Drug Cost Dilemma Evades Solution

Soaring prices for some life-saving and life-altering drugs are pitting drug makers against payers, providers, and patients.

Something has to give.

This year's marketing of the hepatitis C drug Sovaldi at $1,000 per pill and last week's announcement that the FDA has approved pembrolizumab, a new kind of cancer drug said to cost $150,000 per year for treatment of melanoma, raise a vexing question in the healthcare industry and broader American society: Can the country craft a more affordable way to continue development of life-saving and life-altering drugs?

Lowell Schnipper, MD, a practicing oncologist and leader of a task force at the American Society of Clinical Oncology seeking to boost value in cancer care, told me this week that healthcare providers have no choice but to face the daunting drug-cost dilemma.

"It's not OK for doctors to just sweep [drug price concerns] under the rug. It comes down to finding responsible ways to maintain quality of care," he said.

"This is a real issue. We are in no way trying to damage companies that are doing research. What we're trying to do is to find a way to measure new treatments against the standard of care."

Schnipper says the rising prices of new drugs that either cure a common disease or provide life-sustaining treatment are at odds with efforts to contain costs in U.S. medicine. "We are getting to a tipping point, and we have to come to a consensus with the stakeholders. It's a collective discussion," he said.

In an email sent to me last week, Brendan Buck, vice president of communications for America's Health Insurance Plans, offered a more biting critique of the volume-based pricing model that Gilead Sciences followed with Sovaldi.

"Many of these specialty drugs are tremendous breakthroughs, and we want to find a way to provide access to them. But access is threatened by the pricing. We also cannot have affordable healthcare in America without affordable pricing. There's long been a balance kept between affordability and rewarding innovation. This pricing has brought that balance tumbling down," the health insurance industry spokesman said.

Government Solution?
Chris Wing, president CEO of Long Beach, CA-based SCAN Health Plan, tells me that the healthcare industry and regulators need to intensify efforts aimed at blunting the economic impact new specialty drugs.

"In many cases, these drugs are very expensive and cost becomes either a barrier to access or a hardship upon those expected to pay, as there are no lower-cost generics to turn to. The challenge for government and the healthcare community is to find a way to afford these miracle drugs without financially undermining the rest of the health system," he said.

What About Value-Based Pricing?
In cancer care, where patients often face out-of-pocket expenses for medication totaling thousands of dollars, Schnipper says value-based pricing has to be part of the solution.

"We're working toward the development of a formula or algorithm," factoring in drug toxicity, the cost of administering it, and its clinical benefits. "We're getting feedback. We've spoken with representatives of the pharma industry as well as specific companies. We're also going to meet with payers."

The oncologist said one way to increase value in cancer medication is to avoid "me-too drugs" that provide marginal clinical gains over existing drugs. "Those are drugs that shouldn't be highly valued like a drug that provides four times the value," he told me. "From a societal perspective, we shouldn't give them a high price designation."

While pricing is crucial, garnering the highest possible value from cancer drugs involves more than pricing models, Schnipper says. "Cancer therapy usually means drugs, but the problem needs to be seen as broader than just drugs." That's because the significant costs of treating cancer don't stop at drug costs—they include hospital services and an approach to end-of-life care that underutilizes hospice services. "It's really complex."

VBP Seen to Have Limited Impact
Drug companies are familiar with trying to maximize the value of their products, and are actively looking for new opportunities to boost the value of medications, says Matthew Hudes, a principal and bio-pharma practice leader at Deloitte Consulting. He cites drug companies' longstanding advocacy for medication compliance as a way to reduce unnecessary hospitalizations and readmissions. "There's an ability for the industry to get out in front of this," he says.

Deloitte was one of the first consultancies to publish detailed research on value-based drug pricing, but Hudes says pharma companies are exploring several other value avenues. "Pricing is a valuable component, and, if done correctly, it can have some impact. But I wouldn't hang my hat only on value-based pricing."

Hudes says pharma is moving toward "digital media mode," embracing wearable technology such as sensors that can help chronic disease patients to get the most benefit from their medications. "[Drug manufacturers] are all very much focused on this area of digital health," he said. And utilization of data analytics has the potential to boost development of more effective medications and to examine the impact of drugs on the "actual patient experience."

Vendors are already deploying technology to help connect healthcare providers with the most inexpensive medications available, says Peter Kaufman, MD, chief medical officer of DrFirst. "We make it very easy for providers using our program to enter brand name drugs and then switch to generic, to help save money if applicable. We also offer formulary information. If a patient is covered for a medication, providers will see messages suggesting less-expensive alternatives within the same class. This gives providers more insight into how much a particular drug therapy costs."

Price vs. Value
Jennifer Wall, senior director of communications for PhRMA, the industry group representing "the pharmaceutical research and manufacturers of America" says the pharmaceutical industry is ready, willing, and able to debate the value of the medications it creates. "Bio-pharma leads the world in research and development. No one spends more on R&D than us," she told me. "The return is great because patients are getting incredible medicines that do incredible things."

Wall says any efforts to establish standards of value for drugs must take the views of patients into account. "Who's talking with patients? Who's asking patients what 'value' means to them? Value means something different to everybody. A patient who lives three months, two years, or a decade longer than expected can get huge benefits from that, including more time with their family."

Echoing Warren Buffett's quotable line about stocks, "Price is what you pay. Value is what you get," Wall turns the question around and asks: "Are we willing as a society to accept the fact that many medicines, while not necessarily inexpensive, provide a great return on value because a child's life has been saved or a parent suffering from a life-threatening disease has been cured?"