Defending Drug Prices: Successes Must Sustain the Failures

Go to any pharmaceutical related event these days and one of the first topics mentioned will be drug pricing.

While the FT US Healthcare & Life Sciences Summit in New York City last month was no different in that respect, what was unique were some of the very frank conversations that took place about pricing, innovation, and how the subject matter gets thrown around like a proverbial football when it comes to politics.

Calling much of the reform, when it comes to drug pricing policies, “penny wise and pound foolish,” Dieter Weinand, member of the board of management and president, pharmaceuticals, at Bayer, set the tone for several panel discussions that followed centered on the subject.

Part of his argument was that, ”short-sided pricing policies will stop progress.”

Comparing cancer survival rates in 1980 to now, he challenged the audience to imagine a world without pharmaceutical innovation, reminding them that creating cutting-edge drug therapies is a risky business and costs a lot of money.

Weinand took sharp aim at governments and politicians, as well as other areas of the healthcare system, arguing that many are focused on, “short-term political incentives rather than scientific outcome-based incentives.”

“Unfortunately, interest in healthcare doesn’t always equate to better healthcare,” he said.

Weinand went on to say that critics are thinking too short-term and “don’t care about other areas of the patient-care process.”

Instead he suggested they need to stop thinking in silos and start thinking longer-term and across various budgets, explaining the economic impact of a drug is almost always cheaper than the alternative.

Caught in the middle

“Healthcare in America has politicized and polarized American society,” said former Sen. Tom Daschle, founder and CEO of The Daschle Group. “How we address it, and what the role of government is, has become a divisive issue.”

Daschle said that while drug prices have become a bipartisan issue, no one can come to an agreement on a solution, which leaves pharmaceutical leaders in an uncomfortable position.

“The biggest threat for Merck right now is uncertainty, because our ability to invest $7 billion in R&D becomes a challenge in our marketplace,” said Robert McMahon, the company’s president, US market, global human health.

Creating new pharmaceuticals is a high-risk business. For every drug that is successful, there are countless others that don’t make the cut. There has to be some sort of balance, McMahon believes.

“We have to price in a way to reflect the value of the product and make it affordable,” he said. “If we can’t make products affordable, then our products can’t help anyone.”

Justin McCarthy, senior vice president, global policy and international public affairs, at Pfizer, said that when the company prices a drug they look at a number of factors.

“What is the competition, what value does it add, what value will it deliver to the healthcare system?” questioned McCarthy. “We look at all those things when deciding what’s a fair and reasonable price. We have to sustain a very high-risk industry. Whenever we get a medicine [that succeeds], it has to be able to sustain all the failures.”

He added that Pfizer doesn’t make the decision on its own.

“We talk to providers, plans … we talk to over 200 stakeholders before we set a price.”

McMahon said that Merck is very interested in value-based payments, and has made offers of doing business that way many times over the last 12 months, but “there are impediments,” including regulatory ones. However, he said the company “will keep trying.”

How much longer will it go on?

“In the US market, the price of a drug is whatever the market can bear,” said Aaron Kesselheim, associate professor of medicine at Harvard Medical School. “We allow pharma to charge whatever the market will bear, but the problem is that it isn’t a very competitive market.”

Kesselheim was critical of the pharma industry, specifically taking aim at its net pricing, negotiating, and disclosure policies, contending the public doesn’t know whether or not a drug really works the way it claims to. He put extra focus on why net pricing is not published, and the pharma industry’s “lack of transparency,” which was met with immediate backlash from industry leaders.

“The reason it’s not published? It hinders your ability to negotiate the best price and best deal,” said McCarthy. “We post every clinical trial, positive or negative, and submit [the findings] for publication.”

Everett Neville, senior vice president, supply chain and speciality, at pharmacy benefit manager Express Scripts, further defended price negotiations.

“I have no clue what National pays Ford for cars,” said Neville. “No industry published their negotiated rates. I would love to know the cost of my kid’s college education, but I have no clue how Tufts University gets to their tuition price. No one publishes this. Clients know what they are paying.”

That said, he added that Express Scripts is very transparent when it comes to what a person will pay for their prescription.

“You can go on our website and it will tell you what your drug is going to cost,” Neville said. “It’s not a lack of transparency.”