Drug pricing now and to come – it’s complicated

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Drug research, sales and regulation continues to be a hot topic – and at times a complicated one – for physicians, patients and leaders in the pharmaceutical industry.

Two experts offered their explanations and a few predictions in “Solving the US drug pricing problem,” a panel discussion held May 16, 2024, in the Financial Times US Pharma and Biotech Summit. Sarah Emond, MPP, president and CEO of the Institute for Clinical and Economic Review, and John O’Brien, PharmD, MPH, president and CEO of the National Pharmaceutical Council, offered their views speaking with Financial Times Science Editor Michael Peel.

As of 2024, some industry observers say the payment system for pharmaceuticals hasn’t caught up with the science, Peel said. O’Brien said he agreed 100%.

John O'Brien, PharmD, MPH
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“I say we're living in a golden age of biomedical innovation and we can't pay for it with the same system that we use for statins and blood pressure drugs,” O’Brien said.

There are “durable or curative therapies that have the potential to offset or eliminate a decade of medical costs that would normally be paid by a payer over 10 years,” sometimes the same payer or a number of different payers. Payers are asking why they should pay for something today that someone else might benefit from in the future, O’Brien said.

Meanwhile, patients at the pharmacy counter pay prices based on “more a function of the insurance card that’s in their wallet than the price of the medicine that their physician has prescribed them,” O’Brien said. It’s the only segment in health care where patient out-of-pocket spending is based on a billed amount, not the allowed amount, and what patients feel at the pharmacy counter is very different than what they see on other parts of the health care system, he said.

Change is coming

Sarah Emond, MPP
_{© Institute for Clinical and Economic Review}

Change is coming from the federal Inflation Reduction Act, which allowed the U.S. Centers for Medicare & Medicaid Services to negotiate with pharmaceutical companies for some of the most expensive brand name drugs in Medicare Part B and Part D.

While it may be too early to predict exact effects, there is another cause for celebration, Emond said.

“I think we should all be celebrating that we finally have an out-of-pocket max for seniors in the Part D program,” she said. “That was like, a really big blind spot, when we passed the Part D reform that was really harming a lot of seniors.”

It remains to be seen how the IRA will affect the development of small molecule drugs vs. biologics, Emond said.

“I don't think that anyone in this room believes there will be no impact to the innovation signal. Like, of course there is. Every time the government does anything like this, there's a change in the innovation signal,” Emond said. “It's how adaptable are we to that signal? And what does it mean ultimately for health and for and for patients? And so I think it's just too soon to know what the IRA is actually doing.”

There is a shift in public discourse about drug pricing. The continuing public conversation has shifted to how to think about drug value, Emond said, adding she enjoys that “because I'd much rather have that conversation versus, you know, I'm going to charge a high price because I can.”

What is value?

O’Brien countered that pharmaceutical companies have thought about value for a long time, although it may be getting more attention now. “I chided Sarah, who is a friend, and I can agree that value is important. It’s just that there are so many different definitions of value and how to measure it.”

O’Brien cited changes in market conditions so list prices are not decreasing when drugs compete with each other, and payers are seeking greater price rebates for drugs to get preferred positions on formularies.

“So, my concern about the IRA, the conversation about value is, we're having it against the backdrop of a system that has perverse incentives and is wholly broken,” O’Brien said.

He criticized Washington – “I don’t feel like there’s anybody steering the ship” – with federal lawmakers and regulators such as CMS, the Federal Trade Commission and the Food and Drug Administration taking action because drug pricing polls so high.

“There’s just this constant stream of, let’s do as much as we can with the industry … and I’m really concerned that all of these cuts into an industry are going to hit an artery,” O’Brien said. The bill approved before the IRA was intended to bring the semiconductor industry back to the United States because it was not a good place for them to do business. The United States, currently the global leader in pharmaceutical innovation, could chase away the drug industry, ultimately reducing patient access to drugs, he said.

‘A very fair criticism’

Emond said it was “a very fair criticism,” but not a surprise. The United States has a disaggregated health care system with hundreds of payers mixed into commercial, employer, taxpayer and government entities, all with their own values, priorities and budgets. Meanwhile, the drug pricing system has masked the true cost of what’s happening for a long time because of the way the insurance system is designed with cost sharing, she said.

The IRA was just one part of the puzzle. There was bipartisan interest and legislation to reform the pharmacy benefit manager industry with transparency about rebates and cost sharing, “and we couldn’t even get that done,” Emond said.

“And so I mean, in our hilariously American health care system, like, I agree, John, but I'm not surprised that that's where we are and there isn't someone sort of like directing a more comprehensive look at how we pay for value, have sustainable access for patients and really center that as the solution, instead of who's got the biggest lobbying presence on Capitol Hill, which is part of what happens,” Emond said.