I always enjoy BioCentury‘s “Back to School” issue this time of year, and this time they’re being more outspoken than usual. (That link is free access). The topic is pricing:
Last year, (we) argued biopharma companies can no longer assume the market will support premium pricing, even for drugs that deliver meaningful and measurable improvements over the standard of care.
This year, BioCentury’s 22nd Back to School essay goes on to argue that the last bastion of free pricing is crumbling, and biotech and pharma had better start experimenting with new pricing models based on value for money while they still have the chance.
The wake-up call was the launch of Sovaldi sofosbuvir from Gilead Sciences Inc.
Payers, reimbursement authorities and health technology assessment agencies almost universally — with the exception of Germany — acknowledge the drug is a breakthrough for patients with HCV.
At $84,000, the drug is clearly cost effective for a subset of HCV patients who would otherwise progress to expensive sequelae such as liver transplant. But its broad indication includes a majority of patients whose disease won’t progress to the point of costly interventions. And doing the math makes it obvious that treating even a fraction of eligible patients would be a staggering sum for payers to absorb.
With Sovaldi as the stimulus, government officials, payers, reimbursement authorities and patient groups are fighting back against high drug prices with renewed vigor. For these stakeholders, biopharma’s arguments that drug developers must be compensated for the cost and risk of creating medical breakthroughs don’t hold water.
The easiest response of payers and consumers to industry’s argument is: not my problem.
Far worse, biopharma’s historical arguments about the cost and risk of drug development are giving ammunition to academics, legislators, health technology assessment bodies and payers to argue that the costs of developing and manufacturing drugs plus a “reasonable” margin should be the basis for price.
Industry needs to wrest the discussion away from a cost-plus system that would essentially turn biopharmaceutical companies into utilities, cutting off the lifeblood of innovation.
We seem to be too busy testing the limits of what insurance will pay for to worry about that right now, unfortunately. As the essay goes on to show, companies (Gilead and Alexion, for starters) are getting requests from regulators and legislators to provide an exact breakdown of just what it cost to develop their latest drugs. Demonstrate to us, in other words, that your pricing is justified. The next step beyond that is for these authorities to disagree with the numbers and their interpretation, and to suggest – and then enforce – their own. And I’m pretty sure that the industry would rather avoid that.
Cost-plus pricing places no value on the benefits provided by medicines and eliminates the incentives for biopharma industry innovation and for risk-taking in poorly understood diseases where many failures are likely.
The right question is not how much does R&D cost, but how to measure the benefit to the patient, payer and society; how to value that benefit over time; and how to distribute the risk should the expected benefit not be realized.
The answers are not obvious, and many approaches will need to be tested. Undoubtedly, in many settings the current systems for data collection, coding and reimbursement are not adequate to the task.
But that is no excuse for inaction. The current system of drug pricing and reimbursement is unsustainable and will be fixed — with or without the industry’s participation.
Biocentury suggests several things that should be looked at. First of all would be pricing per course of treatment, rather than per unit dose. That brings the spotlight more on what the drug is supposed to be accomplishing – and if that also spotlights some of them that aren’t accomplishing as much as they’re supposed to be, well, so be it. The industry should also consider risk-sharing arrangements, to take on more of the downside if a drug doesn’t work as well as anticipated, with the opportunity to pick up more gains if it exceeds. Another idea would be pricing models where the payments are spread out over the time that the drug benefits a patient, rather than all of it being up front. In general, we need to make the connection between new drugs and their benefits easier to see, which in turn makes their pricing easier to see.
And if some of those prices turn out to be too high, well, that’s our problem. We have to be ready to accept it when we have drugs that don’t work as well for some conditions as we want. Only if we can do that can we turn around and charge the higher prices for the ones that are truly effective. I’ve made the argument many times that companies, not just drug companies, should be able to charge what they want to for their goods. And in the abstract, that’s true. But in the world we live in, politics will intrude, big-time, if the drug industry tries to always extract the maximum revenue for everything, every time.
The downside for biopharma companies would be lower prices for drugs that provide incremental or modest benefits. But that reality is coming one way or another. The upside is a better shot at continued premium prices for real breakthroughs — although probably not as high as historical premiums — plus the potential for preferred formulary placement and earlier market access for many drugs.
But it’s a tragedy-of-the-commons situation, because even though some of these ideas for different pricing, and even the calls for restraint, may well be in the industry’s best interests, individual companies look at each other and say “You first”. But as the old political saying has it, if you’re not at the table, then you’re on the menu.