September 25, 2015
Roughly 25 years ago, if you wanted a cell phone, a digital camera and a video camera, you would need to shell out almost $3,000. And for your money, you’d get big, clunky devices that provided primitive results.
These days, you can buy all of this technology in one device that delivers great results, but won’t strain your wallet (or your back). So why can’t the pharmaceutical industry innovate useful new products that are more affordable? That’s the question Bernard Tyson, CEO of Kaiser Foundation Health Plan, Inc. and Hospitals, asked recently in Forbes.
“Countless industries outside of health care have already gone before us, understanding that technology and productivity gains must be passed along to the consumer for businesses and our nation to remain competitive. The pharmaceutical industry remains our lone holdout, and we cannot succeed without it,” he wrote. “[T]he companies that proactively rethink their pricing models will be better positioned for long-term success in an economy that expects innovation to deliver lower prices, not higher ones.”
Tyson raised a number of points in his post that are worthy of additional exploration:
America spent 17 percent of its GDP on health care in 2013, compared to 12 percent in France, 11 percent in Germany and Canada, and less than 10 percent in the UK, Norway, Sweden and Finland, according to WHO data.
The US also spends more than twice as much on pharmaceuticals per capita than the average Organisation for Economic Co-operation and Development nation, per OECD data. Yet “[E]ven relatively well-off Americans who do not smoke and are not overweight may experience inferior health in comparison with their counterparts in other wealthy countries … The American health-wealth paradox is a pervasive disadvantage that affects everyone, and it has not been improving,” wrote the authors of a recent National Research Council/Institute of Medicine report.
This summer, the FDA approved two new drugs for lowering LDL cholesterol: alirocumab (Praluent) from Sanofi and Regeneron, and evolocumab (Repatha), from Amgen.
With Pralulent boasting a list price of nearly $15,000 per year, “Health plans are worried that so many patients might use the drugs, which might be taken for life, that it would cost billions or even tens of billions of dollars a year,” according to the New York Times. These drugs are hitting a health care system that’s “still smarting from the experience” of funding expensive new hepatitis C treatments. Health plans and pharmacy benefit managers are looking for ways to limit the number of patients on these new cholesterol drugs, negotiate discounts and try to influence many patients to stick with older statins.
Pharmaceutical companies aren’t all-powerful. But they do have their strengths. In the United States, the Centers for Medicare and Medicaid Services (CMS) can’t negotiate prices for medications for Medicare Part D. As Health Affairs points out, Medicare “easily pays between 150 and 300 percent of the average cost of prescription drugs in the other wealthy nations.”
That shift seems to be in motion: “[M]any pharmaceutical manufacturers are currently changing their focus from the once dominating mass markets toward smaller, vacant niche markets,” noted the editors of a recent book on the pharmaceutical industry.
The Academy of Managed Care Pharmacy agrees, pointing out that Medicaid’s “best price” provisions require “brand name drug manufacturers to provide the Medicaid program with the lowest price they offer in the rest of the drug marketplace.” As a result, drug makers don’t want to offer lower prices to smaller purchasers that they would then have to extend to large programs like Medicaid.
“…[I]t is time to ask whether an alternative approach to Medicaid drug rebates could provide Medicaid with the same (or better) economic benefit, while freeing up competitive forces that could lower drug costs both in the private market and in public programs,” the organization concluded.
Making the right medication decisions is ever more important for healthcare providers. At Advanced Medical Reviews, we realize that as medications grow more expensive, their financial impact becomes more considerable. Our job as an independent review organization is to make sure that we make the right decisions on medications so that the correct patients are receiving them.
Clearly, the pharmaceutical industry is interconnected with many other powerful private and public players in health care. What solution – or more likely, solutions – do you think are necessary to lower drug prices while encouraging innovation? Share your thoughts with us!
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