Drug Pricing

Vermont has recently become the first state to pass legislation addressing the rapidly increasing cost of prescription drugs.

drug pricing

There are currently no mandated caps on the prices pharmaceutical companies can charge, which makes the U.S. an anomaly among other Western nations. As a result, the AARP reports that the cost of medications increased by 9.4% from 2006-2013, while the general inflation rate in the country was only 1.5%, and CMS reports that spending on prescription drugs increased by 12.2% in 2014, compared to an increase in overall healthcare spending of just 5.3%.  Perhaps most concerning, the Centers for Disease Control and Prevention reports that almost 10% of Americans don’t take their medications as prescribed because of the cost.

One example that captured public interest was that of Gilead Sciences’ Solvadi drug, which was priced at $84,000 for a 12-week treatment.  In December of 2015, a Senate Finance Committee investigation of the medication, used to treat hepatitis C, concluded that its pricing was tied less to production cost than simply to what the market would bear.  Senator Ron Wyden, who worked with Committee Chairman Chuck Grassley on the report, stated that Gilead was attempting “to maximize revenue, and affordability and accessibility was an afterthought” – armed with the marketing knowledge that the balance of revenue to patient loss would be favorable up to a price point of $96,000.  However, because this was such a highly effective drug, many public health providers were faced with the incompatibility of providing the best care for their patients versus maintaining their own financial solvency.

Priscilla VanderVeer of Pharmaceutical Research and Manufacturers of America , which is the primary lobbying group for the industry, has stated that pricing is, indeed, primarily related to the same factors any commodity is – competition, the market, and the value of the product.  When a drug company patents a medication, it attempts to charge as much as its users are willing to pay because when the patent runs out, competition from generic formularies will drive down the price of the name-brand.

In another well-known case, Valeant raised prices significantly on its existing drugs, with the goal of helping to cover the cost of research and development for new drugs, considering R&D to not be cost-effective.  This means of generating revenue resulted in public outcry and an investigation by the government.  Although a 2014 Tufts University study estimated the cost of bringing a new drug to market to be $2.6 billion, some detractors believe that this figure does not take into account funding from non-commercial sources, such as the government or, as Jerry Avorn, MD, professor and chief of the Division of Pharmacoepidemiology and Pharmacoeconomics at Harvard Medical School, points out, potentially “more than half of the most transformative drugs developed in recent decades had their origins in publicly-funded research at nonprofit, university-affiliated centers.”

Another Tufts study found that only about seven percent of drugs in clinical trials are ultimately approved by the FDA – drug companies, therefore, argue that this small percentage must fund the other 93% of drugs that are being developed.  Should the government be able to control how a company recoups its money in this profit-and-loss type of scenario?

With a lack of federal-level policies addressing this concern, at least 11 states are attempting to take action.  The bills proposed by different states vary slightly, but they all include the element of disclosure.    Their goals are to educate the public about the reasons for high prescription drug prices, to create accountability in the pharmaceutical companies to provide fair pricing, and/or to set caps on reasonable prices.

Under Vermont’s new law, the state will “identify 15 drugs for which significant healthcare dollars are spent,” and which have had increases in list price of 50% over the past five years or 15% over the past one year.  The state’s attorney general will then require the manufacturers of these drugs to submit detailed information about all of the factors that contributed to the price increases – information that will be posted publically on the internet (although the names of the drugs and companies will be kept confidential).

In Colorado, New York, Oregon, and Pennsylvania, bills seek to require disclosure of the R&D, acquisition, manufacturing, marketing, and advertising costs for drugs, as well as the impact of public grant funds on research.  Colorado’s bill, in particular, applies to drugs priced at more than $50,000 for a course of treatment or annual supply; this information would be made public, as is the case in Vermont.  The bill in Massachusetts goes further, allowing regulators who determine prices to be unjustified to actually set a cap on how much can reasonably be charged for any particular medication.  California’s bill has passed the Senate and is about to face the Assembly; Michigan, North Carolina, Tennessee, Virginia, and Washington also have bills in the works.

The question is, should drug prices be lower across the board or should they be more closely tied to the value of their product?  This value includes not only the cost to create, but also the future impact; for instance, would the high price tag on Solvadi end up saving even more money in the long run in the process of treating hepatitis C patients because it is so effective?  Even if these propositions don’t have an immediate or significant impact on drug pricing, they will hopefully open up productive discussions among all stakeholders to help make drugs more affordable in the future.

 Contributed by Holly Valovick -QLK