The Prescription for Affordable Drugs

At CareFirst’s panel discussing rising drug prices on March 21st, participants explored potential solutions, and the barriers and opportunities that lie ahead. Most agreed the government has a role to play in solving the current problems and determining the future of drug pricing and had several (sometime differing) ideas for what that role could and should be.

Sean Dickson, Director of Health Policy at West Health Policy Center, said the political impetus is there for the government to take a larger role in controlling prescription drug prices. According to Dickson, employers surveyed by West Health Policy Center said costs for prescription drugs were their highest concern and 85% of respondents said government action is needed to step in. “Health care is driving out their ability to continue to pay higher wages and retain talent, so getting costs under control, in particular drug costs, is a big part of that,” said Dickson.

Sean Dickson, Director of Health Policy at West Health Policy Center

Consumers also believe the federal government needs to take action on the biggest drivers of prescription spending. Dickson said 82% of taxpayers believe the federal government is not doing enough to address the cost of prescription drugs.

Federal legislation hasn’t gone far enough. Some federal reform legislation has been proposed, but Dickson said he was concerned that the legislation doesn’t go far enough. The bills contain measures that “just affect the cost of prescriptions at the counter,” said Dickson, “not the aggregate cost of prescription drugs. We hear this argument about net versus list, where price increases are rebated back, but that does not drive down the cost overall.”

The increase in overall costs impacts the Americans who have no access to health insurance or Medicaid. “There is a gap in access to prescription drugs and much of that is driven by the fact that in the southern United States, a lot of people in that gap are people of color. They have no coverage whatsoever and they don't get the benefit of any of these rebates, much less afford them even if they were discounted,” said Dickson. “The tools are somewhat crude in terms of cost sharing. These solutions don’t address the problem of affordability.”

Reviewing rebates vs. lower prices. Dr. Rena Conti, Associate Professor and Research Director at Boston University, noted “one of the proposals on the table is simply to take money out of the system -- specifically those rebates and discounts that middle men in the system are making off of these prescription drugs -- and giving it back to patients,” said Conti. “Now, that sounds really good, but the problem is it will raise premiums, and those premiums are going to rely disproportionately on people of color and people who have less good insurance.”

But Conti agreed the pricing issue still needed to be addressed. “We are putting a lot of pressure on families to make those decisions on their own about what they can afford.” Conti said current legislation will address this by forcing companies to price responsibly and “stop placing so much pressure on families that are disproportionately folks of color, women, and families with young kids.”

Dr. Rena Conti, Associate Professor and Research Director at Boston University

Negotiating with “a big stick.” Conti said: “we have systems in place that try to pull competitors into the market and yet the pharmaceutical companies have been setting year-over-year price growth that is unsustainable and for which competition as the solution to this problem really is not enough.”

We need other tools to help tame this inflation, said Conti, and that's where negotiation can help. “Our system is built on encouraging innovation and also protecting consumers,” said Conti. “You can think of it as a large stick to penalize some of the bad actors in our system who are for stalling competition, just like they face other types of penalties in our system for not fulfilling the compact with the American people.”

“We need Medicare negotiation that brings down the price immediately on some of the worst actors in the system, Conti contended, and we also need policies that set new floors for the launch of future drugs and expectations of what a drug should cost.”

Open the door to transparent pricing. Andrew York, executive director of the Maryland Prescription Drug Affordability Board, said increased transparency in price setting is needed to combat unaffordable drug costs. “In the drug pricing space, companies differentiate between gross, net and list prices. These prices are set behind closed doors,” said York.

Reform patent rules for the pharmaceutical industry.

Andrew York, executive director of the Maryland Prescription Drug Affordability Board

This, said York, places the litigation burden and its associated costs on the companies making generics. In turn, that burden determines which markets they’re willing to go into. This slows down the manufacture of less expensive generic drugs.

“If Microsoft and Amazon have to follow the patent laws, so should pharmaceuticals,” said York.

Regulating trade through the state. Nevertheless, York acknowledged: “It’s hard to get action at the national level.” Although there is bipartisan support for reform, York said, “you're seeing a lot more movement at the state levels. States have different portfolios of policies to make prescription drugs more affordable for their residents. All the states are learning from each other as they go.”

Dickson said states have not taken full advantage of the powers they have through regulating trade. “States have a robust taxing power and there is a potential to use that power to tax prices over a certain amount or to tax a drug when it is sold over an effective price. There is a lot of concern about using it, but I think if we continue to see in action at the federal level, we have to think about what tools states have.”

The role of value-based pricing models. Healthcare has been moving toward a value-based system, where prevention and health are prioritized as highly as the treatment of illness. The panel considered the idea that value-based health models could be applied to drug pricing as well.

“All pharmaceutical companies have their own internal system that is checking the benefits versus the cost of their products when they are pricing or at least justifying the price. We don't have a government sponsored body that assesses benefits and costs in that way, but we could,” said Conti. “Or payers could enter into agreements with manufacturers that pay only if the product delivers value to patients, and to payers.”

Those models, however, “can be very hard to administer,” said Conti. “In terms of data, it would be hard to determine the right kinds of outcomes.” Because of this, Conti concluded: “I don't think value-based contracts can realistically provide a solution to what we're facing.”

Dickson agreed. “It is important when we compare value-based care in a clinical setting versus a drug setting. In a drug setting, these models give all the value to the pharmaceutical manufacturer. We need to be careful of proposals that bake in maximum value of the drug when manufacturers can and will certainly accept less in payment.”

Encourage use of generics. Conti suggested insurers and employers can also play an important role in reform. Americans use generic drugs at a far lower rate than those in countries of comparable size and wealth. She encouraged companies and insurers to encourage the use of less expensive generic medications when and where they’re available.

The time for reform is right for everyone: insurers, employers, and federal and state governments.

Dr. Rena Conti, Associate Professor and Research Director at Boston University