Drug Supply Chain; Prices Too Costly

Consumer dissatisfaction with drug prices is not news, but it has not yet been addressed by competition or Congress.  Consumers are elevating the issue to one of national importance, and the biopharmaceutical industry is beginning to pay attention, because they dread what is coming next – people from the government who are here to help.

 

Here is the latest episode in the pharmaceutical clown circus.  AstraZeneca mixed two over-the-counter drugs; naproxen (found in Aleve) and esomeprazole (found in Nexium), to create a prescription drug called Vimovo, which it priced at $138 per 60-pill bottle.  It then sold Vimovo to Horizon Pharmacy.  Horizon inflated the price to $2,979.  “Bought separately, the two can cost as little as $36 total.” The price inflation earns Horizon Pharma a prominent place in Pharma’s Rogues Gallery, right next to Martin Shkreli and Mylan of EpiPen fame.

 

There are also stories of redemption from Pharma.  Gilead’s Sovaldi and Harvoni cures for Hepatitis-C made headlines a few years ago with their approximate $70,000 price for a course of treatment.  Since they were both Gilead products, there was little competition between them. Recently, in direct competition, Abbvie has introduced Mavyret, priced at $13,200 per month, or $26,400 per course of treatment. The price of treatment for Hepatitis-C is now 2/3rds less outrageous than it used to be.

Competition from Mavyret forced Gilead to reduce its expected sales by $1 billion.  Competition can be a powerful force, encouraging both innovations and meaningful price reductions that benefit consumers.  On the other hand, competition in Hepatitis-C treatment does not help consumers with the other hundreds of disorders.  For many of them, price can be a deterrent to treatment.

In 2015, $469 billion was spent on prescription drugs.  Consumers ultimately pay that tab and they feel drug prices are too high. Headlines on Horizon Pharma and Martin Shkreli remind them of the bigger problem.

Three-quarters of consumers regard drug prices as unreasonable. Frustration is leading consumers to welcome government action.  In 2016, 82% of consumers wanted government to negotiate drug prices directly with drug companies.  In 2017, 92% of consumers favored government negotiating Medicare drug prices (for Democrats it was 96% in favor).

Congress imposed the ban on Medicare Part D drug negotiations, and Congress could lift it, but Congress refuses to act, even though out of control prices directly harm seniors and taxpayers, two enormous voting blocks.  Beyond Medicare, consumers see that drug prices have been out of control for too long and competition has not made enough of a difference to address the drug price problems.

Consumer attitudes favor drug price regulation.  They favor forcing drug makers to reveal pricing detail.  To be effective, the detail would need to include the byzantine money flows within the supply chain (pharmacy, insurers, pharmacy benefit managers (PBMs) and wholesalers).  Those polled also favor freedom to import drugs from Canada.

Some in Pharma are paying attention.  Pharma created a site that deflects some of the blame for high retail costs by documenting the surprising levels of cashflows siphoned by others in the drug supply chain (pharmacies, wholesalers, and especially PBMs).  “Brand biopharmaceutical companies realized only $219B, or 47%” of total drug revenues.  Generics took about 30% of the rest.  Supply chain entities kept 22% of the revenues.  PBMs are identified as hogging a large part of the revenues.

The National Pharmaceutical Council conducted a study of major employers’ attitudes toward PBMs.  About one-third of employers rate the PBM they use as untrustworthy and unsatisfactory.  Sixty-nine percent would welcome an alternative arrangement to PBMs’ rebate-driven income streams.  The complexity and lack of transparency in PBM contracts was a major irritant.

There is plenty of blame to go around.  It is hard to justify large margins consumed by the supply chain.  Even for the biopharmaceuticals, polling shows that the respect biopharmaceutical companies earn when they invent miracle drugs is being tarnished by stratospheric prices, especially for drugs advertised on TV.  Whoever in Congress works toward a meaningful resolution of the drug pricing problems will earn a dedicated following of voters, especially if the solution does not require another HHS-sized army of bureaucrats.

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