As Prescription Drug Costs Climb, Solutions Remain Evasive

Courtney Sherwood, The Lund Report

Prescription drug costs are rising so fast that sick patients, pharmacists and health insurers can’t keep up, but the most straightforward ways to rein in prices would have unintended consequences that could hurt patients or halt the development of new cures, panelists said Wednesday morning in a lively discussion hosted by the Oregon Health Forum on “What’s Going on with Pharmaceutical Costs?”

Even so, insisted state Rep. Rob Nosse, Democrat from Oregon District 42, the Legislature must act.

“I can’t keep having people in this industry tell me, ‘No, it’s too complicated, we can’t do anything. You are going to wreck research and development,’” said Nosse, the only panelist from outside the healthcare sector. “I need the pharmaceutical industry to come forward and suggest some solutions, because we are on an unsustainable trajectory.”

Nosse sits on a legislative task force that last week unveiled a proposal to limit the cost of prescription drugs.

He was joined on stage by:

  • Ryan Dunlap, chief financial officer and senior vice president at MolecularMD Corp., who argued that caps on pharmaceutical prices could make it impossible for companies like his to raise capital to fund cutting-edge drug research.
  • Robert Judge, director of pharmacy services at Moda Health, which has seen even established and generic drug prices climb in recent years, and who said that pharmaceutical costs are pushing insurance premiums upward.
  • Deborah Michaelson, vice president of operations at Ardon Health, who outlined a system in which patients with the same condition, prescription and health insurance plan might pay drastically different prices for medication based on how well they navigate a labyrinthine system of discounts and rewards.
  • And Annalise Dolph, senior director of advocacy for the west region of the National Multiple Sclerosis Society, who said MS patients straddle many aspects of this issue: struggling to pay for treatment as prices rise, left with unaffordable or inappropriate care when health insurers try to rein in costs with drug formularies, and desperate for investment in research and development of new medications.
  • Moderator Jesse Ellis O’Brien, policy director at OSPIRG, called the conversation, “a very interesting – and certainly very timely – discussion of prescription drug costs.”

Though panelists did not leave the Oregon Health Forum with a grand solution, they did outline several key sticking points that must be addressed to halt the rise of escalating drug prices.

Raising capital, efficient markets

Dunlap said he could not speak to the high-profile drug price hikes that have garnered national headlines and outrage, such as recent increases in the cost of AIDS drugs or the Epi-Pen. But he said he worried that legislation aimed at limiting pharmaceutical costs could stifle research and innovation.

In a previous job as CFO at Galena Biopharma, Dunlap roughly screened 4,000 people so the company could identify 760 patients to include in a breast cancer treatment vaccine trial. The cost of the trial required the company to raise over $100 million – and if the treatment failed, investors might not see any return on those funds.

“If return on investment was capped, we would never have gotten that program off the ground,” Dunlap said. Investors were willing to put big money up, knowing they might lose it – but only because they anticipated a big reward if the drug succeeded.

“If the rewards are less than the risk, capital flows away,” Dunlap said. “Markets are efficient.” Even though he occupies a prominent position at MolecularMD, Dunlap emphasized he did not represent the Pharmaceutical Manufacturers of America, better known as PhRMA, as he frequently echoed its line of thinking.

Financial markets that govern investment in pharmaceuticals may be efficient, but Judge at Moda Health countered that the buying and selling of drugs that have been approved by the FDA is anything but.

“It’s a bizarre world in terms of how drugs are priced,” Judge said. “I can grant that manufacturers have all these costs and must price their products for the marketplace. But year over year, that cost goes up. With no other product, do you have prices rise like this over time as they age?”

Judge presented a series of statistics he’s gathered about prescription costs at Moda:

  • In 2010, about 13.5 percent of the company’s pharmacy budget went to high-cost specialty drugs.
  • By last year, 35 percent of the pharmacy budget went to these drugs.
  • By 2018, he forecasts these drugs will take up half of Moda’s pharmacy budget.
  • Only 2 percent of patients use these high-cost drugs that will soon consume half of the Moda pharmacy budget.
  • “That’s not denying that there are wonderful therapies, innovative therapies, helping people with complex conditions live a better life,” Judge said. “With a 20-25 percent annual increase in the cost of high-cost drugs, at some point you are going to squeeze out healthcare delivery. Because the cost of these drugs translate into premiums.”

Dolph echoed Judge’s concerns about rising prices. No cure is available for MS, and no one treatment is universally effective for all patients, she said. New treatments are necessary – but for some patients, long-established medications continue to be the best option available. While one might expect the price of these older treatments to go down, the opposite has happened, however.

“There’s over a dozen drugs on the market. The first generation of drugs originally cost $8,000 to $11,000. Those same drugs now cost $60,000 a year,” Dolph said. “And you really need multiple generics to affect price. We only have one.”

Dolph noted that the response of insurance companies to this situation can make things worse for patients.

“We often hear the patient needs to have skin in the game,” she said. But higher co-pays and other obstacles created by insurers can cause delays or caps in medication, resulting in relapses or worsening symptoms – which can, in turn, lead MS patients to miss work, lose their jobs and struggle as family caregivers.

“It’s easy to talk about the cost today, the cost to the plan, the cost to the premium – but we also have to look at the cost to society, when people are losing their jobs and having to shift to government programs for support,” Dolph said.

Yet there’s little, if any, data available about why drug prices are so high, and major federally funded programs are prohibited from negotiating with pharmaceutical companies to get a better deal. The U.S. Department of Veterans Affairs is an exception to this rule – but its negotiations are held behind closed doors, and it’s not clear how much the VA actually pays. Other countries consistently pay less for the same medications as the U.S.

Michaelson described the rise of specialty pharmacies, such as Ardon Health, which help patients navigate this complex system – in part by seeking discounts and identifying drug and pharmaceutical manufacturer programs that can reduce costs for patients in need. For a pill with an average co-pay of $150, a patient could reduce his or her co-pay to $20 with the help of a specialty pharmacy.

“It’s so complicated,” she said. “Patient assistance programs differ from drug to drug and manufacturer to manufacturer. They differ if you have commercial insurance or a government payer.”

As Michaelson and others pushed for more clarity in drug pricing, Nosse noted that the Legislature may consider a program requiring drug companies to justify pharmaceutical rate hikes.

“As an ex-auditor, I don’t have any problem with transparency,” Dunlap of MolecularMD responded. “The issue I have with some of the disclosure requirements that are on the table is a lack of clarity about how the information will be useful.”

For example, a pharmaceutical company that develops medication from scratch will have a different financial situation that one that licenses other firms’ discovery. There are different funding structures used to pay for research and development.

“What you’re saying is, we’re going to disclose our costs, and you are going to decide what our margins are going to be,” Dunlap said. “But are you or the general public well informed enough about risk?”

Dolph noted that private investment is not the only source of funds going into the development of new drugs.

“I can only speak to the class of drugs I represent: The breakthrough drugs are being built on research funded from the federal government or organizations like the MS Society,” she said. “If we want to get angry about how much drugs cost, we should get angry about the government’s role too.”

Moda’s Judge asked whether the cost of developing new drugs was being unfairly borne by Americans alone because of U.S. laws that limit bargaining and transparency.

“I buy part of the idea that you don’t want to quash innovation, because it’s expensive to develop drugs,” he said. “I scratch my head when the same agent is available in virtually every other country in the world at a price that is significantly less than what we pay in the U.S.”

And Nosse noted that many of the most egregious drug price hikes have not involved new medications – and without legislation limiting these price hikes or requiring disclosure of new data, there may be no way to tackle the problem.

“What caused the Epi-Pen to go up so much in one year? What caused the AIDS medication to go up so much in one year? It’s already on the market and now it’s increased dramatically,” Nosse said. “It doesn’t feel like a market that actually works like a normal market. We don’t understand what is going on.”

Reach Courtney Sherwood at Follow her on Twitter at @csherwood.

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