Time to Negotiate Drug Prices

The 15 million enrolled in the biggest Medicare part D plans will face average premium hikes of 8% in 2016. The increase in 2014 was 11%. These increases are enough to provoke consumer grumbling about prices, but consumers are not actually overwhelmed by prescription drug costs, yet. Instead, they fear that prescription drugs for a catastrophic disease in the future will impoverish their family.

These fears are real. Recent prescription drugs for devastating diseases are priced near $100,000 per year, making drug costs prohibitive for catastrophic disease patients, those who are unemployed or living on modest fixed incomes or those depending on government assistance.

Drugs for the treatment of cancer, Cystic Fibrosis, and Hepatitis C have earned widespread condemnation for their aggressive pricing strategies. Vertex Pharmaceuticals priced Kalydeco, a drug that halts a variant of Cystic Fibrosis at $294,000 a year, but has pledged to provide it free to any patient in the United States who is uninsured or whose insurance won’t cover it.  Gilead Science’s Hepatitis C drugs, Harvoni and Sovaldi, are priced at about $90,000 and $70,000 respectively for a course of treatment.

Many high-priced drugs are in the cancer treatment category.  For metastatic cancer treatment, Yervoy has a per-patient cost of $131,213. Opdivo costs about $150,000 annually per patient. These two drugs avoid the horrible side effects from traditional chemotherapy. Regneron’s Zaltrap was approved to treat colorectal cancer and priced at $11,000 per month.  Its main rival, Avastin was priced at $43,000 to $55,000 per year.  Both Zaltrap and Avastin increase life expectancy by 4.7 months.  Although expensive, Avastin is less costly than Lucentis for treating Macular Degeneration (an “off-label use” that the FDA has not authorized).

From 2012, FDA authorizations that focus on chronic myeloid leukemia, Ponatinib costs $138,000 annually, Omacetaxine costs $28,000 for induction and $14,000 for a maintenance course, and Bosutinib costs around $118,000 per year.

Even for some “old” generic drugs, prices are jumping.  An investor bought the rights to Daraprim, a treatment for the toxoplasma parasite sometimes present in weakened immune systems such as occur after cancer treatment or in patients with AIDS.   The investor boosted the price per pill from $13.50 to $750.00.  He is preparing similar financial gymnastics with benznidazole, a generic treatment for Chagas disease (another parasitic infection).

When attacked on price, pharmaceutical research and manufacturing giants retort that they face $1 billion or more in costs to develop a successful new drug and that many of their attempts are expensive failures that deliver no revenue.

The argument is genuine.  If a successful $1 billion drug can treat only a few thousand patients each year, the per-patient cost can be high.  For example, a $1 billion drug treating an average of 5,000 patients per year for 5 years would need to be priced at $40,000 per patient just to breakeven.

The dollars and cents explanation does not overcome consumers’ anxiety.  In a Kaiser Health poll, consumers favored policies that would push prices down.  For example, 86% favor requiring drug companies to give details of how they price.  Eighty-three percent favor government negotiating drug prices for Medicare beneficiaries.  The public’s chance to get negotiated prices was given away in a quid pro quo for Big Pharma’s political support during the Congressional fight to introduce Obamacare.  That political tradeoff included no failsafe on ridiculous pricing, suggesting either incompetence or indifference to consumer pain.

Seventy-two percent favor legalizing drug buys from Canada.  One solution aimed at generic drug overpricing would be for the FDA to approve generic drug competitors about seven times faster than normal. That would deliver pricing competition seven times faster.

Another obvious winner would be to change the way Medicare pays for infused drugs. Doctors currently receive a percentage of the drug’s total sales price, tempting them up to prefer higher priced treatments.

And here it comes…in the Kaiser poll, seventy-six percent of consumers favor using strong arm tactics – government price controls on high cost drugs.  The pragmatic downside of a government’s boot on Big Pharma’s neck is fewer drug breakthroughs and those new drugs will be created offshore where taxes and price controls do not thwart entrepreneurs.

Forget about the tawdry Faustian bargain with Big Pharma to pass ACA.  It perpetuates the moral issue of drug costs that are too high for Americans whose lives are in the balance.  Many seem not to care that price controls are government sanctioned thievery, albeit from an unsympathetic drug maker.

The best resolution to this dilemma must come from the drug industry acting in its enlightened self-interest and from politicians working in favor of consumers.  A combination of negotiated prices and a “high cost facility” (similar to the bad-risk pool used by casualty insurers) could rein in prices and share some of the costs for treating the uninsured.  Without a solution, Big Pharma faces price controls and we are all worse off without new treatments.

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