Prescription Drug Pricing Hearing: Is The Senate Probing In The Wrong Place?

prescription drugsKen Frazier, chairman and chief executive officer of Merck & Co., second right, testifies during a Senate Finance Committee hearing on drug pricing on Capitol Hill in Washington, D.C., U.S., on Tuesday, Feb. 26, 2019. Top executives from seven of the world’s biggest drug companies were testifying before Congress to talk about drug costs. Photographer: Zach Gibson/Bloomberg© 2019 Bloomberg Finance LP

The media has constructed a straw man of sorts when repeating the mantra of the “relentless rise of prescription drug prices.” That growth has not been so relentless in recent years. This is due in large part to the increased pressure on net prices as a result of rebates. So while list prices exhibit an inexorable rise, net prices have stagnated during the last few years.

Last week, during a Senate hearing on prescription drug prices, chief executives from seven large pharmaceutical firms each offered arguments in defense of the ways in which they set prices, citing the fact that high rebates nullified for the most part the increases in list prices. The executives hammered home the point that net price increases have become stagnant due to the growing gross to net bubble.

However, the recent proliferation of high deductible health plans has led to patients paying a larger share of prescription drug costs. And while rebates are lowering the cost of drugs paid for by health plans, pharmacy benefit managers, and employer sponsors of health insurance, rebates aren’t helping patients; at least not as far as their out-of-pocket spending is concerned, as co-insurance is usually calculated on the basis of list and not net prices.

Naturally, for politicians their constituents’ out-of-pocket spending is what matters most. If constituents cannot afford prescription drugs – whether because they’re uninsured, under-insured, or insured with substantial co-payments – the public outcry will be aimed at the drug companies for “high prices.”

In addition, what grabs media attention and therefore the eye balls of constituents are the high prices of a number of recently approved drugs and therapies when introduced to the market. It is perhaps unfortunate that during the Senate hearing little mention was made by the chief executives of the high prices of certain newly approved treatments; for example, new cancer drugs, rare disease products, and gene therapies, for which rebates play less of a role, and whose launch prices are not considered price increases yet contribute, albeit modestly, to driving up drug expenditures.

This said, not one of the executives favored the status quo. There was consensus that something must be done about improving the functioning of the prescription drug marketplace by way of more robust generic and biosimilar competition, better patient affordability, and revamping the notoriously opaque rebate system. On rebates, Pfizer chief executive Albert Bourla claimed that “none of the close to $12 billion in rebates that Pfizer paid in 2018 found their way to American patients.” Bourla appeared to be the most committed to sweeping changes, not only related to the rebate system (making it more transparent and ensuring pass-through to patients), but also promotion of biosimilars, and alignment of price and value. Bourla asserted that drug makers should be paid in proportion to the value of their medicines. He used several concrete examples of value-based pricing, such as being “paid based on the number of strokes prevented or the number of cancer patients who go into full remission, rather than the number of pills sold.”

It’s refreshing to not only hear the common refrain that prices reflect the amount being spent on research and development in a highly risky venture, but that there also needs to be a nexus between price and value in order for the system to be sustainable going forward.

prescription drugs
Various medicine pills and capsules in plastic container

As mentioned in a previous article value-based pricing is more promise than reality at this point. In order for value-based pricing to happen on a large scale policy must change on many levels, from making it easier to apply for exemptions from Medicaid’s best price requirement, to the sharing of risk and the cost of maintaining patient registries and collecting data. Regarding the latter, placing all the onus on the payer or the drug maker to fund post-marketing studies is not reasonable when the risks and benefits from such studies accrue to both stakeholders.

To be constructive the Senate should not only probe the pricing of prescription drugs by pharmaceutical manufacturers, it should also investigate the billing and pricing practices of hospitals, physicians, and insurers. Ultimately the problems related to the relentless rise of overall healthcare costs are not going to be solved by putting blinders on and solely targeting the pharmaceutical industry.