LeverAGE

Prescription Drug Pricing

March 11, 2021 American Society on Aging Season 2 Episode 2
LeverAGE
Prescription Drug Pricing
Show Notes Transcript

Prescription drug prices are at unprecedented levels. There is a huge human impact to not being able to afford medications: according to a new study by West Health, over 1.1 million people insured by Medicare could die over the next decade because they cannot afford their prescription medications. For some time, drug spending in Medicare Parts D and B has grown faster than overall Medicare spending. Rather than negotiate drug prices itself, Medicare allows private insurers to negotiate prices on its behalf for pharmacy drugs under the Medicare Part D program. For drugs administered by physicians under the Medicare Part B program, Medicare currently pays whatever manufacturers charge, with no negotiation at all. This episode covers how negotiation rules could better serve patients and taxpayers, and what policy strategies might help drive costs down.

Host: Leanne Clark Shirley, PhD, Vice President, Programs & Thought Leadership, American Society on Aging

Guest: Ameet Sarpatwari, PhD, JD, is an Assistant Professor of Medicine at Harvard Medical School and the Assistant Director of the Program On Regulation, Therapeutics, And Law (PORTAL) within the Division of Pharmacoepidemiology and Pharmacoeconomics at Brigham and Women's Hospital in Boston. ASARPATWARI@BWH.HARVARD.EDU

This episode was sponsored by West Health Policy Center

Resources

Unknown:

You're listening to Leverage. To Leverage. To leverage. An ASA Studios production. Welcome to leverage ASA's podcast covering the politics of aging. I'm Amy Herr, ASA board member, co chair of its public policy committee and director of health policy at West Health. About a year ago, as a and West health released a special issue of generations journal on older adults and America's health care cost crisis. So much has changed since then, and the need to address health care costs has become more urgent than ever. Please join asaa in West health as we talk health care, policy and politics and get experts ideas on the direction to take for better, more sustainable health care as we age.

Leanne Clark-Shirley:

Hi, Welcome to Leverage the podcast on the politics of aging. I'm Leanne Clark Shirley, Vice President of programs and thought leadership at the American Society on Aging and host of today's episode. Even before the pandemic, the high cost of medications has been an issue that policymakers advocates and all of us who need and take medications have been grappling with. Last year one in four Americans couldn't pay for medicine for someone in their household due to the cost. And we know that drug prices have shot up by about 60% over the last 14 years, even after accounting for wildly popular discounts and rebates. So this past November, West health released a study estimating that over the next 10 years, over 1 million people on Medicare could die because of unaffordable medications. But that study also suggests that reducing prices through tactics like Medicare negotiation, could prevent 94,000 of these deaths each year, and save over $475 billion in Medicare spending. I'm joined today by Dr. Ameet Sarpatwar . To talk through the complexiti s of drug pricing and Medicare's role in it, and to help us under tand how Medicare negotiation ould make a difference in dr ving costs down. Welcome to lev rage doctors opera

Ameet Sarpatwari:

It's a pleasure to join you.

Leanne Clark-Shirley:

You're an epidemiologist, you're a lawyer. You're the assistant professor of medicine at Harvard Medical School and the assistant director of the program on regulation, therapeutics and law at Brigham and Women's Hospital in Boston. So give us a quick idea of your work and how epidemiology and your legal background come together.

Ameet Sarpatwari:

My pleasure. And my work focuses on the effects of laws and regulations on therapeutic development, approval and use and related public health outcomes. And so one critical component of this work is drug pricing, which as we know, is a very complex problem. So understand how we've gotten to where we are today paying far more per person than any other country in the world for our drugs. I draw heavily on both my legal and epidemiological training. And so let me just give you an example. My legal background has helped me better understand the rules of the system, the rules we have constructed for the US pharmaceutical market, including how we've significantly handcuffed payers, granted large periods of market exclusivity for new drugs that can be extended through various gaming tactics. While my epidemiological training has allowed me to evaluate the value of those new drugs, and the possible results of several proposed reforms that are out there.

Leanne Clark-Shirley:

Yeah, got it. Well, it sounds like you're the perfect person to be talking about this issue with so thanks again for being here. In last year, special issue of generations journal focused on health care costs crises. Richard Frank and Lynn Nichols argued that drug prices, increased spending and affordability problems were a direct result of a lack of competition. So I'm wondering, can you help us understand the landscape of competition in the pharmaceutical industry, and how Medicare enters into all that?

Ameet Sarpatwari:

Definitely. And so first, I'd like to say I wholeheartedly agree with Richard when that sub optimal competition is a primary reason for our current predicament. And so when we dig into that, though, I think it's important to note that there are different types of competition. So competition isn't a monolith, a there's different types and those different types are have varying degrees of effectiveness. And so, competition involves a secondly, not just the presence competitors, but the ability of payers to leverage the existence of those competitors. And so let's let me give one example that hopefully it clarifies what I've just said, which is, you know, we know that one great way to lower drug prices is prompt, generic entry. And what do I mean by generics. generics are equivalent versions of drugs made by different manufacturers. And when they enter the market, and they can only do so after that market exclusivity period has ended, that when they enter enter the market, they can drastically reduce drug prices. And so if you have three or four different manufacturers of the same drug on the market, all of a sudden the price of a drug can drop upwards of 80%, close to the cost of production. Wow. Yeah, and so that, that's great. But there's also this understanding that we need to reward innovation by giving a certain period of market exclusivity. And so during that market exclusivity period, there can be something that's called brand brand competition. And so competition between different brand name drugs in the same class. So let's take something that older Americans might be very familiar with, with status. And there might be four or five different statuses on the market that are all brand name drugs, and they will compete with each other. Now, the dynamics of that competition is a little bit more complicated. And so in a systematic review, we found no evidence that that brandberg competition lowers the list price of drugs. Now, what do we mean by the list price, the list price is before after all of those rebates and discounts have been taken into account. But they are important because even people with insurance typically pay their coinsurance based off the list price. But whether when and to what degree brand brand competition lowers net prices, after those rebates and other discounts have been taken into account is still not very well known. But we've seen cases where it can be quite impactful. So we have a study coming out about this next month in Health Affairs that just takes one sort of class of drugs and tries to take a look at the dynamics of not prices. But when we so when we talk about competition, there's different types of competition. And when we talk about competition, competition just isn't the ability, just the existence of competitors. It's how can big payers like Medicare, actually capitalize on their existence. And in the context of Medicare, we've got the largest public payer for drugs, the problem is really acute. And so drug spending in Medicare Part D, which covers pharmacy disciplines, drugs, and Medicare, Part B, which covers physician administered drugs, has grown faster than overall Medicare spending. What does that mean? Well, we know that medical inflation, the costs of medical products, services, already, always well exceeds the cost of sort of traditional inflation. Now, if the cost of drugs is exceeding even the average cost of medical inflation, we've got a problem we've got and we've got to address that problem. And part of the issue is when we're talking about competition and the ability to leverage the existence of the competitors. in Medicare Part D, Medicare is prohibited from negotiating drug prices itself, forcing private insurers participating in the program to negotiate on their own. And also in Medicare, Part D plans must cover two drugs per therapeutic class, and cover virtually all drugs in six drug classes, the most important of which is cancer. And so regardless of the effectiveness of any new cancer drugs that are coming onto the market, Medicare has to cover and what does that mean? So that means that effectively, the impact of the competition isn't going to be as dramatic because if Medicare can't say no to covering the drug, and commercial marketers are quite effective, these companies in marketing to physicians to prescribe these drugs. We've got a little bit of again, an issue in terms of what are the rules of the system that we've created, that's not allowing us to harness competition. And if we look at Medicare Part B, that where the physician administered drugs comes into play, Medicare currently pays whatever manufacturer is charged with no negotiation at all. So it's pretty Remarkable these physician administer drugs are now among the fastest growing areas of Medicare spending.

Leanne Clark-Shirley:

Wow. So why why is that? Why hasn't Medicare been able to negotiate with drug companies?

Ameet Sarpatwari:

Yeah. So I mean, politics is the short answer here. And this all goes back to the creation of the Medicare Part D program under the Medicare Modernization Act of 2003. So back at that time, there was a clause that was inserted into the legislation, precluding Medicare to do that negotiation. And how did that claws come to be? Well, you can think of extreme lobbying and the revolving door of Washington. So a, what's oftentimes brought up in how this came to be is one of the key leaders and pushing forward. The Medicare Modernization Act was a congressman named Billy tos and then chairman of the House Energy and Commerce Committee. As soon that will pretty much at right after the bill was passed, he left Congress to head pharma, the principal trade group for brand name manufacturers receiving a $2 million per year salary. So bottom line is, by law, Medicare is prohibited from negotiating. Got it?

Leanne Clark-Shirley:

Yeah. And yeah, we laugh, but it is a serious issue.

Ameet Sarpatwari:

So the consequences have been dramatic when we think about, you know, even though Medicare is quite generous in the way it covers drugs, seniors are currently paying out of pocket for some blockbuster drugs, well, in excess of five to $10,000 per year out of pocket, that's after they've covered their, you know, their insurance premium.

Leanne Clark-Shirley:

Well, I'm curious, you know, what are the current approaches that, you know, are being talked about that might allow Medicare to negotiate drug prices? And what do you think would happen? What, you know, what, how would drug prices be impacted if all drugs were subject to Medicare negotiation, versus maybe if just some drugs were subject...

Ameet Sarpatwari:

Two to great, great questions. And, again, I think it's important to sort of recognize there's a several ideas out there on how we can do this. And I think it's best to start with one that's largely disfavored. Just to show you why and what the dynamics of negotiation actually entail. And so one approach could be simply let's get rid of that prohibition. That's in the law. And so what would happen there? Well, the Congressional Budget Office has said that this would have an I quote, a negligible effect on Medicare drug spending. And why is that? Well, this, again, goes back to what I said about competition, you can sort of allow Medicare to negotiate drug prices. But if you're still handcuffed as a payer, we're required to cover two drugs per therapeutic class and all drugs in these six protected classes. It's basically like you can't walk away from the negotiating table. So yeah, I can negotiate. But I'm still kind of at the end of the day stuck here. So what what I think most policymakers recognize is that more promising embraced approaches would authorize the HHS Secretary of the Department of Health and Human Services. Broadly, I'm saying he is a secretary, the standard for Medicare, but would allow Medicare to negotiate prices, while also providing some pressure, such as sticks for manufacturers to play ball. And so if we think about the most prominent example of a Medicare negotiation bill, the Elijah Cummings lower drug costs now act otherwise known as HR three, which passed the house in 2019. And would apply to both Medicare Part B and D would allow the HHS Secretary to negotiate the price of up to 250 branded drugs, with the greatest cost of Medicare and the whole us healthcare system. But importantly, that also lack this generic competition. And now, in this rule, it's basically like, oh, okay, so now Medicare can negotiate up to 250 drugs per year. That's great. What is the ceiling for negotiation, so it's automatically sort of dictated There needs to be a ceiling price. And the ceiling price is going to be based on what six other countries pay. So Australia, Canada, France, Germany, Japan and United Kingdom. And it can't be 1.2 times more than what they pay. And so if you imagine that is the ceiling now, how are you going to negotiate? What are the factors that you're going to consider? What this bill instructs the HHS Secretary to consider are things like the research and development costs and the production costs and making the drug, but also critically, the comparative cost effectiveness of the drug compared to alternative treatments. So how good is this drug? What is the value of this drug with respect to what else exists? And here is that where I talked about the pressure or the stick that might exist, the drug manufacturers that refuse to play ball, or, and don't actually end up with a negotiation will be assessed defined, which starts at 65% of the gross sales of the drug in the previous year, which would then increase so there is a pretty heavy incentive for drug manufacturers to negotiate. And so it's basically like saying the US government is taking advantage of its big size and big purchasing power, and extending the benefit, in essence to all Americans. So that's one sort of very prominent idea. It got passed the House, died in the Senate, not so wasn't really even brought up in the Senate. And, but even if you're looking so if you consider that a democrat bill, when say, even if you're going to look at what the republicans have done, the Trump administration had also attempted through rulemaking. So rather than go through Congress, the executive branch has the ability to do rulemaking. And to improve Medicare negotiating power, and they have tried, in Part D, they would have allowed more flexibility to Medicare to manage those protected classes, allowing, for example, the exclusion of drugs that raise their prices beyond a certain amount. And then in Medicare Part B, which is again, the the part that covers physician administered drugs, they proposed something called an international Price Index, which basically would phase in prices, to more aligned with what other countries are paying, and would allow private sector vendors to negotiate prices for drugs, and compete for physician and hospital business. So there's a range of ideas out there. Now, to get back to your sort of last question, which is, well, how much does it matter? That's something like the Cummings bill, the HR three bill would only choose 250 drugs? Well, I think it really is a question of how many drugs are out there that are single source, meaning that they don't already have generic competition? We really don't this negotiating power isn't probably needed for those drugs that have generic competition, because generic competition itself is very effective in driving down costs. Right.

Leanne Clark-Shirley:

Okay, that makes sense.

Ameet Sarpatwari:

So what we really need to focus on those high cost single source drugs. And for those, I think that there have been some studies that show that the proportion of the spend that 250 of the highest cost drugs would account for is pretty large. And so you really need to balance and so my, and this may not be shared by everyone, but my personal belief is, it's an effective strategy to limit it to a certain number of drugs, because the wider the number of drugs you choose, the less bang for the buck you're getting. And the buck, meaning once you're having to spend is not insignificant. Remember, there are administrative costs associated with negotiation, you need to do this sort of comprehensive assessment of what should be the price of a drug. And so I think that they've struck a nice balance and sh are three bill in terms of the overall number of drugs that you would want to negotiate and that it would be meaningful, obviously, would you see greater savings? If you extended it across the board to all drugs? Possibly, yes. I mean, it logic suggests Yes. But you'd also see greater costs in terms of having to do that. Yeah. So is it worth saving? Yeah, yeah. Okay.

Leanne Clark-Shirley:

So I'm curious, you know, if this were to be pulled off, who would benefit from empowering Medicare to negotiate prices? I, I assume, you know, those of us who pay for medication, and potentially taxpayers who pay into Medicare. But is that true?

Ameet Sarpatwari:

I think it's definitely true. And the Congressional Budget Office estimated that the price, the savings from just the price negotiation provision in HR three, would save $453 million over the next 10 years. So we're gonna be talking about a significant chunk of change. Yeah. And yes, like you said, whose prices Oh, that price savings should be reflected in lower price drugs, which will help patients and in less overall spending of Medicare, which will help taxpayers. And so here, I'm a member of a group called the council for informed drugs, which is an independent, nonpartisan panel of academic researchers in drug focusing on drug prices. And I think it's critical that we have these types of groups that can provide what I would say is non biased information, because I think there's a lot of hybrid guns are in this debate that will seek to protect vested interests. And when, on this panel, since we looked at HR three, we came away with a consensus that that negotiation provision would reduce drug spending, and that nearly all patients would see a moderate increase in drug access. And so I think that our methodology is using surveys that use a standard set of questions to better understand opinions on various drug spending. Everything is done anonymously. And it's I think it is quite striking that a variety of academics, who's you know, views on various subjects don't necessarily always align, really came to a consensus here and said, this would be a meaningful reform. So I think, yes, patients and taxpayers would benefit. And now the question is, who doesn't benefit?

Leanne Clark-Shirley:

Who stands to lose from this kind of a strategy? And would it really stymie innovation and drug development? Like, sometimes I was warned about?

Ameet Sarpatwari:

I think we're solely in the grand scheme of things. If somebody wins, does somebody lose? Yes, I think the drug companies would lose a little bit. And the question is, can they mitigate that loss? Yes, I do believe they can. Is that loss? going to impact innovation? And I, I think there The question is, what innovation are we talking about? Because not all innovation is the same. And no matter what anyone proposes in terms of pharmaceutical reform, the standard talking point, but a misleading one from industry, and its proponents will always be that this will stymie innovation, this will. This will stop the flow of, you know, scientific progress in America, and we will have less drugs that come into the market. And I think that's a very powerful rhetorical device that the industry uses. And I think we need to match that with evidence. And I think the evidence is such that we, first of all, if we step back, as I said before, not all innovation is the same. And so are we, particularly for a bill that values the comparative effectiveness of drugs, that could have an effect that really incentivizes drug manufacturers to shift away from drugs that offer only marginal benefits to drugs that really do make a clinically meaningful difference from what exists out there. And if we do that, on net, we could actually be increasing the innovation that we need. So I think that's one novel way of looking at this is, well, what type of innovation would be impacted? And could we actually improve? By having this incentive to create more meaningful products? Could we get better products to market in the grand scheme of things does pharma lose in the short term? Yes, but couldn't result in a restructuring of the system? That's better for everyone on the whole. Yeah. That that's what we're looking for.

Leanne Clark-Shirley:

Yeah, that that would be great. So, okay. We talked about the potential winners, the potential losers, maybe there aren't so much, maybe there isn't so much to be lost. But how do we get this right? What elements? Would a successful Medicare negotiation bill include? from your vantage point? You touched on some things from HR three, but you know, how, how would we really get this right?

Ameet Sarpatwari:

I think there's two things that we really need to have in any negotiation. But one, that something, whether it be carrots or sticks, something that applies sufficient pressure for manufacturers to actually play ball. And in the case of HR three, you saw it was this fine, basically, that if you don't eat, don't come to the bargaining table, and reach an agreement that this is what happens. I think that the second thing that's really important is we don't want this to be a blunt instrument. We want this to be a, you know, a carefree, a precise tool. And what do I mean by that is, we really do want to reward manufacturers for creating good products, we don't want to threaten that ecosystem. And so I think any negotiation bill would have to really instruct that the basis for negotiation would have to consider the comparative cost effectiveness of these drugs. And that is a way to ensure that, at least at the bottom line, we are incentivizing manufacturers to create the drugs we really need and that are going to make the most difference. Yeah.

Leanne Clark-Shirley:

Yeah. That makes a lot of sense. I'm curious, do you care to make any predictions about you know, will we see HR three comeback? Well, we see what do you think we're gonna see over the next few years? You know,

Ameet Sarpatwari:

I think we will see a two or three comeback but whether or not it passes is another question altogether. I think you can probably get it through the house again. But I think it's it's something that you know, enough. Republican senators are opposed to that it's going to be difficult to pass the Senate. I think that there you really need to take a look at what has bipartisan support. And in certain drug pricing measures there are there. There are interests that align across the political spectrum. And I think one of them it's interesting, as I noted that getting generics to market quickly in a timely basis. And that includes biosimilars, we don't call them generics, but they are essentially a different versions of the same biologic made by different manufacturers. We've seen a lot of issues in terms of a tactics that can be used to forestall competition in that space. And the notion of getting rid of those barriers is something that appeals to both Democrats and Republicans. And so I think Bill's that focus on on improving that type of competition from generics and biosimilars, and so bills that target things like patent thickets that cover these blockbuster biologics like humera, which has been around for 20 years, and is still the world's best selling drug. And despite there being by five plus biosimilars in Europe on the market, we're not going to see them until 2023. There are we ways we can tackle that through legislation that I think might actually pass. I think, in addition, there's reform to the Medicare Part D program in general, that's important to both parties. And here, what we're talking about is the out of pocket costs that patients pay. And so older Americans in who have Medicare Part D coverage, like I said, for certain drugs can be paying upwards of $10,000 out of pocket that's after their insurance premium. So there really there is a bipartisan Grassley, Wyden bill that will likely come up again. It was previously mitch mcconnell as a senate leader who refused to put that on the table. Now, the democrats control the Senate, this could come up and I think that we could see some progress here in terms of addressing really the out of pocket costs that seem Yours are having a paid for some of these drugs. And so, in general, are we going to see the dramatic, transformative reform that I think many of us want? Probably not. But are we? Do we really? Do we have the possibility of making meaningful reforms for discrete problems in the pharmaceutical market? Yes, I think we do have that ability. And it really is just a question of applying significant pressure to our elected representatives to make sure that this gets done. Yeah. There's no shortage of good ideas.

Leanne Clark-Shirley:

Yeah, which, which is the good news. And let's hope that we can get something done. This is a huge problem. Well, thank you so much for joining us. It's been great having you in learning about this really complicated issue, we'll make sure to link to some of the studies that you mentioned, and just really appreciate your time.

Ameet Sarpatwari:

No, I really appreciate you guys taking taking time to focus on this important question. And at the end of the day, as my friend David Mitchell likes to say, the bottom line is that drugs don't work if people can't afford them. Yeah,

Leanne Clark-Shirley:

Well, we will follow your work and follow what happens on the hill. And maybe we'll have a conversation to talk about moving the needle on this issue. So once again, take good care.

Ameet Sarpatwari:

Yes, my pleasure. Thank you so much.

Leanne Clark-Shirley:

Thanks for tuning in to this episode of leverage. Make sure to check out the links and resources in the show notes to learn more about today's topic, including an article from asase generations journal on Medicare and drug prices. That publication and this episode were made possible thanks to the generous support of West Health Policy Center. Stay tuned for our next episode of leverage, where we talk about the role of telehealth and value based care. Thanks and take care