A week ago, presidential candidate Hillary Clinton tweeted her intentions, if elected, to try to curb the rising costs of pharmaceuticals. The plan would place a monthly cap on the out-of-pocket cost that chronic pain patients would have to pay for prescription medications, a greater emphasis on bringing biotechnology-style drugs to the market, and encourage increased use of generic and imported drugs.
Massive drug price increases spark pushback
So what sparked Clinton’s announcement? Turing Pharmaceuticals took Daraprim, a sixty-two year old drug considered the standard of care for treating life-threatening parasitic infections, from $13.50 a tablet to $750 a tablet overnight. But this is not the first time a manufacturer has raised prices. Last week Valeant Pharmaceuticals made headlines regarding its pair of heart medications—Isuprel and Nitropress whose prices have soared by 515% and 212%, respectively after purchasing them this February from Marathon Pharmaceuticals. The increase in prices caught the eye of congress and according to reports from the Wall Street Journal, eighteen Democratic members of the U.S. House of Representatives committee on oversight and government reform asked its chairman to subpoena Valeant to force it to turn over documents related to the two drugs’ price increases.
At the core of the discussion begs the question—how can a pharmaceutical company anticipate the emergence of sudden and unexpected regulatory, political, and market forces that impact its prices and operations? Given recent events and the political climate, pharmaceutical companies need to devote resources into creating and analyzing plausible market scenarios and strategies in order to tactically navigate this ethical milieu successfully.
Smart pricing is a competitive advantage
Pricing a drug smartly is one of the most important competitive advantages pharmaceutical companies have today. The ability of pharmaceutical executives to effectively articulate a rationale for their chosen price while balancing the rationale against discount demands from other stakeholders, particularly the US government under Medicaid and Medicare, is the key to profitable uptake and long term success of their companies’ drugs. Many organizations are turning to sophisticated tools to formulate and articulate pricing strategies to break away from their peers and transform their bottom line.
There are those who believe higher prices are critical for fostering innovation, and those innovations have the potential to change the course of therapy. However, in some cases, an increase in price could force hospitals to use alternative therapies that might have less efficacy, potentially resulting in increased hospitalizations, reduced compliance, and added strains on the provider, all of which will drive up costs. While recent attention has been focused on newer agents within oncology, hepatitis C and high cholesterol therapies, there is a growing concern about the life cycle management of older drugs and how price increases could affect treatment algorithms.
Complex elements impact the final price
So how do we know the price offered is the final price? The answer is—it isn’t clear. There are many elements that go into pricing. The list price is not the effective price the manufacturer is offering and many manufacturers can gain access through 340B prices (a drug pricing program requiring drug manufacturers to provide outpatient pharmaceuticals to eligible health care organizations/covered entities at significantly reduced prices) depending on the drug and what type of facility is dispensing it. Additionally, other incentives such as co-insurance for low income individuals also add to the pricing erosion. Finally, there are channel discounts for pharmacy benefit managers (PBMs) such as ESI and Caremark, who move a high volume of specialty drugs.
Although Turing Pharmaceuticals may have been the first catalyst in the pricing war debate, it will not be the last. Manufacturers should view this opportunity as a way to open and drive the conversation around value and drug development costs. The cost of drug development doesn’t end at the NDA approval. It includes quality control, ongoing regulatory costs, and the expenses of maintaining safe production and distribution infrastructure. The coming months provide a critical opportunity for the drug industry to craft and drive this value dialog.