there that 75% of patients think that drug prices are
a big issue.
And if we really see patients step forward and make
their voices heard, I think that we can actually try
to push through the gridlock.
CAROLINE HUMER: Great.
Thank you.
Thanks, Aaron, Richard, Steven, Leemore, for joining us today.
Thank you to our audience and to our viewers.
I'd like to encourage you to tune into our next forum.
It is called Conflicts Over Science and Policy at the EPA--
Where Are We Headed?
That one will be October 19 from noon to 1:00 PM,
also at forumhsph.org.
Thanks for joining us today.
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