Dialogues concerning natural … pricing?
Three pharma philosophers discuss their industry’s most complex and controversial topic.
By Michael Motto, Senior VP, Market Access, Intouch Solutions and Peter Weissberg, VP, Market Access, Intouch Solutions
Monday, January 7th, noon, Chicago, Il. At a nondescript bar in Lincoln Park, three friends gather to commiserate over the Bears’ loss the day before and talk a bit of business. Mary Demea (MD) is an executive with a patient advocacy organization. Thomas Philo (TP) works for one of the nation’s largest healthcare consultancies advising on government policy. And John Cleanthes (JC) is director of analytics for a pharma-focused “big data” firm. After the Bears-related mourning dies down, the conversation turns to …
MD: … only 10 percent of healthcare spending comes from prescription drugs, but the issue is that part of the cost is shifted to consumers more than other health costs. So this transparency part of the equation is really about the burden that’s hitting patients, a burden that they can’t even understand because of all the complex charges, deductibles, copays, coinsurance, and benefit designs. About 90 percent of drugs dispensed in the United States are generic, but pipelines are dominated by branded specialty pharmaceuticals, oncolytics, and biologics, many of which are buy-and-bill and becoming very costly …
TP: Just so. The costs of some of those new entities is rising to tens and hundreds of thousands of dollars per year, which is making policymakers in Washington wonder, are all the middlemen between drugs and patients actually adding value to the system? Are discounts that drugmakers are offering actually making their way down to the consumer? The answer is typically not. We have a system with misaligned incentives, and everyone knows it.
JC: The current administration surely knows it. And we have to give them credit for at least beginning to attack the problem. The administration’s proposals may not be politically or operationally viable, but they are serious and they are advancing the discussion and pushing back against U.S. biopharma manufacturers.
MD: Price transparency in TV ads? Part B price negotiation? Global reference pricing? It’s difficult to imagine proposals like that becoming law in any recognizable form, and I suspect most patients are just as dubious as I am. Global reference pricing might work in a single-payer environment, but not in ours.
TP: But they are serious proposals, and industry is paying attention. Alex Azar is an industry veteran who knows where the bodies are buried, and they take him seriously. Those proposals may not pass as written, but people, important people, are talking about them, and that’s a victory for good sense.
JC: Price negotiation, especially. Looking back to the Medicare Modernization Act of 2003, the prohibition against Medicare negotiating prices might not have been the best public policy choice. Looking at the data, it’s hard to see what, if any, benefit patients derived from that policy choice. And now prices have escalated, out-of-pocket costs have escalated, senior populations are exploding.
MD: The logic back then was that government just didn’t have the infrastructure to negotiate, and the commercial entities did. Though you won’t meet many patients or patient advocates who believed it then, let alone now.
TP: But the world has changed. The government is primary payer on more than 50 percent of pharmacy claims in the United States. Is it really such a long step now to Medicare negotiating prices?
JC: It would be a step in the right direction. Bipartisan support is growing for price negotiations to be conducted directly by Medicare, much like the Medicaid model of many years. Doing that would blow up the current Medicare PDP model driven by plan sponsors that are commercial entities. And we’re hearing rumblings that Medicare Part B products may become subject to a similar model. It seems that policymakers have become aware that we are facing a market-wide misalignment of incentives.
MD: No doubt. Think of how 340B pricing has developed. The idea was to provide lower costs for medical centers that treated larger indigent populations. But the system has been thoroughly gamed, such that the definition of a “covered entity” has been stretched beyond recognition, and those big discounts are accruing to the benefit of hospitals and hospital systems, not patients. Entities might be investing the spread between acquisition cost and reimbursement cost in expansion or improved care, but those dollars certainly aren’t making it back to the people for whom the program was designed.
TP: And PBMs, of course. A revolt against PBMs might just be brewing out in the world, because decision makers are wondering what value PBMs are really adding to the health care equation in exchange for all the discounts they get and the “vigorish” they add to prices. Certainly my clients are wondering.
JC: Companies have already begun to contract on their own, so those discounts land in the pockets of their employees and not the shareholders of PBMs. The pharma pricing word of the year this coming year might just be “disintermediation.” And that would be in everyone’s benefit, unless you happen to be a PBM shareholder.
MD: Another misalignment is how some PBMs and health plans are beginning to treat copay support programs. Product X costs $2,000.00 per month, the pharma company offers patients a copay card to get it for $5.00 per month. Pharma is absorbing that discount and the patient gets the benefit. But then health plans are refusing to count the extra $1,995.00 towards the patient’s deductible, because it’s coming from pharma and not the patient.
TP: If my wealthy uncle pays my medical bill, the dollars he pays would count towards my deductible. Why shouldn’t pharma’s dollars count the same way? The health plan, which ostensibly exists to benefit the patient, is punishing the patient, even when the pharma company is trying to reduce the patient’s financial burden.
JC: That arises from the essentially adversarial nature of the healthcare marketplace. Payers and providers and biopharmas are all basically staring at each other across no-man’s-land waiting for the next shell to fly over, defending against whatever they think the others might come up with next to stick them with more of the costs. Decisions are made for the benefit of one entity or another, not the marketplace as a whole. And patients are actually in no-man’s land getting hit with the shrapnel, and not understanding why.
MD: Patients are bewildered. Comprehending healthcare billing or payer plan benefits is challenging even for the people who create them. For the ordinary citizen, or even an industry insider, it’s practically impossible to develop more than the most cursory understanding.
TP: And from bewilderment it is a short step to frustration, and then anger. No wonder payers and PBMs and biopharma companies are so little loved in this country.
JC: So we must unwind the current model. All these entities must find ways to collaborate for the patient’s benefit. Because the patient’s benefit, in the end, is their own as well. And those collaborations must be based on comprehensive outcomes-focused data analysis, not the parochial needs of one or another of the constituencies involved.
MD: No small request, that is. The present healthcare market dynamic in the United States has been developing for decades and has grown out all manner of constituencies whose bottom lines depend on maintenance of the status quo. The Cignas and Aetnas of the world aren’t just going to fold up their tents because someone is agitating for PBM reform; Cigna, at least, has 54 billion reasons not to do so.
TP: But the Cignas and Aetnas of the world are clearly feeling the wind change direction. Otherwise why try to integrate a PBM with an insurance company in the first place?
JC: Another step in the right direction. I don’t imagine too many will mourn the end of the era of the independent PBM. Even the most well-meaning independent PBM, even one that isn’t just taking the discounts and running and offering very little value to the patient or the provider, is limited by its own lack of knowledge of the entire care equation outside of prescription claims. They just don’t have all the information.
MD: A capitalist might say that the market is working itself out. Integrating insurers with PBMs means creating entities that can see all parts of the healthcare equation and use real-world outcomes data to demand actual value from providers and biopharmas. And manufacturers are beginning to respond, attempting to align their therapies with favorable outcomes and reach agreement with payers about the performance metrics required to reach favorable formulary positions. Which, hopefully, in the end, will generate a net benefit for patients.
TP: All that is very well, especially the payment for outcomes part. But the market working itself out takes time and patience. And those are not easy words to hear for someone whose financial well-being has been destroyed by medical expenses. More than three in five personal bankruptcies in this country today are due to medical expenses. If anyone ought to be agitating for healthcare pricing reform, it’s the banks and lenders who are writing off all those defaults.
JC: An unfortunate price we are paying for the perverse incentives we created in the past and the lack of real market forces to keep costs down. But we can’t turn nearly a quarter of the U.S. economy around on a dime.
MD: Besides, most of those bankruptcies are coming from care costs anyway, not drug costs, and that’s a whole other conversation of its own.
TP: Just so. Tying outcomes and product performance to discounts and formulary positions, though, really is a gigantic step for the industry. Remember, plenty of physicians are making prescription choices based on formulary position in a patient’s drug plan, and if that formulary position is based on anything other than real outcomes, who is it that truly benefits?
JC: And forcing industry to show real outcomes is going to force industry to innovate. Formulary decisions based purely on cost gave us the “me too” drug era, six or seven similar drugs in one space, drugs that were barely clinically differentiated from each other, and payers and PBMs were just picking and choosing based on how much of a discount they could bleed out of the manufacturer. Did the world really need nine statins? Did anyone really benefit from that, other than shareholders?
MD: Industry is getting the message, too. Companies are liquidating whole swathes of their development programs, trying to limit investment to compounds with the potential to be legitimately transformative. It’s a refreshing sight.
TP: It’s not altruism. They clearly see what the future will look like, what payers will want. But pharma deserves at least a little credit. And patients will be the beneficiaries.
JC: But I would like to see value-based contracts pushed further than they have been. Right now value-based contracts often attempt to draw binary conclusions from multifactorial variables. Perhaps reimbursement for a diabetes drug is tied to avoiding hospitalizations, for example – but the patient could be back in the hospital due to obesity or smoking, not any lack of efficacy of the drug.
MD: They are limited by the nature of the entities that create them. A value-based contract between an insurer and a pharma company can only punish or reward the pharma company, even if the pharma company doesn’t deserve all the credit or the blame.
TP: So perhaps the next step in the evolution are pooled outcomes-based agreements between multiple constituencies, not just two at a time – payers, providers, pharmas, employers, all sitting at the same table, all taking on pieces of risk, adding data the others don’t have, and taking responsibility for their part of the equation.
JC: Nothing like that exists today. But surely we are moving in that direction. Commercial payers are getting smarter, and the effects are flowing out to the entire marketplace. A push towards multi-constituency value-based contracts by commercial payers can’t be far off. But what about government payers?
MD: The fly in the ointment. Government payers are half the marketplace. And without a rationalization of government payer management systems, alignment of incentives, realistic costs, improvement of communications, the commercial payers can only push the market so far, and patients covered by government payers will continue to suffer.
TP: While government payers have made an effort to beef up their medical treatment management strategies, particularly among the elderly population, many gaps still exist, particularly regarding both financial need and age-based need moving into long-term care and beyond. And with an aging population, that’s where the greatest challenge lies. Commercial payers just don’t have to worry about long-term care the way the government does.
JC: Government payer reform might be another conversation for another day. The immediate issue is still pricing.
MD: So it is. QuintilesIMS (now IQVIA) reported that the total value of pharma manufacturers’ price concessions during 2016 was $127 billion, and that number doubled since 2012. How can we find ways to rationalize and redistribute that extraordinary sum to the benefit of all, so patients feel like they are really getting value for their prescription drug dollar and not just dropping it into a black box? There’s the real question that’s driving the price transparency movement, not just wanting to see numbers on commercials.
TP: Just so.