Unpacking Policy Options to Promote Prescription Drug Affordability

(This is an unedited transcript. For accurate quotes and presentations, please refer to the full-event video.)

SARAH DASH:  Well, good afternoon, everybody.  Oh, the energy in this room is amazing already, I love it.  Thank you for joining us on this week when absolutely nothing of substance is going on.  We appreciate you joining us today.  My name is Sarah Dash, I’m President of the Alliance for Health Policy, we’re thrilled to be here in partnership with the Commonwealth Fund to bring you today’s briefing on unpacking policy options to promote prescription drug affordability.  For those who don’t know, both the Alliance and the Fund are a non-partisan organizations.  The Alliance is dedicated to advancing knowledge and understanding of health policy issues such as the one today.  We don’t advocate for any policy or regulatory solutions, we are here to just do our best to give you the information.

So as we wrap up a week that was full of hearings, legislation, and — and reports, on the subject of prescription medicines.  Today’s panelists are going to discuss components of policy proposals under consideration and explore evidence about their implications for the healthcare system.

Thank you, I apologize.  All right, so I’m going to go over a couple quick housekeeping notes and then introduce our moderator for today and our panel.  So a couple of quick housekeeping notes before we begin:  If you like to tweet, you can follow us today using the hashtag #allhealthlive, and then after our panelists give their opening presentations, you will all have an opportunity to ask questions.  We encourage audience participation and questions.  There are going to be several ways for you to do that.  You have green question cards in the middle of your tables, and you can write your question down and a member of the Alliance team will come around and pick it up.  Or you can walk up to one of those two mics on either side of the room, or if you can’t get to it, raise your hand and one of us will come over to you with a hand mic, so you can ask your question.  And finally, before you head out into the beautiful afternoon today, please do fill out a blue evaluation form before you go and return it to our staff at the registration table.

So now I’m so pleased to introduce our moderator and our panel — for today’s panel.  The moderator today will be Lovisa Gustafsson who is Assistant Vice President at the Commonwealth Fund.  Prior to joining the Fund, Lovisa held positions with the Marwood Group, McKesson, Kaiser Permanente, the Massachusetts Office of Medicaid, and Avalere Health.  So she has a breadth of knowledge to bring to today’s conversation.

We will also hear from an expert panel of speakers on today’s topic.  Kristi Martin is Managing Director of Waxman Strategies where she leads their healthcare practice.  Prior to joining Waxman, Kristi was a Senior Advisor in the Office of Health Reform at HHS.  Earlier in her career she held positions in the U.S. Office of Personnel Management, (indiscernible) and the GIO, as well as American Cancer Society, and Eastern Seals.

Next we’ll hear from Kirsten Axelsen.  Kirsten is a visiting fellow at the American Enterprise Institute where she focuses on domestic and international pharmaceutical drug policy.  Prior to joining AEI, Kirsten worked for Pfizer for almost 20 years and as Vice President for Strategy and New Business Assessment and Pfizer’s Innovative Health and Essential Health Units, her work included the oversight of business development evaluations in the field of rare disease, oncology, inflammation, immunology and primary care.

 

Finally, I am very pleased to introduce James Robinson, who is a Leonard D. Schaeffer professor of health economics and Director of the Berkeley Center for Health Technology at University of California, Berkeley.  He has published three books and over 140 papers and peer reviewed journals such as the New England Journal of Medicine, JEMA and Health Affairs.  He teaches classes on public policy, health insurance, and the economics of the life sciences industry.  So we’re thrilled to have you all here, thank you.  And without further ado, I will now turn it over to Lovisa.

 

LOVISA GUSTAFSSON:  Well, thank you everyone for joining us today.  I’m going to start off with a few remarks, just a little bit of context for why drug pricing and drug spending overall is such a hot issue right now for policymakers as well as for the public.

 

So increases in prescription drug spending and prices in particular are contributing to unsustainable healthcare costs in the United States with negative impacts for patient affordability, for Medicare and state budgets, as well as for employer’s bottom lines.  Spending on retail drugs in the U.S. grew 275 percent from 2000 to 2017.  That’s 121 billion to 333 billion.  Drug spending is an issue for all payers, both public and private, although we have seen the most growth in the public sector, especially after the implementation of Part D in 2006, when for the first time, Medicare started covering outpatient prescription drugs.

 

In Medicare, drug spending has been growing very quickly at over 10 percent per year, both in Medicare Part D, which covers outpatient, as well as in Medicare Part B, which covers physician administered drugs such as chemotherapies.  This increase in spending offsets the savings efforts that we’ve seen at other parts of Medicare, such as reducing hospital stays.  While rising drug utilization is a product of many factors such as population growth, an aging population and chronic disease burden, recent drug spending growth has largely been due to high prices and a lack of competition.  This is the result of expensive new drugs and biologics coming to market, excessive unjustified price increases of existing products, and fewer patent expirations due to patent evergreening that leads to monopolies beyond intended or justified timeframes.  Specialty drugs are a primary driver of drug spending.  From 2013 to 2016, per capita, specialty drug spend increased by 55 percent.

 

In the coming years, spending is expected to be exasperated even further with higher cost drugs, biologics and gene therapies coming to market that will carry price tags higher than what we’ve seen so far.  As a result of this increase in drug prices, consumers are having a hard time affording their medication.  Almost one-fifth of the under 65 year old adults didn’t fill a prescription due to cost and each year more and more Medicare beneficiaries are hitting catastrophic threshold, indicating they have very high out-of-pocket spending.  At the end of the day, the public wants to see action on this issue.  They overwhelmingly think that prices are too high and close to half list lowering drug costs in the top priorities for improving healthcare regardless of political party.

 

Beyond government payers and patients, employers have difficulty affording the cost of insurance for their employees due to rising healthcare costs.  It’s impacting their bottom lines and reducing the wages that they are able to pay their employees.  In the report we recently published by one of our grantees, the cost of providing healthcare coverage was a top problem that small business owners reported when we asked them what their top two biggest business concerns were.  This was more than attracting new customers and more than the cost of doing business.  And very relevant to today’s conversation, the biggest challenge they face regarding providing health coverage to their employees was the rising cost of prescription drugs.  They feel this both directly in terms of the premiums that it costs to cover their employees, as well as indirectly in the struggles they see their employees go through to afford the drugs that they need.

 

Throughout the Commonwealth Fund, we’re working in a number of areas with the goal of getting to rational drug pricing that assures accessibility and affordability while still rewarding innovation.  First, we need to incorporate value.  Currently, we don’t know if the prices that are in the market actually reflect the value that the drugs provide.  Launch prices need to reflect the clinical value that they provide patients.  Second, the prescription drug market needs to be more competitive, so that market forces can bring down prices over time.  This includes ending patent evergreening and eliminated unwarranted patents.  We also need to make easier for companies to produce and bring to market generic drugs and biosimilars.

 

So with that, I would like to turn it over to Kristi.

 

KRISTI MARTIN:  Can you guys hear me?  Okay.  So Lovisa did a very nice job laying out why this is such an issue and why people are so worked up about it.  And it’s not just from a voter standpoint.  We know healthcare was the top issue coming out of the 2018 elections, but it’s also a major issue that a lot of people want to take on here on the Hill, on both sides of the aisle.  And I think because it’s a kitchen table issue when it comes down to it.  You know, everyone needs drugs at one point or another.  Most of the time it’s during the year, somebody needs drugs.  Most people are on drugs on a daily basis, and so how do we make those drugs affordable?  So I want to spend a little bit of time just kind of walking through what is causing the cost of some of these drivers and how did we get here?

 

And so first I think it’s a really important point to note that Congress created this marketplace.  That they shaped it along the way.  And so this really started in the ‘80s with Hatch Waxman Act, which created the generic drug market and provided a set of incentives to the FDA to support innovation and reward companies for bringing innovative new products to market by protecting their monopoly, so that they could recoup their costs for R&D.  Along with the Orphan Drug Act, it was known that there was not a lot of therapies out there for rare diseases, so Congress intended for — put together some incentives that would encourage companies to go and look for cures for these diseases and effective treatments.

 

Then we moved on into the coverage phase and we were expanding coverage.  So first we provided incentives to help balance innovation with affordability, then we moved on to expanding coverage.  First with Medicaid by providing the Medicaid drug rebate program, so drugs were affordable in the Medicaid program, and Medicaid beneficiaries.  Then we expanded with Part D so that seniors could have access to retail pharmacy, and finally the Affordable Care Act where we required it to be essential health benefit for most health insurance plans.  And we’re still working on creating the right incentives.  21st Century Cures was the latest major bill where we working on ensuring that there were the right incentives in place for innovation.

 

So when you think about drug pricing as an issue, or the pharmaceutical markets, you really have to think about what Congress’s role has been along the way, and their role has really shaped how these markets function, what the incentives are, and how do we get to affordably?  And so, Lovisa talked a little bit about this, but I know that Congressman Waxman, when he was working with Senator Hatch at the time in the ‘80s to really think about how do we create the right incentives.  They were thinking about how do you balance these incentives for innovation with affordability.  And so one of those was to make sure that there was appropriate price competition coming to the market at a point in time when we thought brand names would be recouping all their costs for R&D, and would be rewarded for their return on investment.  And so it’s always been a balance.  It’s always been a difficult balance.  And I think we’re at a point now where this is — this balance is really off-kilter and we need to really think about like, how do these incentives and line up with these affordability needs.

 

And so, I’m supposed to talk a little bit about the policy in play and what’s going on, so I just want to do a quick recap of what the administration is doing.  They’ve been very active the last few years, leading with Dr. Gottlieb at the FDA who’s recently left the FDA this year, but he had a lot of activities that were focused on how to basically correct market issues, right?  Where we have sole source markets and we weren’t having competition come in.  Where there were anti-competitive behaviors.  And so he was really thinking about how to correct these markets when they are out of balance.  And so a lot of activities at the FDA has been undertaking has been focused on those areas.  HHS and CMS has been putting forth some other issues and other programs to think about how do we have more responsible purchasing within our programs.  And so one of those was the International Payment Index Model that was put out at an ANPRN last year.  It is over at OMB right now for review.  But that was looking at under the Part B program, how are we reimbursing for drugs and are we reimbursing an appropriate rate?  And that model was intending to use international reference prices to set reimbursement payment in Medicare Part B.  And so we’re seeing a lot of interest at that level, but also here on the Hill.

 

And so when the Waxman group kind of thinks about areas where there could be bipartisan reform, especially in this Congress.  We kind of put it into seven different categories.  The first category is really about anti-competitive behaviors that are delaying or prohibiting price competition such as generics and biosimilars and interchangeable biologics from coming to market and competing.  The second is, how do we get biosimilars and generics approved faster through the FDA, especially when there is a sole source market, but there is not any market protection for the brand name.  How do we encourage appropriate state policy innovation?  So how do we help states figure out how they can make sure that drugs that they need for their Medicaid program, for corrections, for their state employee health program, is affordable, so that they can provide access to all the medicines that their benefit — that their constituents need.

 

The fourth is giving the federal program, such as Medicare, tools to negotiate.  Tools to figure out how to better reimburse, or more appropriate reimburse for drugs.  The fifth is reforming the incentives in the supply chain and increasing transparency.  I think this is probably — I’ll talk a little bit more about this in a moment, but probably one of the trickiest issues, because I feel like for most people, the supply chain is a black box.  And there is a lot of players within that black box, and it’s not very clear on what player’s roles are, and what they are contributing to the drug spending issue and the drug pricing issue.   The sixth is rethinking government funded drug development.  NIH does a lot of work where they are supporting basic research and drug development, but they are not the only ones — DOD, Department of Energy, there is a lot of other federal agencies that are contributing to the space, and so really thinking about how do we best use those funds to advance innovation.  And the last is reforming monopoly protections.  And we really mean patents here, which is probably the toughest issue to take on, because once you start thinking about patents — [mic feedback] sorry about that — other industries start to come to the table, especially tech companies where their patents are a very important policy issue for them as well.

 

And so just looking at the House bills in play, we have ENC and Ways and Means that have put out bipartisan legislations, already made through their committee process earlier this year.  A lot of these were focused on anticompetitive behavior reforms, as well as improving transparency in our drug system.  And then we just had last week, committee leadership put out a bill that would reform Part D as well as introduce Medicare negotiation.  And pretty comprehensive program.

 

Then we have the Senate bills that are in play.  So we have judiciary that did their markup of a set of bills that were really about getting to some of the patent abuses that are going on, product hoping, issues around how they are misusing patents to hold on to monopolies much longer than Congress had originally intended.  We have the Help Committee Bill that was focused on anticompetitive behaviors and transparency and enhancing PBM reporting for group health plans.  And then lastly, which we just saw a bill text for this week, is Grassley-Wyden Bill coming out of Senate Finance, which was looking at modernizing Part D, includes some of the same elements that are in the House Leadership Bill with the exception of Medicare negotiation, and it’s really focused on how do we improve the program integrity and accountability in our federal health programs that are paying for drugs.

 

So with that, I’ll just say that one of the things that we kind of see across all of these bills is this focus on transparency, program integrity, and controlling costs.  And I think it’s very important to think through the drug pricing crisis that we’re in.  It’s really — does the policy control cost?  Reduce cost?  And by that I mean cost to the beneficiary, cost to the system?  Does it focus on reducing overall spending?  So spending in the system, spending for Medicare and the program taxpayer dollars?  Or does it address crisis?  And I think a lot of the proposals that you’re seeing are really focused on cost in spending, but I think we’re very concerned about what do they do about pricing strategies, and for example, inflation-based rebate penalty in Medicare is in both the Grassley-Wyden Bill, but also the House Leadership Bill.  And if  you have that, I think there is a concern that if you just have that proposal alone without having some type of price containment on launch prices, that we could end up with higher launch prices, because they won’t be able to increase price over time.  So I think it’s just trying to think through, how do all of these proposals really address those three issues:  Spending, cost, and price.

 

And the last thing I just want to say, and I think this gets back to Lovisa’s point and some of the issues that the Commonwealth has been thinking through is, you know, these reforms for the most part, there’s a couple of key missing areas.  One of them is, it doesn’t really address what do we do about these new treatments coming to market, and how do federal health programs afford them?  So when there’s a $2.2 million treatment, how does the State Medicare Program afford that?  And that’s where the drug pricing debate really started, was around Sovaldi and how does a state government afford that for their beneficiaries and their patients?  The second is solving the launch price issue and the third is what are we doing about the supply chain and thinking through issues of the wholesaler, specialty pharmacies, PBMs.  How do all of the Senate incentives line up within that system to encourage higher prices and how can we change those incentives so that they’re focused on helping to make sure drugs are affordable?

 

KIRSTEN AXELSEN:   Hi, I’m Kirsten Axelsen, I’m a visiting fellow with the American Enterprise Institute.  I’ll begin by saying, my views are my own.   I don’t represent the — there’s not one position at the American Enterprise Institute that I’m here representing today.

 

So I’m going to talk a bit about — having had the perspective of working in a biopharmaceutical company for 20 years and also being an economist, I’m going to talk a bit about some of the proposals that Kristi set us up with, and what I think the implications are going to be, both for patients today and into the future and look at some of the different options.  I think we can start with fairly non-controversial common group.  I hope.  Which, living longer is generally a good thing.  Most people want to do that and they want to live longer and better.  I think we also have to have a realistic conversation that living longer, keeping old people alive longer is going to cost money.  And people are living longer and the dramatic declines in cardiovascular disease means that we have more people now living with cancer, living with Alzheimer’s disease, typically past the age where they’re bringing in income.  And it is costly to keep people alive.  There are more cost effective ways to do it, but it is just part of our dynamics and demographics that we are going to be spending more money on healthcare over time.  And the trick is to figure out how do you balance, so that you’re using the most efficient, effective, and pleasant form of healthcare that you can possibly do for people, whether it’s a hospitalization, a drug, or making sure that they have the nutrition and the social support that they need to stay healthy.  Prescription drugs and everything from vaccines for children, up to chronic care medicines have been tremendous contributors to reducing mortality rates in this country.

 

Think a bit about spending in context.  While yes, spending on healthcare overall is going up, and going up faster than our economic growth, spending on drugs has lagged   spending on other parts of healthcare.  That doesn’t mean there’s not a problem.  There is a problem.  There are people out there who have serious illnesses, where there is not a generic option available and they can’t afford their medicines.  And I’m going to focus on some of the things that I think would help address that population in particular.  You know, I also think we have to realize that we’re not going to be able to — the criticality of sustaining the benefit that drugs bring.  We’ve seen cardiovascular mortality go down by 30 percent in the last several decades.  We see the cost of medicines to treat cardiovascular disease drop by 90 percent in many cases, including the statins and blood pressure reducers.  The cost of angioplasty has gone up at the same time.  And so ideally you would have a situation where you would have more people using preventative care earlier and avoiding these costly conditions.  Cost is a part of it, but I also want to say, even with almost every statin being generic and being available at a co-pay often just a few dollars, about 50 percent of people quit taking their statin after a year.  So we have to really think about approaches to get people to adhere to treatment that go beyond the co-pay.  The co-pay is important, but we also have to support people with the behavioral nudges and the right care that they need.  Unfortunately prevention has not proven to be particularly cost effective writ large.  And so we can’t really count on people taking care of themselves within the current system where things are quite siloed and you’re getting probably not the full support that you need at every part of  your care.

 

So we talked a bit about the policy and the legislative history that’s gotten us to where we are.  I’m going to speak a little bit about the reality that providers, the drug companies, and the insurers and the payers — payers of insurance are experiencing right now.  We have policy that’s largely built on the drugs that were in the market 20 years ago.  For example, the structure of Medicare Part D was done when there were very few higher cost medicines.  And there were multiple options in chronic disease categories.  So if you had a multi-tier copay and one drug cost $10 and one drug cost $60, if you didn’t want to pay the $60, you could go to a cheaper drug.  If you have rheumatoid arthritis and you’ve already cycled through your lower cost drugs and your co-pay is several hundred dollars and you don’t have it, you don’t have a choice.  Your choice is to walk away from treatment and too often we’re seeing that.  At the same time, we see providers largely still compensated on fee-for-service, often compensated based on a percentage of the list price of the drug, not the discounted price of the drug.  As much as there is promise and moving towards more coordinated models and paying for outcomes, that’s still been slow to materialize in part because the data is not there to support it.  And we have patients who are facing higher co-pays and higher cost sharing.  The — we really have a bit of an obsession with premium.  The premiums have stayed low in Medicare Part D.  The premiums have been largely held down on the exchanges, but at the same time, the cost sharing has gone up.  So we see people having more unpredictable expenses, when you might argue that the point of insurance is to make your expenses more predictable.  Again, I will raise some things at the end that might make that more predictable for patients.

 

As an example, when we look at prescription abandonment for people taking oral anti-cancer agents — these are pills as opposed to injections.  You know, once the costs get up to several thousand dollars, people walk away from their cancer treatment.  Now they may be getting it from the drug company at a discount, or at another forum, but it is not uncommon with high deductibles.  You can bring the cost of these drugs down, but the co-pay is still going to be several hundred, even several thousand dollars if you’re in a high deductible health plan or a plan where you have co-insurance.

 

This is looking at the total cost of care for someone.  That peak is the month of their diagnosis of cancer.  So roughly 20 percent of their expenses are going to be for drugs over the period of time where they are treating their cancer.  So you see, this is an example of the patient population that is insured with employer insurance.  In the month you’re diagnosed with cancer, your out-of-pocket costs are $1200.  And that includes your hospitalization, your outpatient care.  That’s a lot for anyone to shoulder.  And these are people who have good insurance.  So just sort of imagine where a lot of the anger is coming from the month you get diagnosed with cancer, you’re also hit with a huge expense bill to manage in addition to everything else you’re dealing with.  And as a result, you know, prescription medicines are among the top financial concerns for cancer patients.  So is transportation, diagnostic tests.  I think we really have to be thinking about solutions that deal with the problem for patients across their expenses.  The drugs, absolutely.  But also across the different expenses, because just dealing with the drugs in isolation isn’t really going to resolve the financial concerns that especially very sick people are dealing with.

 

I think are some of the directions that we’ve seen both in the House and in the Senate and coming from MedPac, on how to deal with prescription drug costs.  I’m going to talk a bit about what I see as some of the implications of these.  You know, price controls, whether they be in the form of reference pricing internationally, or other types of price controls, will affect the supply of treatments.  That said, more transparency around the pricing certainly.  I mean, even just simply — you know, if we’re worried about list price because people’s co-pays and co-insurance are tied to it, there are simpler ways of doing it than state by state solutions where they are publishing list prices.  I mean, the list price is publicly available information.  We could easily see a monthly list of people who’ve raised their price more than 200 percent and shine the light on them.  It would be less bureaucratic and less administratively complex.  I think passing through the rebates is helpful, so that the people are seeing the discounts the drug companies are providing at the point of sale.  Helpful, but not sufficient, because not every drug has a rebate.  And in reality, the co-pay should be predictable and I believe not tied to the price of the medicine, so you see the fluctuation.  The co-pay should be based on what’s affordable and what we want the patient to do.  You know, evidenced-based pricing, organizations such as ICER, or private organizations, I think, looking and evaluating drugs is absolutely important.  In fact, there’s even more evidence-based pricing organizations.  At launch, we have the worst information we’re ever going to have about a drug.  So for anyone to say they can do a value-based price for a new drug, they’re wrong, including the drug company.  There is no good way to set the price for a drug at launch.  There is a good way to stop the drug from coming to launch, which is by setting an artificially low price.  So I think we need to think about getting the drugs into the market and collecting better information about them so that the price can be constantly scrutinized.  And there should be more ICERs, there should be more organizations looking at these drugs, looking at the effect of them when they’re in market, how they work in men versus women, in different socioeconomic groups, and seeing whether they really are bringing the value to patients that we need them to.  A clinical trial is an incredibly artificial setting, and while it’s a good start and it gets the drug approved on safety and efficacy, it’s really not the best way to measure the value of the drug.

 

Talked a bit about patient cost-sharing already, so thinking about high-cost drug management, the Medicare benefit, as was designed, there weren’t a lot of specialty drugs.  I think we definitely need to move towards reforms that put more of the risk and the cost for the drug onto the insurance plans and the drug companies in the catastrophic coverage zone.  Right now there’s not a lot of incentive to negotiate for high-cost drugs, because the government covers the cost overruns for the higher cost drugs.  At the same time, the patients need to see some of that relief so that their out-of-pocket cost is going down to something that’s affordable where they won’t walk away.

 

And finally, moving towards a system where we are paying for outcomes, or we’re looking more at capitated payment models, where all the services are brought under one model where health plans, insurers are really encouraged to tradeoff between different types of care.  I mean, right now, with drugs and everything else being in a silo, you can’t really save money or — there’s very little benefit to encouraging preventative care on the drug side in order to save on hospitalization.  I think all providers need to be encouraged and share in the benefit of avoiding costly events for patients.  And with that I’m going to go ahead and stop because I’m out of time.  I just put that final slide up on the screen.  So thank you.

 

JAMES ROBINSON:  Thank you.  I’m pleased very much to be here and share some of my thoughts and from based on research.  We are in this very remarkable moment in pharmaceutical policy debates where there are some very large ideas swirling around out there.  Ideas that were once rather marginal to the policy discussion and they have to do something with — about comparative clinical analysis, about evidence-based pricing, value-based pricing, about what was the relationship — what should be the relationship between prices in the United States and prices in other wealthy countries?  And how should we think about price changes or price increases over time?  These are all big ideas and complex and I think there is a legitimate question:  Can this work?  I mean, even if this was passed, would this work?  What would it mean?  And so I’m going to share some experience from one other major country, Germany, who does this with a fair amount of success.  And I’m going to define what that means, but before I even get into that, I want to say sort of as a preamble, I am not advocating that the U.S. import the German system of drug pricing and drug evaluation, that’s not the goal.  Or that of any other country.  Rather, my perspective is, United States needs to improve — we need to improve our system of drug evaluation, price negotiation over time, so that we don’t have to import drugs and drug prices from other countries.  So I’m not advocating importing drugs and drug pricing, President Trump is advocating that, okay?  I’m advocating, let’s do it the American way, but let’s learn from others.  Okay?

 

I think that — let’s go back.  I think that realistically, the components, when you clear out many aspects, the components of price determination, of value-based pricing, has to deal with four basic elements.  First of all, there needs to be an evidence-based, transparent and generally accepted as generally fair assessment of the effectiveness of new drugs, compared to the existing alternatives.  This is over and above what the FDA requires.  The FDA requires safety and efficacy in controlled clinical trial settings, which is great.  But this is from the point of the view of the purchaser — how good is this new thing and how much should we pay for it compared to the old thing?  You know, when you say, “How much should I pay for this bottle of water?”  Well, the reality is, well, how much do I pay for some other bottle of water?  I mean, is this one any different?  I’m going to compare that.  Secondly, that the price needs to be aligned with the clinical benefit to the patients.  The drugs that are more effective and safe should get higher prices than drugs that are less effective and less safe.  This gives the right incentive to the manufacturers to develop really better drugs.  We don’t want more of the same, we certainly don’t want worse drugs, we want better drugs and the way to do that is to give them higher prices.

 

Thirdly, there needs to be some relationship between the prices paid in the United States and the prices pain in other countries.  I’m not talking about Uganda.  Okay?  I’m talking about other wealthy nations, all right?  And I just have to channel our President again on this:  What in the heck is going on out there?  Okay?  So I think that he has blown the whistle on this and we need we need to wrap our arms around this, because otherwise they are — there is — something nasty could happen that could be an international price index, for example.  And thirdly, there needs to be some constraints on increases in price over time that are not associated with increases in value.  Clinical value.  Now if the drug is found to offer better value and safety and efficacy than previously over time, after launch, I say that drug deserves a price increase.  Conversely, if it’s worse than we thought, it deserves a price decrease, and in most cases, there’s no new research, it deserves the same price.  Okay, adjusted for inflation, or whatever.  Each of these obviously is a controversial topic.

 

Okay, so I want to talk briefly about how they come together in the German market, and this is based on work I’ve done with and for the Commonwealth Fund and a lot of it is case study, so those are endless meetings in Berlin mostly, with health plans, with pharmaceutical manufactures, the physician associations, policymakers, et cetera, to say:  How does the thing really work?  And then, why Germany?  Germany is interesting because it is — I think — the least dissimilar country in the world to the U.S. when it comes to the healthcare system.  First of all, it is — it’s not as big as the U.S., it’s got about 85 million people, um, but it is a wealthy nation, the income per capita is about the same.  It is a decentralized system.  It is very state-based.  Most of the things happen at the state level rather than at the national level.  Those are some examples.  It has a completely private health insurance and multi-payer system, there is no public payer in Germany.  There’s no Medicare, there’s no Medicaid, there’s no public option.  There are approximately 150 private, mostly not-for-profit health plans.  Some of them are called “sickness funds”, most of them are called “sickness funds” and others are — there are some indemnity insurers on the side.  The sickness funds, some of them look like Blue Cross/Blue Shield plans, some of them look like United Healthcare, and most of them look — are employer-based.  So all the large employers have their own health plan.  There’s the Volkswagen plan, the Seamans plan, the Mercedes Bend plan, for employment-based health insurance.

 

And they also, on a cultural level, they have things very similar to ours.   There is a patient culture in Germany, which is:  We want access to all drugs.  It is not politically viable for them to not cover and reimburse any drug which is better than other drugs.  It’s just not a political option.  The reputation risks to the politicians, the health plans — it just doesn’t happen.  They also have a very strong medical community:  Physician professionalism  that’s just not acceptable in Germany for insurance companies to do prior authorization on doctors.  The doctor is like:  I’m the doctor.  I wrote the prescription, the prescription is based on the evidence, end of discussion.  Okay?  The insurance companies do not manage that. They also don’t have cost sharing.  Maximum cost sharing is ten euros per prescription.  A euro is about one dollar and 18 cents.  So they don’t have high deductibles — they don’t have any deductibles.  They don’t have co-insurance, et cetera.   They just don’t do that because it’s not acceptable for people to say, I can’t afford my medication because I can’t afford it.  Or even, people that have disposable income, it’s not acceptable.  So it’s kind of like, wow, if they can do this, can we do this?

 

This is my one — it’s a little bit busy slide, but just to give you how they do it.  I guess I would summarize by the way and say that they do it in a structured manner.  They have a market-based system, but they have a lot of rules that govern the negotiation.  So the drugs go into negotiations, they go into a clinical assessment, then they go into negotiations and then all of the payers pay that same price.  And I want to move right through this and say just a second about the success factors.  So it’s a centralized assessment.  We in the States needs some sort of way, like ICER, those kinds of entities.  We don’t need just one, but we need them to be transparent, evidence-based, without conflicts of interest.  All right?  And so each drug, so that’s based on the pricing, but also the access.  The prior authorization, et cetera.  The whole process needs to be public and transparent.  In Germany, all the negotiation, all the assessments, it’s all public.  Everything is published.  And there’s input from manufacturers, patient advocacy groups are very much a part of it.

 

There’s a couple other aspects of that:  Why do the pharma companies like it?  The pharma companies, by the way, are in the market.  They are not exiting the German market.  They would like prices to be higher, but they like the market.  It is a large market, the prices are decent, they are not as high as the U.S., but they are decent.  The industry is all in.  There’s a big German pharmaceutical industry, Bayer, et cetera.  Swiss firms, the same thing.  Novartis, Roache, they are staying in the market, okay?  There is arbitration if there’s a failure of negotiation, that does go to mandatory arbitration, all right?  But on both sides, there’s reputational damage if they don’t come to a price.  Neither the pharma companies, nor the payers, the insurers, want to be in a situation where an effective drug that’s ruled by the European Medicine’s Association and the GBA as effective, is not available to the people.  And I just want to give — this is just an eco-metric, a little — one slide from a study that we did to see the effect of this.

 

This are comparing German prices and German net prices are transparent, they are published.  The net real pay price, not the list price, the net real pay — it’s the only country in the world that has transparent net prices.  And the only other place in the world that’s got that is Medicare part B.  Because the ASP is the average net price paid by the private payers.  That’s what ASP is.  You see that when the system was passed in 2011, the new system was created, they had about — the prices in Germany were about — the prices in America were about 30 percent lower.  The axis is the ratio of the U.S. to the German price.  So about 30 percent higher than we were paying.  Now it’s about 60 percent higher.  That’s because we in the United States keep on raising the prices of these drugs and in Germany there’s a launch price difference and then there’s a limit on post-launch price increases.  All right?  So there’s a number of components.  I will leave this slide up here, but I wanted to stop here so we can get to the general discussion.  Thank you.

 

[Applause]

 

LOVISA GUSTAFSSON:  Thank you to all of our panelists.  At this point I want to open up to questions.  If you have questions, you can write them on your green cards and just hold them up, someone can come pick them up for you and bring them up.  If you want to go to one of the microphones and ask a question, you’re welcome to do that as well.

 

And so as a few people are getting ready, I wanted to bring up one point, which Kristi, you mentioned briefly toward the end of your presentation, with the Solvaldi example.  And so I think this is one thing that has a lot of people — a lot of stakeholders worried, the pipeline of potentially very expensive products.   Because they’re truly innovative, they are potentially cures, they are really changing treatment for patients.  So how big of an issue do you each see that for the overall healthcare market and for our public payers in particular?  So for Medicare and Medicaid, if there are diseases where they are having a disproportionate share of those costs, how should we be thinking about and addressing those very high priced, but potentially curative therapies?

 

KRISTI MARTIN:  So I guess I’ll start, and then you guys chime in.  I think it’s huge.  I think our pipeline is really hopeful.  I think that we have a lot of really interesting things in the pipeline.  Products coming out.  Potential new cures.  Treatments.  You know, you think if something were to come out, like a cure for sickle cell anemia or a vaccine for HIV, we would want everybody to have access to that that needs access to it.  But the reality is that the way Medicaid is designed to reimburse, they will struggle because they have to balance their state budgets every year.  So we really do need to think through how do we balance affordability with innovation?  And how do we make sure our federal health programs don’t go bankrupt in the process of trying to offer access to everyone who needs it?  And so you know, we’ve heard this a lot of from the states, and I think with Sovaldi, that was kind of the first thing.  And what the reaction is, is that you’ll start seeing things like Jamie mentioned:  Prior authorizations, medical utilization management tools to restrict access, and I think it’s like working with a lot of stakeholders across the continuum of payers, to figure out what’s the best approach.  But I think bottom line is we want to be able to make sure to afford those, but getting back to Kirsten’s point, we need to make sure that we’re paying the right price and the value of those treatments.

 

KIRSTEN AXELSEN:   Great, thank you.  And just to add to that point, I mean, the Hepatitis C medicines were — it was an extraordinary year, right?  And in that year, I think drug spending growth was around 7 or 8 percent overall.  This last year it was less than 1 percent in 2017.  So I think Sovaldi, exciting, very tough on Medicaid budgets.  We — I think want to be careful not to make policy around an individual instance.  The pipeline of drugs that are coming are exciting, are likely to be expensive.  The hospitalization physician care that’s going to go with them is likely going to be expensive.  I think we have to really look at what these higher cost treatments — how are we going to ensure these higher cost treatments, including all the care that goes with them, including making sure we have the data and evidence to examine them and put states and healthcare systems in the position that they can manage these costs effectively and constantly scrutinized and make sure that they are paying the right price.  But seeing something like what happened in the Hepatitis C medicines as a disaster, I think, is really missing the point.  I mean, ten years from now we’re going to have generic Hepatitis C treatments, and that’s tremendous.  And just hopefully we won’t put in things that create a blanket disincentive to bring those new drugs to market, because those are exactly the kind of drugs you want to have on the market.

 

JAMES ROBINSON:  I would agree with all that.  I would say, if you think about the pharmaceutical sector, it’s really — I view it in the financing and the pricing.  It’s like an inverted pyramid.  The vast majority of prescriptions are generic — 90 percent.  And their prices are — with a few exceptions — quite low.  It’s really amazing.  The value to the customer, the customer, is very high.  Then in the middle there’s what we would call the specialty drugs for like, rheumatoid arthritis, et cetera, and they — and Hepatitis C, they have been expensive, but competition is really kicking in there.  The prices of the Hepatitis C drugs have really come down.  Why?  Because it’s a big market, there’s competition, and the payers are now getting more sophisticated about using that competition.  So I think that — I would say in Germany too — that where you have potential competition, you do need an active purchaser to use potential competition and translate it into actual competition, like with biosimilars for example.  That then leads the last group, which is the orphan drugs, the precision medicine defined, biomarker defined drugs and the gene and cell therapies, where they are more natural monopolies, the niches are so small.  And there I would say two things:  First of all, and I believe this is where Kirsten was going:  If we manage the cost of the other types of drugs, that frees up funds to pay for some of this other thing.  Okay?  And that’s a good thing.  And that’s kind of the way the system is supposed to work with Hatch Waxman, and that’s a good thing.

 

I do think that we will probably move towards something — we are putting some sort of an upper dollar limit on these, but undefined.  It’s hard to do that without saying, dollars per quality adjusted life year, which has been a third rail, but you know, the recent SMA drugs are all cost-effective at convention cost per quality basis.  It’s just that on the per patient basis, they are based.  And then that gets us to the final things:  Well, which payer in a multi-payer system, should actually pay for these things.  If we had single payer, which we don’t, it wouldn’t be an issue.  But now if you are a local health plan, or if you are a state Medicaid program, or God-forbid if you are a state prison system, and you just happen to have a bunch of those people, you are in trouble.  All right?  And that is inappropriate for what we — so what we need for these is some form of reinsurance.  Other countries, like Germany, like Britain, they pay for those kind of drugs on the national basis.  And so it’s not a matter of — first of all, it’s not bad luck that some payer has to pay for it, and also it doesn’t create an incentive for payers to try to offload those patients and get them to try to switch to some other plan.  Both of those are dysfunctional.  So I say, we do need to think about some sort of reinsurance for those very high costs, which doesn’t mean an open-ended giveaway, but still some form of protection for the plants and Hepatitis C experience with state Medicaid programs and the prisons and Indian Health Service was a really — wakeup call on that.

 

LOVISA GUSTAFSSON:  Great. So I think our next question is for Kirsten:  Given that clinical trials play a crucial role in the drug coming to market and in determining its clinical uses, why are these same trials insufficient for determining the drug’s efficacy or value?  And what else might be needed?

 

KIRSTEN AXELSEN:  So these drugs — or the clinical trials do determine the drug’s efficacy and increasingly, drug developers are adding points about the value, whether it’s patient reported outcomes or looking at other types of services that are avoided and the cost of those services for using the drug.  Trials are designed to get the drug approved, so that’s safety and efficacy.  You could extrapolate value from that and you can get an idea of the value.  No matter what, a clinical trial is always going to be artificial, even if you were to run another two years’ worth of trials and delay the drug’s entry into the market and people who need it wouldn’t get it, they still aren’t going to represent what the patient population looks like that takes it.  The clinical trials still tend to be more white and more male than the population that actually takes the drug, and it excludes other (indiscernible) diseases.  So yes, there is still this issue of the launch price of the drug.  I would advocate for getting the drug onto the market, getting some real world experience, and having there be a real constant challenge of value and pressure placed on that drug, especially in the — after we get a little bit of evidence.  You know, the U.S. being such an overwhelmingly large part of the market, if there’s a lot of initial dampening downward pressure on the launch price, you will not see as many drugs come to market.  It can work in other countries outside of the U.S., because the U.S. market does subsidize the rest of the world.  And I know that makes a lot of people angry, but it is the way it’s gone so far.  And again, it’s a tradeoff that we make.  Are we willing to have maybe some more flexibility on the pricing to get these drugs on the market with an ongoing evaluation, or do we really feel like we have to dampen those launch prices, no matter what?

 

JAMES ROBINSON:  I’d like to also comment on the very nice points.  There’s been a major evolution, which is generally positive, at the FDA, to accelerate the review of drugs to get them to the patients more quickly.  What that means is that they demand less and less evidence prior to authorization.  And so I think the drugs come on the market without demonstrating safety and efficacy, they have hints or indications of safety and efficacy.  And then in principle, over time, we gather more evidence both through follow on trials and through real-world evidence.  The question is what do with that.  So our understanding of the efficacy of the drug evolves over time.  One thing that doesn’t work is to say, let’s let these drugs get on the market through the FDA and then if it’s proven that they don’t work, let’s have the FDA take them off the market.  That will not fly politically, that’s the death of the FDA.  FDA had one experience with that, Avastin for metastatic breast cancer, it just about brought down the agency.  Congress defunded the Office of Technology assessment. They will defund the FDA drug evaluation if it takes unsafe and ineffective drugs out of the hands of patients who are already using them, and doctors who are already prescribing them.  That’s a non-starter.  It’s got to happen at the payer level.  So the question is:  In the value-based pricing, what you would say is, we launch a drug, the value is uncertain.  There’s indicators and it’s good, but it’s uncertain, and that’s normal.  We should therefore give it a price which reflects the uncertainty and then over time the price — the drug proves its safety and it’s efficacy over time, the price rises.  Or it doesn’t if the evidence goes the other way around.  So this fluctuating price that goes with value over time is a good idea.  It’s administratively can be burdensome.  The industry is not onboard with it for the record.  They want high price at launch and then high price after launch.  That’s what the industry wants.  I’m in favor of high price at launch and after launch for drugs that are safe, effective, break-through drugs.  But for the others, there should be more of a rigorous evaluation.  So value-based pricing means pricing that changes over time based on the evolving evidence of the safety and efficacy of the drug and relative to other drugs.

 

KRISTI MARTIN:  I just want to just add a really quick point about FDA.  FDA’s mission is to ensure that drugs are safe and effective.  And they take that mission very seriously.  They don’t have the authority, or they don’t have the purview to talk about prices.  They don’t have the authority to evaluate based on value.  And so like, if you’re starting to think about value, you kind of really need to think, well, where does that belong within our system?  Does it belong at the regulatory agency who’s saying this drug is safe and effective, it does what it says its going to do, that we put on its label, or does it belong at the payer side, which is like — which would be like CMS.  But I think it’s also figuring out — we mentioned other organizations — I think we need to think about, does this belong at FDA, this type of work?  Or does it belong somewhere else?  Because FDA has a very clear mission and mandate to ensure safety and efficacy and does getting to value and price blur some of those lines?

 

LOVISA GUSTAFSSON:  Great.  I have a question at the microphone.  If you could just introduce yourself before you say your question.

 

AUDIENCE MEMBER:   [inaudible – not mic’ed]  …last year about this time went through for the person that I provide care for, went through the Part D, go to Medicare.gov, fill in the prescription drugs and all of that, some of which are specialty.  And you get back the report on what it’s likely to cost.  You get the premium cost, but you can get the estimated out-of-pocket.  For reference, the low end of the out-of-pocket for this person was $16,000 a year, the high end was a little over $100,000 a year.  Same medications, the only difference was the insurance company that was giving the estimate.  So we’re dealing with an $85,000 difference in estimated out-of-pocket.  Secondly, when went to fill a couple of the prescriptions, which were not specialty drugs, the pharmacy looked at them and refused to fill them because the insurance company reimbursement — and these were the preferred pharmacies from the insurance company — the insurance company’s reimbursement was lower than their wholesale cost that they had to pay for the drug.  And for two of the prescriptions, they were going to lose $800,000 on the first fill.  So when you — we’ve talked a lot about the cost of developing new drugs and this person has benefitted from orphan drug development.  Just the — no one has talked really about supply chain and I wanted to, just looking at the average age in the room, I don’t know how many people may have gone through that, and I just thought it might be helpful to give a real-world example.

 

LOVISA GUSTAFSSON:  Thank you.  Kristi, maybe you could talk a little bit about – there are a few proposals trying to address out-of-pocket costs for patients, especially in Medicare.  Maybe you could talk a little bit about some of those.

 

KRISTI MARTIN:  Yeah.  I think probably no one in this room would disagree with the statement that a current Medicare Part D benefit structure has perverse incentives.  And so the way Medicare Part D is currently designed, it is designed to incentivize higher price products to get pulled through so that patients end up in catastrophic as quickly as possible, because Medicare will pay 80 percent of the re-insurance on those patients and will — that’s how the system is oriented, which is a system that’s really not thinking about how do we get drugs into the hands of patients that need them, so that they can manage their diseases?  And so you know, a couple of different things:  We see in the Grassley Wyden Bill, as well as the House Leadership Bill, that they do modernizing of the Part D program, and same principals, but in slightly different ways.  So in a couple of these, I think get to the issues that the patient that you work with is experiencing Grassley is putting together an out-of-pocket maximum, so like a true out-of-pocket cap on Part D expenses for the beneficiary at $3100 a year, which currently there is no cap.  You — the beneficiary will pay 5 percent even when they get into catastrophic, and that leads to cost sharing that you really cannot — can be very unpredictable for a lot of seniors, especially if they are living on tight budgets.  The House Bill is a $2,000 cap.  And then we also see the redesign of the catastrophic phase.  And so reorienting it so that Medicare is only going to take on 20 percent of the risk when people enter the catastrophic phase, the Grassley Wyden Bill has it split between manufacturers and drug companies — excuse me, manufacturers and Part D plans.  Part D plans are at 60 percent, the drug companies are at 20 percent — similar to how we deal with the coverage gap and closing the donut hole.  And then the House leadership plan has it at 30 percent and 50 percent.  So a slightly higher financial risk for the manufacturers.  And we think just changing those incentives will really help.

 

Other issues I think that we want to think through is, what do we do about DIR fees?  And so I think this gets to some of the supply chain issue.  So direct and indirect renumeration fees are payments paid, and other price concessions paid within the Part D system.  And so what we’re seeing is we have several examples where we’ve seen pharmacy buys the drug, they buy the drug, let’s say for sake of just easy number, $100.  The initial reimbursement from the plan could be $200. So they’re like, great, I make — the pharmacy is saying, “I make $100 on this, great, I process the claim.”  Then there is a DIR callback fee that says, oh, actually, the Part D plan is going to come back and call back that $100 or maybe even more.  And take it back from the pharmacy.  So the pharmacy could potentially lose out.  This will impact what the pharmacy carries, what they are putting into their pharmacy, it impacts how they interact with the rest of the supply chain.  So there are a lot of these other — they are harder to point out and they are harder to identify, because they are kind of behind this cloak, but those are the issues that I think that we really need to think through in addition to modernizing the Part B benefit design.  Thinking through, how do other incentives within the supply chain influence how we reimburse, and what drugs get distributed through our system.

 

JAMES ROBINSON:  I would like to comment just on — there is, I hope, nobody here that thinks that high cost sharing is good for America.  It just isn’t.  There’s just no argument in favor of high cost sharing being good for America.  And there should be no one,  I hope, that understands the system, that thinks that onerous prior authorization at other UM, utilization management techniques imposed on doctors, is good for America.  It just isn’t.  It’s onerous, it needs to burn out, frustration, mistrust.  And we should minimize those.  But we also need to remember prior auth and cost-sharing are the only things that payers have to work with.  If net prices — if they are negotiating in the U.S. system, they only way they’re going to get a rebate or discount from the manufacturers is by threatening prior auth and/or cost sharing.  So if you take those away, then the prices go up.

 

So the way — in Germany, they don’t have prior auth and cost sharing.  Why not?  Because the prices are already negotiated at the national level, and all payers pay the same prices.  So each individual insurer is not in there fighting around that.  So I think when I hear someone say, look at the horrible things of cost sharing, or look at the horrible things of prior auth, I say, I’m with you.  But what about prices?  What about prices?

 

LOVISA GUSTAFSSON:   I think we have a question at the mic over there?

 

AUDIENCE MEMBER:   [Inaudible — no mic]

 

JAMES ROBINSON:  Okay.  So just visualize the German system is there’s a free (indiscernible), there’s a single seller, that’s the manufacturer, and there’s a single buyer, which is the Association of Health Plans that they negotiate at a group.  So it’s what the economists refer to as bi-lateral monopoly by design.  By design.  And by the way, negotiations in the states don’t have to be all — they don’t have to be single payer.  The drug payers in the United States — CVS, Optima RX, et cetera, are the size of European countries in terms of their enrollment.  Right?  So the scale is not the issue.  So the incentives — let’s point out, there’s positive incentives, and we can talk about that, but there’s also negative incentives to not come into agreement.  Because you really do have to ask yourself what prevents the pharmaceutical company from saying:  My list price is my price and if you don’t pay that price, Germans don’t get access to this drug, which is safe and effective, and you want it.  And et cetera.  What prevents them from doing that?  Well, several different things:  First of all, they have to view the process as basically fair.  If they don’t view it as basically a rip-off.  So the assessment is based on evidence.  They have input, they certainly quibble about this and that.  No question.  But basically it’s fair.  And then the structure of negotiations is also fair.  It’s all laid out.  There is input by the patient advocates.  There’s inputs by the physicians — its not like here.  Like, physicians and patient advocates don’t get to decide on the CVS Care Mart formulary, right?  They pick — CVS picks its P&T committee and they decide.  And they don’t have to justify it.  So then there is the threat of mandatory arbitration.  If they have four negotiating sessions, and then if they don’t come to agreement, they go to mandatory arbitration.  The arbitration is independent.  They make a separate assessment.  They rule a price which is — and that’s the price.  The payers have to pay that price.  The manufacturers can exit the German market, okay?  There is no case of them exiting the market with a drug which has a comparative advantage over an existing drug.  Sometimes they will exit a drug which the price is — there’s another drug for that same condition and their price is going to be lower than that, and they don’t want to sell at that price in Germany because they have international reference pricing, then that price will be picked up by Belgium and Spain and President Trump.  So they will exit a market on that.

 

And then there’s reputation.  This is a multi — a repeated game.  The companies in the market, in the — negotiating this year for this drug, and next year for the next drug.  And the year after that for the other drug.  Often the negotiations are done by consulting firms that consult from multiple pharmaceutical companies and they have reputation.  But so does the payers.  If the payers don’t come up with a price, by the way, they are accountable to the Ministry of Health.  The politicians in Germany are really clear about this.  My voters want access to this drug, and if they don’t, you’re in trouble.  That’s basically it.  If this doesn’t work, we’ll just regulate this.  So there’s a whole series on both sides, that there’s a great desire to come to an agreement.  And that’s partly cultural.  And we unfortunately in the United States, have lost — I don’t know if we had that, but we lost it — and now we tend to demonize one side or the other, whichever side you’re on, the other side is the bad guys.  And in Germany, they really don’t have that.  They really have, we all — we all believe in innovation.  We all believe in affordability.  The payers say, we believe in supporting the German pharmaceutical industry.  And the industry says, we believe in the financial sustainability of the German health insurance.  They both agree.

 

LOVISA GUSTAFSSON:  This next one is not threaded to anybody, but maybe Kirsten is the best for it.  How does drug marketing in the United States affect prices?

 

KIRSTEN AXELSEN:   So you often hear, people will pull out the administrative costs and say, it’s as big as R&D or it’s bigger than R&D.  Drugs are not a cost plus pricing.  So like, you don’t add up the cost of R&D plus your marketing and say — you know, plus a profit margin and say, this is the price of the drug.  So marketing doesn’t directly affect the price of the drug.  When a drug company goes to set their price, they basically take the evidence they have, they do some modeling — like, what an ICER or anybody else would do.  They do a bunch of interviews with doctors and patient groups.  They look at what alternative treatments would cost.  So if you’re producing a cell therapy, you might look at bone marrow transplants or other alternative uses.  And then they also talk to health plans about the budget impact.  You know, would you be willing to pay this amount for the drug?  What would that do to your per member, per month cost? And then they put a price out there.  And that list price then is the basis for negotiations for health plans. And I think as all of you have seen, there’s been sort of a widening gap between that price and the price that’s actually paid to the health plans.  So the short answer to your question is:  Marketing expenses don’t directly affect the price of the drug.

 

LOVISA GUSTAFSSON:  On the matter of rebates that you just brought up, earlier this year the Trump Administration introduced their rebate rule, but they withdrew that.  One of the questions is, for anyone up here, your thoughts regarding the withdrawal of that rebate rule.

 

KRISTI MARTIN:  I think from a political standpoint, anything that is projected to increase the cost premiums in particular for beneficiaries, is a very hard decision to make.  And I think that for a lot of people on the Hill, they want to be able to make sure that they can mitigate potential premium increases while doing things that help to contain cost and maybe have an actual influence on prices.  I think when that bill was rolled out, there was a lot of question of, you know, it was focused on Medicare, but then Medicaid seemed to be thrown into the mix, and people were not really sure, because the analysis on the impact on Medicaid was a little bit thin.  So I feel like that the way it was rolled out — I mean, we’ve experienced this whenever I was at HHS and we rolled out our own Medicare Part B demo, you know, sometimes roll-out can be just as devastating as the policy itself in trying to get something pushed through.  But I think ultimately, you know, they increase — the projected increase on beneficiary premiums was just too hard of an issue to try to resolve.

 

KIRSTEN AXELSEN:  If I could add to that point.  I mean, we have — as you mentioned — politically an allergy to premiums going up.  So basically we have a scenario where we’re asking the sick to subsidize the well, basically.  Premiums are low, Medicare Part D premiums have stayed, I think, flat between last year and this year, and we’re pushing an increasing co-pay onto people who have really bad illnesses.  I think the question — and I agree, politically, people don’t want to have premiums rise, but the question is, if you were to have premium growth of a few dollars, the average premium Medicare Part D is around $40 a month for a stand-alone plan.  If those premiums went up to $45 dollars a month, and that would allow the cost sharing to go down for people with cancer or with rheumatoid arthritis, with really serious diseases where there aren’t necessarily alternatives, and you combined it with the reform to the catastrophic coverage, so that the plans and the (indiscernible) manufacturers had some skin in the game, that could start looking like something that actually controls costs and helps patients get some relief.  I think we have to think about these things not in isolation, but a combination of policies that are going to push Medicare Part D to look like the drugs we have on the market now, as opposed to the drugs we had on the market 20 years ago.

 

JAMES ROBINSON:  I think that one of the symptoms — maybe the most obvious symptom of the dysfunction of American approach to pharmaceutical management and pricing is that the major players on both sides of the market have such a low public opinion of them.  The pharmaceutical industry, which is the people who developed a cure for Hepatitis C, are ranked in the Gallup Poll as 25th out of 25 the worst industry in the perception of the American public.  Unbelievable.  What’s the first?  The most popular industry is the industry that brought you avocado toast, it’s the restaurant industry, by the way.  On the buy side of the market, the PBMs, the major buyers, have a terrible reputation.  And the rebate thing, it’s sort of like, how can we punish the PBMs, is one of the things that’s been kicking around, and that was the rebate rule about that.  And I work with employers a lot, and they always badmouth the PBMs that they hire.  But then you start saying:  Oh no, we’re going to take that away, or we’re going to limit that, and they just flip.  These are like drowning people reaching for the lifesaver.  And the notion that if you took away rebates, that the pharmaceutical industry would reduce its prices — it doesn’t pass the laugh test.  Pharmaceutical industry, like every other industry, will always set price as high as it can.  If they don’t, then people in those companies lose their jobs.  That’s the way it works.  That’s what Wall Street wants, that’s the way it works.  So PBMs, we need to have buyers where it’s transparent and where the tools that they use — prior auth, cost sharing, others, are also transparent and based on evidence and based on ethic and I’m 100 percent around the concept that the way that we’re having the sick subsidize the healthy, is unethical as well as inefficient.

 

LOVISA GUSTAFSSON:  A question over there?

 

AUDIENCE MEMBER:  [inaudible – no mic]

 

JAMES ROBINSON:   So the pharmaceutical companies interested in the German market need to go through two hoops:  They need to get the drugs, got to go through the EMA, which is very similar to the FDA, all things considered.  And then they need to get their drug covered by the insurers and through this pricing thing and that’s based on comparative clinical assessment.  And so the companies need to provide evidence of how their drug performs based on — compared to the most closely relevant drug or sometimes non-drug, for that condition.  And they do that.  And they can do it.  I mean, it’s done.  They are doing it.  Now, there’s different kinds of evidence and it depends.  They want early notice, they want to consult with the — it’s called the GBA — when they are designing the trials for the EMA, they also want to talk to the GBA and say:  What do you guys want in terms of evidence?  And the GBA will say:  Well, we want more patient-relevant outcomes, like symptoms and stuff and not just radio graphic biomarker types.  And the companies produce that.  So they could use that in the United States.  They’ve got it.  Just like they have to produce cost-effectiveness analysis for Britain.  They’ve got it.  We don’t ask for it.  Okay, there might be a little bit of translation costs involved in this whole thing, but it’s a doable thing.  ICER does it.  It’s a doable thing.  But it should be done out in public.  What should count?  What does safety and efficacy mean?  Let’s talk about — it means different things to different people.  Patient advocates and patients have their own views of what really counts and that’s legitimate.  We should bring that in, but it should be a public thing and it shouldn’t be hidden either by the P&T committee on the PBM side, or by the pharmaceutical company on that side.

 

KRISTI MARTIN:  To get to your latter point, I don’t know if you heard Mark Miller at AHIP on Monday, he spoke on a panel with Dr. Peter Voc and Bill Core, who’s from our shop.  Matt Iles from AHIP and I think someone from ICER was there too.  You know, I can’t say it as well as Mark, and if anybody knows Mark, you can imagine how this could possibly come out.  But he basically made the point that if you look at how much we spend on innovation, research and development now and how much the pharmaceutical companies are making in terms of their total budgets and how much profit they have and you think about the House leadership proposal and negotiation and how that moves the needle toward slightly lower prices, you’re talking about maybe reducing the spend of R&D single digit percentage points.  So not a lot.  And we would argue, that’s probably not where they would take the cut.  They would probably take the cut in marketing or in other administrative fees and expenses, because when it comes to the U.S., one thing that we should be very proud of is that our FDA does a wonderful job of getting drugs to market.  We approve drugs the fastest of all the regulatory agencies in the world.  We also approve a lot of drugs.  So we typically — patients in the U.S. get drugs first with the exception of the biosimilar market, and then we’re not doing so hot there.  And I think that’s also a point of, if there was expenditures being spent in the right places, then they would be focusing on bringing more biosimilars to market.  When you look at what is being approved out of FDA, when it comes to brand-name drugs, about 50 to 60 percent of the drugs being approved are actually line extension products.  And so they are products that are not new, they are not first in class, they may be changing from 20 milligrams to 40 milligrams.  They may be going from a tablet to a capsule.  Probably more important is when they change a root administration going from intravenous to maybe a pill or oral.  But I think it might change how we invest in and really making sure we’re focusing on bringing drugs that would be the breakthroughs, would be the cures, would be the things where they are filling gaps in the market.  Maybe investment in some more precision medicine where they could potentially set higher prices.  So I don’t think that it will actually hurt innovation. I think if anything, it might target innovation in a better way.

 

KIRSTEN AXELSEN:  If I could follow onto that point and maybe address specifically the House approach, which singles out or calls — would call out drugs for negotiation that don’t have generic competitors.  What that would do is encourage the development of “me too” drugs, right?  Because you don’t have negotiation if you have generic competitors and we’ve just moved away from developing “me too” drugs.  There still are plenty of line extensions and as you know, health plans can decide whether to take those up or not.  But that’s my main concern with that approach.  Is when you’re singling out the drugs that are specifically first in class for negotiation, that encourages manufacturers not to invest in those drugs.  And we have plenty of examples.  Whether we like it or not, manufacturers don’t invest in R&D for markets where they don’t think there’s a viable market there.  I mean you can look at antibiotics, the market size, plus a number of sort of scientific hurdles, have meant that manufacturers have largely left that market.  Once they leave, it’s very hard to get them back in.  On the trade-off of marketing versus R&D spend, a dollar spent in R&D is a long haul and you’re expecting payoff over a long time, but you have to believe that market is there.  Marketing expenses, well, that’s generally short term, so I would actually argue, if something were put in place that would de-incentive manufacturers to develop first in class drugs, they’d probably market the heck out of the drugs they have right now.  And we’d probably actually see more of a push on the marketing side, and less spending on R&D.  Unfortunately we just can’t force people to develop the medicines we want at the price we want them, and I think we can nudge them, but there is going to be a trade-off for price and investment in R&D.

 

LOVISA GUSTAFSSON:  Our last question is going to be right here.

 

AUDIENCE MEMBER:   I’m Dan Klein with the PAN Foundation.  We’ve been helping people with Medicare for the past 15 years, to be able to pay their deductibles and co-pays.  So we’ve provided assistance to hundreds of thousands of patients.  I wanted to draw attention to Dr. Robinson’s case study, because what it really clearly points out is that there’s not much of a correlation between cost sharing and drug prices.  And you can see that from the German experience.  And then the other comment I wanted to make is that we’re at a critical time with regard to changes in Part D and the good news is there are proposals on the table in the house and in the Senate to put a cap on Part D.  The bad news is it’s really not adequate.  So 80 percent of the spending that we have at the PAN Foundation is below the catastrophic cap.  So we’ve provided three billion dollars of assistance over the past 15 years and the vast amount of it is below the catastrophic threshold.  So if the catastrophic cap is set at $2500, let’s say, splitting the difference between the two bills, many, many, many seriously ill patients are going to still be unable to afford access to their critical medications.  So I think that’s really important for policymakers right now to keep in mind and not become complacent about what’s being proposed.  It won’t be sufficient and we need to keep moving more toward — whether it’s the German model or the Japanese model, or whatever model, we need to really push out-of-pocket costs way below where they are currently at, and even far below where they are being proposed to be in the future.

 

JAMES ROBINSON:  There is a particular correlation, I think, that countries like Germany that don’t use a lot of cost sharing, it’s because they feel that the prices are being managed in a way that’s affordable.  And so that my view is that people that — which I’m one — that advocate lower cost sharing and less prior auth, should also take on the value pricing side.  And it goes the other way too.  Payers that — or anybody that advocates value-based pricing or price moderation, should also take on the patient access burden.  I don’t — I’ve now channeled President Trump, Senator Grassley, and last is going to be ICER.  They got a felicitous tagline now:  “Fair prices, fair access.”  And I think we need to hold onto that.  Fair access means that if you’re patient, and you’re appropriate on the evidence-based for the drug, you should get it.  And it shouldn’t bankrupt you.  And your doctor shouldn’t be tormented by prior authorization.  Just get it.  I mean, hopefully take it and everything.  But then the world of the taxpayer and the payer can’t be expected to pay just some sort of unmanaged uncontrolled number.  So it goes both ways.  Fair price enables fair access.  Fair access enables fair price.

 

LOVISA GUSTAFSSON:  We have time for one more question and I think we heard a few times today about transparency in a few different ways, whether it’s prices to patients or be in the distribution system.  But it’s an issue that’s coming up a lot and a lot of the bills are trying to address this.  So I guess from each of your perspectives, what do you think is the most important area to have more transparency.  Is it one that’s currently on the table?  Is it one that we’re not thinking about or talking enough about?  If you have thoughts on that transparency question.

 

KRISTI MARTIN:  You know, I think that when HHS published the drug spending dashboards and I guess it was 2016, and then this administration continued to publish them, actually added more drugs.  That gives a lot more insights to what’s going on in Medicare and Medicaid.  I think one of the keys that we were missing in one of the, I think, most important pieces:  We need to have more transparency about what net prices are in our system.  We don’t know what Medicare Part D actually pays net prices.  We don’t know what those negotiated rates are.   We don’t know what the commercial market pays.  We don’t know how much the wholesaler is getting from this or how much the specialty pharmacy — but having a better understanding of how the system actually works, could probably go a long way.  And I will just say for transparency in general, that this is not the first time we’ve had a conversation about transparency when the anti-retrovirals were first introduced in the ‘90s, the same conversation happened, and basically we never really got to transparency.  But the conversation around transparency did have a reaction from the industry.  Manufacturers did kind of hold back price increases.  I think we’re seeing that happen today too.  We saw no price increases earlier this year.  But that’s only a temporary effect for having that conversation, so we really need to think, what are the long-term solutions?

 

KIRSTEN AXELSEN:   I would argue that we need to have more information and more transparency around how things are working in the healthcare system.   We don’t have naturally interconnective data being available on the market.  Provider practices are using it to manage their own practice.  Health plans are using it to manage their own populations.  Drug companies are using it to study their drugs.  Academics should have access to interconnected data.  Like I said earlier, there should be dozens of ICERs and they should be studying the drugs, the hospitalizations, the population differences.  If we had more people looking at the growth in opioids, we would have had signals earlier that there was a problem going on.  We would have seen the related hospitals.  There has to be a way to get over our privacy concerns and create greater access to data across sites of care.  That can include prices, but just focusing on the prices or just focusing on the net price is not going to get us to better health and more cost effectiveness in the system. It’s going to have to be looking across the different places that people are getting their healthcare and looking at whether they are male or female, white or black, differences in age, so that we can sus these things out with like, the intelligence of our nation, as opposed to everybody doing it in their little negotiations for their own rate setting and practice management.

 

JAMES ROBINSON:  Just two points:  I also agree that it would be good if we had multiple health technology assessment entities.  ICER and (indiscernible) is kind of one, and if there was multiple, that would be a good thing.  We do need to be a little bit cautious.  The pharmaceutical industry is out there funding major centers at the universities, my colleagues, and there is no question that the goal of this is to say that the current prices are value-based prices.  I mean — and so there’s got to be some sort of skepticism about that.  In Germany they don’t do that.  It’s a not-for-profit, but it’s not governed by or funded by the industry.  That’s one thing.  The other thing is on the argument against transparency — the concern about transparency is that although it might be useful for the consumer and maybe the insurer, the buyer, it will allow the sellers to see what each other’s pricing and then therefore implicitly collude and raise prices; that’s the concern.  And there’s certainly, you look across different industries and does that kind of happen sometimes?  Yes.  But what I find, another feature of the German market is that all the net prices are public.  Everybody is public.  And do the industry look at each other’s prices?  Absolutely.  But you’ve got a purchaser looking at it too.  So I think that price transparency isn’t inherently going to lead to cost growth because of that.  It just has to be — once again, it’s how it’s done.  You need a sophisticated purchaser if you want to have a value-based outcome.  We’ve got sophisticated manufacturers.  They are very sophisticated, very good, very savvy.  We’ve got an unsophisticated, fragmented buyside of the pharmaceutical market, and that’s why we have the results that we have in the U.S.

 

LOVISA GUSTAFSSON:  Thank you.  I think we’re just at the end of our time, so I will turn it back over to Sarah.

 

SARAH DASH:  Great.  Thank you so much, Lovisa, and we are out of time.  I want to thank all of you for coming.  It is our job at the Alliance to make sure everyone is heard and despite some struggles I think we got there today.  So thank you all.  I want to thank our extraordinary panelists for bringing your expertise.  I know we are just at the tip of the iceberg of what you could tell us, so thank you for sharing your time with us.  I want to again thank the Commonwealth Fund for your partnership.  Please do share your thoughts with us on your blue evaluation form.  We really do read them.  And please just join me in thanking our panel.

 

[Applause]