Prescription Drug Affordability & Innovation

PLEASE NOTE: This is an unedited transcript. Please refer to the video to confirm exact quotes.

SARAH DASH: Good afternoon. Thank you all so much for being here today with us, especially if you were up in the wee hours of the morning. You are all gluttons for punishment, aren’t you? Thank you. Thank you for being here. I am Sarah Dash, I am President and CEO of the Alliance for Health Policy and we are really delighted to be hosting this briefing today on prescription drug innovation and affordability, policy options and stakeholder views.

For those of you who many not know, the Alliance for Health Policy, it is our mission to serve as a non-partisan educator and convener on really important health policy issues, and this is no exception. With today’s briefing, we are a little bit out of the frying pan, into the fire, very important events of last night, and prescription drug affordability and innovation is an incredibly, incredibly important topic. Many, many people rely on prescription medications to stay well or to treat any range of illnesses. There are amazing therapies in the pipeline, and at the same time, concerns about affordability have been at the forefront.

Today’s panel is going to talk about what some of the facts are, what some of the balance and the tradeoff is between these important considerations. We are really lucky today to have a guest moderator with us, Larry Kocot, who is a principle and national leader of KPMG Center for Healthcare Regulatory Insight. As our guest moderator, thank you, Larry for being here. He is going to introduce our phenomenal panel that is going to help us understand these issues, and we hope that you are going to walk away today with a better understanding of where the discussion stands.

A couple of quick housekeeping items: If you want to join us at Twitter, you can tweet at All Health Live, using the hashtag #allhealthlive. I don’t normally make any announcement about phones, but some people are getting flashflood warnings on their phones. Hopefully we will stay dry in here, but if you could just silence your phone, that would be fantastic. Then of course, as we know, it’s a very busy day in healthcare. If you do need to leave early, fill out your blue evaluation before you leave and put it on the table. There will be an opportunity for question and answer period following the discussion format. As one final note, today’s discussion is a little bit of a different format that you might be used to for the Alliance. We are doing this more of a discussion, and with no slides. So, if you have thoughts on the format, or any other formats you would like to see from us, please also note that on your evaluation. So, with that, I’m going to turn it over to Larry Kocot. Thank you.

LARRY KOCOT: Thank you, Sarah, and thanks to all of you for being here to participate in this very timely discussion on prescription drug affordability and innovation.

Drugs play an important role in medicine as the first line of therapy for most medical conditions that are diagnosed today. Biopharmaceutical innovation has been a critical success factor and progress that we have made over the past 50 years in treating a wide variety of diseases and reducing mortality for many medical conditions. Just over the horizon, we can see breakthroughs in science that will transform healthcare in a growing number of therapeutic areas. In addition to what’s already on the market, new treatment approaches in cell therapies and genetic targeting, along with exciting progress and crisper gene editing and the most recent announcements about new breakthroughs in immunotherapies such as CAR T-cell therapies for certain cancers, all hold exciting promise for new treatments that will save and extend lives and improve the quality of life for millions of Americans. However, as innovation continues to thrive, drug costs are expected to rise along with overall health spending, and consumers are finding it hard even today to pay for their share of drug costs. As we are going to discuss here today, there are a variety of reasons for increasing drugs costs in the shifting burden of those drug costs. As you are going to hear today, there are a number of policy solutions to address various facets of this problem. Most of us will agree here that the policy solutions that promote access and affordability, must also balance the impact that these solutions may have on incentives and behavioral changes in pharmaceutical marketplaces. For this reason, the solutions the target biopharmaceutical costs and prices should be carefully considered to be sure that they don’t have unintended consequences that harm innovation and competition among pharmaceutical manufacturers.

The goal of today’s discussion is to understand current issues and prescription drug affordability, and innovation and to focus on some specific proposals that the private sector, as well as the public sector and policy makers can consider in addressing the issue of rising drug costs. With that brief background statement, I would really like to just get into the program here and introduce our distinguished panel. Please note that you have their full bios in your packets. This will allow me to be brief in the introductions and not do an injustice to the extensive backgrounds and experience that these panelists bring to this conversation.

To my left, and Henry, please forgive me, that is not a value judgement at all, is Henry Waxman. He currently serves as Chairman of Waxman Strategies, a public affairs and strategic communications firm. Henry spent 40 years serving with distinction in the House of Representatives. Joel White is President of the Council for Affordable Health Coverage. Joel Spent 12 years on Capitol Hill as a professional staffer working on health and drug issues in the House of Representatives. And over to my right is Steve Miller. He’s Chief Medical Officer for Express Scripts, a leading pharmaceutical benefit manager. Dr. Miller’s expertise stands numerous healthcare subjects including pharmaceutical pricing and clinical optimization. David Mitchell is President and Founder of Patients for Affordable Drugs, a non-profit organization focused on achieving policy changes to lower the price of prescription drugs. Finally, last but not least, to my right here is Robbie Zirkelbach, is Executive Vice President of Public Affairs for the Pharmaceutical Research and Manufactures of America. Robbie serves as Pharma’s lead spokesman on pharmaceutical value, pricing and access.

We are going to start by asking each of our panelists to provide some opening comments on prescription drug access, affordability and innovation, to get their perspectives respectively. I’m going to ask that each of you provide — keep your statements brief so that we can provide plenty of time for the discussion. Also, to the extent that you reference a policy solution today, and I want to be clear and try to do this in a way that everybody stays with us. I know people have varying levels on these complex issues. To the extent that you do reference a policy solution, please be specific about the problem that you think the policy solution is going to solve. Also, if you are using technical terms, just pause briefly and try to explain them a little bit — the same with acronyms, if you will. With that, Henry, why don’t we turn to you to start?

HENRY WAXMAN: Thank you very much. I assume the mic is on. I’m delighted to be with all of you, and to talk about this issue.

I go back further than most of the panelists in looking at the history of it, because in the 1980s when I was Chairman of the Health and Environment Sub-Committee of Energy and Commerce Committee, we looked at these problems in a different way. We wanted to give a greater incentive for the development of new pharmaceutical products. We wanted to do that not just for regular drugs, which at that time did not include biotech drugs, but small chemical drugs. We wanted to do it for orphan drugs, which were drugs for people with rare diseases. We passed two separate bills: One the Orphan Drug Act, and then after that, the Hatch Waxman Act. The Hatch Waxman Act not only gave incentives for pharmaceutical developers and manufacturers to produce new drugs, but we wanted, after a patent, plus an exclusivity period ended, to have competition. We had adopted an abbreviated process for generic drugs to be approved by the FDA. At that time, as amazing as it sounds, in order to get a generic drug on the market, the generic drug manufacturer had to go through all the same studies to show that the drug that they were copying was no longer patented or at that point, patented, no exclusivity involved, to make sure the drug was the same. You can imagine going through all the tests to show that your drug was the same as the original drug, which was probably unethical to do those clinical studies, but we said, let’s get an abbreviated process for new drug applications for generics. It broke upon the opportunity for generics to compete. So, we had incentives on the one side, and competition on the other, to provide the balance that we hope to achieve. That balance worked for many years, but things have changed since that law was adopted. One of the changes is that we’ve had several breakthrough therapies and cures have been introduced. But we greatly expanded access to prescription drug coverage. There was not prescription drug coverage for the most part. Medicare did not cover it until much, much later. Medicaid covered some of it, but that was also later. And private insurance by and large covered it, but with the full coverage under Medicare, Medicaid and private insurance, there was a greater access to prescription drugs.

Well, a lot of reasons can explain the high price of drugs, and we issued a report recently through the Commonwealth Foundation, which I think has been available to everybody here, and that report goes through a number of instances where the prices of drugs are dramatically high. We know that the American public is outraged at the high price of drugs. We know that people are being outpriced, so they can’t even afford the drugs. They are splitting them up, or they are taking them irregularly, and we know that this is a very high priority for the American people. Polling shows it, and you are going to hear more about that in our discussion.

What do we do about it? The first point I want to make is there is no silver bullet to address the issues of prescription drug pricing, but I believe that if we start tackling this issue, we should start with figuring out what are the drivers of high cost. And we have to approach this on a bipartisan basis. All the legislation dealing with pharmaceutical issues have passed with bipartisan support, and we must absolutely have bipartisan support. Over the last several months, we tried to identify the problems leading to the current prescription drug pricing and the drivers of those problems. The complexity of the issue lends itself to starting with an understanding and agreement of the various problems and what these drivers are, rather than starting with solutions, we think we have to start with the issues and the problems involved. If we are going to have an understanding of the problems and then try to reach a bipartisan solution to some of those problems.

Let me talk about some of the current drivers and examples of policy options. There is a high launch price when a new drug comes on the market, and not only that, there are high annual increases for patented brand name drugs and orphan drugs. After patent protections and market exclusivities, we have government purchasing these drugs and they might want to use a value-based or outcome-based purchasing or require additional information for manufacturers seeking orphan drug status, but never the less, we give a monopoly to the producer of a new drug. We don’t have competition at that point. Some manufacturers create or take advantage of natural monopolies and a natural monopoly would enable them to significantly increase prices. An example of that would be that there is no other manufacturer of that same drug. So we said, well, maybe we can look at policies that might provide targeted or narrow incentives that FDA can implement to generate competition. FDA can reach out and try to get a generic to come in and compete if the generic is a possibility at that point, or provide proactive government monitoring and oversight of the pharmaceutical markets to be aware of the fact that we are getting into a one single source drug that will drive up the price. Another problem is the lack of robust competition among manufacturers, including generic and biosimilars, resulting in less price competition and higher prices. Here, we can look at some of the examples of policy actions. We can provide targeted or narrow incentives that FDA can implement to generate competition. We can alter provisions in the Hatch Waxman Act that has a 30-month delay, 180-day exclusivity, and we can take a look at that. I’m not recommending it, but that would be one way to get more competition. We could have FDA at least establish the biosimilar guidance, which they have not yet done. Another problem is the anti-competitive behavior and use of current patent protection policies by manufactures that undermine competition. Of course, a good example of that is pay for delay, where the manufacturer of a drug that is about to have generic competition, could say to the generic manufacturer, we will pay you money not to compete with us, and pay for that delay and get a good generic competitor We can also deal with the problem of product hopping. We can reform the patent office policies on patent review and approval.

Another issue is the pharmaceutical distribution system. It does not make essential pricing information available to patients or providers and payers at the point of care, so that patients can make the best decision related to their care. Furthermore, patients, providers and payers lack that information about comparative effectiveness of drugs at the point of time when critical healthcare decisions are being made. So, perhaps we can look at greater transparency policies in drug pricing information, or invest in comparative effectiveness research. We thought we were doing that in the ACA. The ability for that research was very much curtailed. We could have federal changes in the federal law, which imposes limitations on state authority to negotiate prices for Medicaid. We could have implementing other price related measures to reduce high drug prices. An example of a policy option here would be: Let the states operate PBMs to broaden their purchasing and negotiating power. These are some ideas. We are not recommending them, but we are putting them out there for consideration.

What do we do now versus what we can in the long term? These problems and the range of actions can be considered through short term, versus long term strategies and actions. There are some immediate items that can be dealt with, I think, that will have an impact. For example, we ought to address some of the issues to the barriers for generic competition, such as REMs or pay for delay. I don’t think there is a reason not to address those issues. Even Supreme Court said that pay for delay ought to be looked at with a great deal of scrutiny. Well, there is no reason to have pay for delay. I know that they can avoid litigation between the original manufacturer and the competitor, but I don’t see a value in allowing pay for delay. We could look to eliminate loop holes that allow some manufacturers to create sole source markets with a goal of driving up prices. Senator Collins and McCaskill released their report at the end of the last year with several ideas. We ought to look at those ideas and see if we can move them forward, and we could push FDA to finalize regulation that encourages biosimilar competition. I’m pleased the FDA is looking at a very affirmative action in a lot of these areas. FDA in the past just said, this is not our business, we are not going to look at those matters. But under the new commissioner, Dr. Gottlieb, he is trying to recognize that there is a role for FDA in trying to deal with the high price of drugs.

Let me stop there and we will get to questions and answer later.

JOEL WHITE: Thank you for having me here today, and thank you to Sarah for producing such a wonderful program. My name is Joel White, I’m the President of the Council for Affordable Health Coverage. We run a campaign called Prescriptions for Affordability. It’s a multi-stakeholder effort to unite different groups around a common set of reforms that will actually lower healthcare costs, and I think you’ve got a copy of our proposal that we released in May for your review in your packets.

But I think it’s important to start out with the fact that we see a lot of politics on this issue. We hear a lot of hyperbole and that’s not helpful, because this is a real problem that impacts real people, that needs to be addressed in real ways. The challenge that we are interested in addressing is, how do we lower costs while simultaneously not impeding access or harming safety or innovation? That is hard to do. All of that. Bringing together stakeholders and not negatively impacting those things. Just a level set real quick: I think we all know that premiums and cost sharings are probably too high and are rising too fast. That’s driven by increased health spending, and it’s spending on products and services, but I think it’s also important to keep things in perspective when we look at the healthcare dollar, the pie or share of spending, prescription drugs represent just 10 cents of that dollar. And it’s stable over time. Over the next ten years, it’s about 11 cents over ten years. So above that are hospital costs, their physician costs, their post-acute care costs, and we are interested in addressing all of those various areas, but obviously today we are looking at specifically prescription drugs. I think it’s also important, if you think about your own experience, to recognize the prescription drugs are the most frequently accessed part of our healthcare system, right? We go to the pharmacy once a month, hopefully we don’t go to the hospital once a month. If we do, we’ve either got serious problems, or something else is going on. So, we access the pharmacy benefit most frequently, and we see change in price and cost more frequently, particularly when costs go up or when coverage, particularly deductibles, increase. It is something that people feel personally and in a real way. I think we can all think about our personal experience in that regard.

This is an important issue and it’s a real issue, and so our organization took a look at the issue two years ago, and it took us two years to bring different interests together around what should we do about this? Now, we have insurers, we have PBMs, we have drug makers, we have patients and consumers, we have employers and we have healthcare providers, all who have agreed to the set of solutions that you have in your packet. That was hard to do. It’s hard to get people together on this issue, because there is so much politics going on. But I think it’s important what Congressman Waxman talked about, in terms of level setting on the cost issues and understanding what is actually going on here, so that you can address the challenge and the problem. What we found as we looked at the landscape in developing in the reforms, was that there is a lot of outdated laws and regulations that could use a facelift. And probably some wholescale reform.

What we came up with was basically four buckets of changes to address the challenges that I outlined at the beginning. The first is competition, and as has already been mentioned, we have some big challenges in the marketplace right now. What we see is that when we have more products on the market, be it a brand or generic, we have more opportunities for price negotiation and lower cost. And I think here of the Sovaldi example. When Solvaldi first came out for hepatitis C treatment, there were statements like: This is going to bankrupt the U.S. This is going to bankrupt Medicaid. This will get us underwater. None of those statements were true. What was true was over time, as more products came on the market, by the time the third product came on the market, we had 46% discounts on that product. We were paying $100,000 less than baseline therapy previous to introduction of the product. So, it was saving the health system money, it was resulting in a better outcome for patients, and it was producing fewer side effects and actually cured the disease. These are the kinds of things that we want to encourage from an innovation standpoint.

How do we increase competition? How do we get that virtuous cycle going? I would also point out, we’ve got a backlog of about 4,000 generic products at the FDA. So, we need to do a better job at the FDA of getting those products on the market quicker. The House passed the FDARA bill, which would reauthorize FDA programs. That is a good first step, and Commissioner Gottleib has indicated that he is going to aggressively work to eliminate that backlog. We need that backlog eliminated, because we need that price negotiation. I think it’s also important to note that we see some examples of bad actors in the marketplace. We see these price spikes on some generic products. You can all think through those examples. And what the FDARA bill does, is it creates incentives in those instances to get a generic competitor on the market quickly through two policies. The first is extended exclusivity for the generic product, and an abbreviated approval pathway. So, that’s important. The second bucket is rewarding value and what we see is pay for value. You want to pay more for value, not volume. There are laws that we need to change, like best price, the anti-kickback statute, and the Stark Law, to get more value out of the system. Then, in order to make those arrangements more fruitful, we need infrastructure and data investment. Then finally, we do need transparency for consumers. They need to know what drug is on the formulary and how much is their out-of-pocket spending. Or, if they are uninsured, they need a rough estimation of a retail price. All told, these reforms, we estimate, will save $71 billion annually, when fully implemented. That’s real money and real savings for consumers. We look forward to working with everyone here: Congress, the administration, stakeholders, to make sure that happens.

LARRY KOCOT: Thanks, Joel. I want to remind everyone, we are going to get into a Q&A, and you are going to have a lot of opportunity to make your points over and over again. Dr. Miller, will you go next?

STEVE MILLER: Thanks, Larry, and thanks to the Alliance for inviting me. I’m Steve Miller, I’m the Chief Medical Officer for Express Scripts. I’m a transplant kidney doctor by training, and actually a basic scientist and hold a bunch of patents with Drug Discovery. If any of my drugs had ever worked, I wouldn’t be here today.

I don’t want to be redundant to what you have already heard, but I want to highlight a few things, and that is this: America is 4.6% of the world’s population, with 33% of world drug spend, but we are somewhere between 50 and 70% of world drug profitability. So, Americans have been funding the development of drugs for the whole world for many years, and that has got to change. We have to concentrate on a couple of things: We want America to be the most innovative world-leading place for drug development, but we also have to have access and affordability. If my patients can’t afford the drug, it doesn’t matter about the new developments, if they can’t access it. So, we have to put the patient at the center of this. And so, for treating patients for 35 years, I have been watching drugs become more and more out of reach for too many of my patients, and this has got to change.

I would like to concentrate on two things that have already been mentioned and then throw a couple of other policies out there that people haven’t talked about. We are shifting from a blame and shame game to really coming up with solutions, and one of the solutions that is working really well for our company, is value-based pricing. So, having these value-based contracts. Let me give you an example: We started the price war on hepatitis C, we were able to get the products down, as you already heard, to an incredible extent. The old treatment for hepatitis C used to be Ribavirin and Interferon, and it cost about $35,000. We now have the price of the current new crop of Hepatitis treatments at $35,000. In fact, they are cheaper in the United States than they are in Europe, which is unprecedented for any specialty drug that we have ever seen. But we did value based contracting above and beyond that. We guaranteed that the patients would be adherent to the drug, or we would refund anything that the plan sponsor had paid towards the drug. That is value above and beyond the lowest price. Because of that, we had to innovate. We had to develop predictive models, know exactly which patients would take the drugs. We had to develop cell phone apps, call campaigns, letter campaigns. To be very frank, I got the price down so low, I could send a nurse out to your house, and shove the pills down your throat, if I had to. But we were able to achieve adherence levels of 92%, which was actually better than what was in the clinical trial. On top of that, because we got the price so low, instead of being like most plans where they only treated those with advanced disease, F3-F4, we were able to treat patients regardless of their level of disease. So, any patient with hepatitis C was eligible for treatment.

So, value-based pricing really works. We now have value-based programs in multiple sclerosis, cancer, cardiovascular disease, respiratory disease, and we need laws that actually allow us to do this even in Medicare and Medicaid. So, making value based pricing be priority is really crucial. The other thing is that, what Henry Waxman did for generics, we need to have happen for biosimilars. If you think about generics over the last decade, they are the thing that have allowed us to keep pharmacy spend flat. For every one patient that needed a new expensive specialist drug, there were ten patients I could move to a generic and I could offset that cost. We did a study where we looked at 11 drugs that could go biosimilar within the next decade, and if there was just a 30% discount, which is about the lowest discount you see in Europe. If you only gave patients with new starts, you didn’t switch a single existing patient to these drugs, you could save the country over $250 billion over the next decade. That buys an incredible amount of cancer care, Hepatitis treatment, and others. Policies that incent and make the biosimilar marketplace actually happen in vigorous in the United States is crucial.

The final things you need to think about, which we haven’t talked about so far, but we touched on a little bit by Joel, is infrastructure, and that is electronic systems. We need to be compelling doctors to electronic prescribe. If they electronically prescribe, they often can see the benefit design, they can see what is on formulary; what’s not on formulary. Second is, we need to make sure that all controlled substances are electronically prescribed. Electronic banking drove fraud, waste, and abuse out of the banking industry. Electronic prescribing controlled substances can do the same, and we spend an enormous amount of money in that, in the United States. The final thing is, if we had electronic prior authorization for all of these expensive drugs, it is patient friendly, it is doctor friendly, and it actually saves money. So, those are additional policies that you can compel through the government or through regulatory bodies to actually make the system better.

I’m going to stop there, hopefully we will have more time for questioning, but thank you all for having me.

LARRY KOCOT: We certainly will, Steve, thank you. David, do you want to –?

DAVID MITCHELL: Yes, good afternoon. I’m really glad to see so many people here. Especially after the events of last night. I’m sure many of you didn’t sleep. There is a visual presentation in your folder if you want to follow along. I won’t stick to it exactly, but it may be helpful.

I’m David Mitchell, and prescription drugs are keeping me alive. Seven and a half years ago, I was diagnosed with an incurable blood cancer. Incurable, but treatable with very expensive drugs. Several days ago, I spent five hours getting infusion with a two-drug combination that every time they give it to me, the retail price is $20,000. I will get it 22 times over the course of a year, so sitting before you, $440,000 worth of drugs that are sustaining my life. Now, I’m very grateful to our science and research community for these drugs, as importantly, because my disease is smart and it mutates to find its way around drugs, I need new ones. So, I am completely dependent on innovation and new drugs for my survival. It’s not theoretical for me. It’s life and death. Literally.

The drugs don’t work if people can’t afford them. That is a fundamental fact. My experience as a patient, brought me face-to-face with this fact. So, my wife, who is a breast cancer survivor herself, and I, decided to launch Patients for Affordable Drugs, to raise the patient voice for reform of our system. We are the only national patient organization focused exclusively on policies to lower drug prices, and to maintain our independence, we don’t accept many from any organizations that profit from the development and distribution of prescription drugs. We can speak without fear or favor, and I intend to do that here today. We are about patients first, last and always.

In five months, we have collected 7500 patient stories and 15000 email addresses. These are stories of patients who are skipping doses. They are cutting their pills in half. There are people with type 1 diabetes who are trying to control their blood sugar with diet and exercise and waiting until their blood sugar spikes before they take their insulin. These are people with rheumatoid arthritis who are living with pain because they can’t afford to take the whole dose required to manage their disease. These stories know no regions, they know no gender, no age, or political affiliation. People in this country, patients in this country are hurting, and they are angry and they don’t understand how this could be happening to them in the United States of America.

So, I have three points I would like to make to you this morning. First: Patients really are crying out for relief. It’s a real problem. People are hurting, they need help now. Ten percent of patients with my disease stop taking their drugs because they are too expensive. Two: Support for action is bipartisan among voters and in this Congress. Three: There is bipartisan legislation that could move now and in preventing abuses by drug companies that delay generics from coming to market. Chairman Waxman referenced REMS, this is Risk Evaluation and Management Strategies the companies use. It’s a safety program, they hide behind it to say they won’t make samples available, the generic manufacturers, in order for the generic company to develop a bioequivalent. The act is called the Creates Act, I’m happy to get into more details about that bill and how it would help patients like me and thousands of others. There were hearings on the Creates Act yesterday in the House Judiciary Committee. It’s sponsored by Representatives Marino and Cicilline and by Senators Grassley, Lee, Lahey, Klobuchar, among others. This is viable legislation, it’s not a complete solution to the problem of high drug prices. Far from it. But it is an important step in a good direction. In the end, we are going to need more comprehensive systemic reform like Chairman Waxman was referring to, and we have a complete set of policy solutions and proposals on our website that you are welcome to go look at if you care too.

There is a lot of finger pointing about this issue. We are hearing some of it today; we are about to hear more. I want to point out that all of the big players on this stage are doing just fine. The pricing system today works at the expense of patients, consumers and tax payers. So, I say this to you as a patient: Many of you who are here in this room today, work in this Congress, you are in the position to help right now on a bipartisan basis. That is so important, because in my lifetime, the most enduring legislative achievements have come with bipartisan support. You can make that happen, and help patients right now, starting today.

LARRY KOCOT: Thank you, David. Robbie?

ROBERT ZIRKELBACH: Thank you all for letting me be here today, it’s always a challenge following such a distinguished group of panelists up here, and I’m really glad to be able to engage with everybody on this discussion. I just really wanted to talk about four things before we get into the broader conversation. I think first, to really put into context, the biggest threat to the sustainability of our healthcare system is chronic disease. We always need to have that front and center. Alzheimer’s alone is projected to cost the healthcare system a trillion dollars a year by 2050, unless we find ways to reverse courses of that disease. The only way that we know how to do that, is through innovation. There are many other diseases like that, that are causing a huge cost burden to our nation’s healthcare system. The good news is that scientists have more tools in their toolbox than ever before to fight disease. If you talk to the scientists at our member companies, they will tell you that today, right now, is the single most exciting time in biopharmaceutical innovation, ever. The types of medicines coming on the marketplace today are wholly different than we saw ten years ago. It used to be that these were chemical compounds designed to treat broad patient populations. Today, developing medicines that are targeted to individual patients based on their unique genetic makeup. Their biologics based off of living organisms. Therapies like CAR-T, immunotherapy, gene therapies, were once considered science fiction, and are now a reality for patients with a lot of tremendous excitement in the pipeline. And it’s important to keep in mind that that innovation is a direct result of the policy and regulatory environment that we have here in the United States that recognizes and rewards risk tasking, and enables companies to be able to do the long, hard work of going after the most challenging diseases.

The second point I want to make, is that we need to not look at the individual nominalist examples of price increases and really look at the long-term trend of what’s really happening with medicine costs. Because if we base public policies off of the one-time spike, we have the potential to have significant unintended consequences. I will give you an example: A lot of the current conversation around prescription drug cost focuses on what happened in 2014 when we did have a spike in drug cost. We had a record number of new approvals including a new cure for hepatitis C, and fewer medicines went off paten that year than is typical. What people often forget, is that the three years prior to that, prescription drug spending was essentially flat. It was the lowest — the slowest growing part of our healthcare system, and since then, prescription drug cost trends have moderated significantly. If you look at any study that is out there, it shows that last year, prescription drug costs went up between three and five percent, and that prices went up under 3%. The actuaries at CMS look at this issue every year, say that prescription drug costs are projected to grow roughly in line with overall healthcare trend, for the foreseeable future. So, it’s important to make sure that we understand what is really happening with trends in pharmaceuticals.

That leads to the third point, that our system does a really good job of holding down prescription drug cost for payers and for the healthcare system as a whole. But we are not doing enough to make sure that we are holding down cost for patients. Insurance companies and the PBMs they hire to negotiate, do a really good job. They are very large, powerful purchasers, and they use their leverage to negotiate very aggressively. We released a study earlier this year that found that brand biopharmaceutical companies only retain 63% of a list price of a medicine. That means that 40% of the price of a medicine is going back to insurance companies, PBMs, the government, or other parts of the supply chain. Despite that, when a patient has a deductible or a co-insurance, they are being asked to pay the full list price. Even if their insurer negotiated a discount of 30, 40, 50%. That’s always been a challenge, but it’s particularly a challenge in the current environment, because patients’ out-of-pocket costs are skyrocketing, exactly as David mentioned. Patient out-of-pocket costs for medicines have gone up nearly 50% since 2013. That’s because how medicines are covered by insurance has changed dramatically. It used to be that a patient would have no deductible or a smaller deductible for their medicine, and would pay a modest $20-$30 co-pay. Today, they typically have to pay a deductible of 2, 3, 4, even $5,000 before they get any drug coverage. Instead of co-pay, it’s typically a co-insurance, where they are paying 30 or 40% of the price of a medicine. It’s more likely that they have to get prior approval from their insurer, or that they have to try older medicines before they can get new ones. So, it’s no wonder that patients are frustrated and angry about what they are paying. Their cost has skyrocketed over the last few years, as the way that medicines are covered by insurance has changed dramatically and that has to be a part of any conversation that we are having about prescription drug costs.

Finally, I want to make the point and echo a lot of what’s already been said out here, that we do believe that there are practical, common sense solutions that can be done to address the real concerns people have raised. Starting with competition, I think everybody agrees that competition works, and both from generic competition as well as brand competition from other medicines. I think one of the ways we can do that is to make sure that we are empowering the FDA, giving them the tools to keep up with 21st century science. A lot of the conversations already happen here, I don’t need to repeat that, but it certainly needs to be a focus. I think particularly as we look at things like PDUFA, that is going to be an area focused on moving forward and something that is critical to empowering our regulators with the tools that they need.

The other area I would mention is value-based healthcare. Again, I won’t belabor, I agree with a lot of the things that have been said, that we do want to move in that direction. That as the science evolves, we need to make sure that the way we pay for medicines, evolves as well. Finally, we need to look in the area of patient affordability to make sure that we are looking at what’s really going to impact patients and enable them to be able to get access to the medicines they need, and take advantage of the exciting science that’s happening. So, with that, I’m looking forward to the conversation.

LARRY KOCOT: Thank you all of you, and we are going to get into the conversation in just a minute. I have a couple questions that I want to ask, just to frame a little bit. I want to start — probably best to start in one place, I will start with private sector initiatives. With all of the growing burden on employers and government payers and patients and all the attention being paid to individual price increases with individual products, we often lose sight of the fact that the concepts of price, pharmaceutical costs, and value, are really three different, but not unrelated things. I want to drill down on that. You have seen the private sector step up, many companies have made pledges that they are going to limit price increases. Steve, you mentioned that you’re getting more heavily into engagement with pharmaceutical manufacturers on value-based pricing, and I know you have talked publicly about indication based pricing. Could you tell us a little bit more about that? Do you really think that these private sector initiatives are enough to solve these problems?

STEVE MILLER: Yeah, thanks. You know, I think that just like we are innovating and producing new drugs, we have to innovate on how we are going to pay for the drugs. And the current — the old system, is clearly inadequate. So, we are all looking for different ways to innovate. You know, it was pointed out that the drug problem exists at several levels. So, one of the levels is introductory price, and this gets to the question of value. That is, what is the value of a drug? I personally think this really opens up a can of worms, because then you’ve got to eventually get to the point of, what is the value of a life. And in America, we haven’t wanted to go there. So, we aren’t really looking for trying to define what the value of a drug is. When we talk about value based pricing and why we have been so successful at introducing it, is because we are going to still negotiate is, as Robbie talks about, we are going to negotiate down to the lowest possible price I can get, and then I’m going to work with the pharmaceutical manufacturer to give value above and beyond. So, let me give you a couple of examples. When it comes to rheumatoid arthritis, we actually have a value based approach where if a patient starts on any of the products and they switch within the first 90 days, which 25% of patients do, the pharmaceutical company will say, you know, we understand. It doesn’t matter if it’s for non-adherence or it doesn’t matter if it’s lack of clinical efficacy, we’ll give back two-thirds of the cost. That’s a value above and beyond the lowest price, but that makes a — it’s like a warrantee program for a product. We have never seen that in healthcare before, but we have now been able to achieve that across all of the anti-inflammatory drugs through our plan. We are doing the same thing with MS products. We have cancer products. But this also runs up against certain policies, especially when you want to apply it to government programs like Medicare and Medicaid. It impacts best price. It impacts (indiscernible). So, we have to figure out the policies that are going to allow this to spread even further. We think that there is tons of innovation that can happen when it comes to affordability. I will give you one other example. These rebates — it’s been pointed out that patients that have no insurance or in the donut hole, and they have a high deductible phase of their health plan, are fully exposed to the drug price. We have worked with the pharmaceutical manufacturers, we worked with the pharmacies, Blink, and we now have something called Inside Rx, where a patient can download an app, they can actually see if their brand of drug is covered — one of 40 branded drugs are covered, and they can actually access the rebate at the counter, right away. So now, for the first time in history, patients without insurance or patients in the high deductible phase, can actually get the rebates that we have been getting for our patients. This is without joining any plan whatsoever. So, this is an innovation that really has to happen if we are going to change how the system is working.

LARRY KOCOT: Private sector efforts?

JOEL WHITE: So, I think there is a lot going on in the private sector, you just heard a lot of the innovative thinking and creative thinking that is being brought to bear on these challenges. We just don’t think that there is a lot of value-based arrangements in the market right now. A big reason is because these laws stand in the way, and so Congress really needs to reform best price, need to take on creating an exception to the Stark Law, and a safe harbor in the Anti-Kickback Statute, to allow two things to happen: The first is the coordination. The team based care that we support in ACO world between hospitals and doctors, who are not allowing proceed amongst payers and manufacturers and providers. So, that’s one thing that needs to change, but the economics around those need to change. If every time a manufacturer is asked to give a money back guarantee on a drug, and that implicates best price, that means if I give you a zero price, then I’ve got to cut a rebate check to a Medicaid office, they are not going to do it. Right? So, we need to change best price to create the economics around this that makes sense for the manufactures to coordinate with the payers and the PBMs to make this work.

LARRY KOCOT: So, we’ve got a lot of work to do. That kind of leads to my second question, and this gets to some of the things that have been raised before. According to press reports, the administration is preparing an executive order on reducing the cost of medical products, including prescription drugs. FDA Commissioner Gottleib, as Congressman Waxman mentioned, has talked publicly about accelerating generic pipeline and addressing some of the anti-competitive behavior in getting generic drugs to market. He’s actually moving forward on a lot of these things. It really raises a question: What is the appropriate role of government, encouraging competition and pharmaceutical and biopharmaceutical markets, and is encouraging more competition enough to moderate drug prices? Why don’t we start with Congressman Waxman and then —

HENRY WAXMAN: Well, the government policy first of all, give a monopoly to the innovator that produces a new drug. That monopoly means they can charge whatever they think they can get away with. If we want to deal with somebody who has a monopoly, the traditional way is to have some regulation of the cost of the drug. But we don’t have that in our system. We are looking at other ways to deal with that company that has monopoly power. That company that has a monopoly power can start off at a very high price, then they can do nothing to improve the drug and then increase the prices for that drug thereafter. The best way we know to deal with that is to have some competition. Some other drugs that would be available. Now, generics have saved the American people billions of dollars. Generic or the small chemical drugs, is the exact same drug. But FDA has to certify that if it’s a biotech drug, we have a drug that is going to accomplish the same result. One of the ways that we get the benefit of that is the substitution of a generic drug for a patented drug. But there are efforts that keep that competition from taking place: One is a backlog of generic drugs, the other is the pay for delay that will stop the competition. There are all sorts of ways to stop the competition and government needs to step in to allow the competition to proceed. The approach we are suggesting is not to come in with a bunch of solutions, but start looking at the problems and then looking at some of the options. If you have a patent and you can’t have a competitor, then we ought to look at other drugs. It would certainly be worthwhile if we knew the extra benefit we are getting from one drug, as opposed to another. Comparedness of the effectiveness; we don’t really have that research going on, and we need it in order to make the best decision.

LARRY KOCOT: Role of government? Robbie?

ROBERT ZIRKELBACH: Yeah, I would love to follow up on that. There is a lot of consensus, I think, in the idea that competition is essential to addressing these issues, and you raised an important point at the beginning: What is the problem that we are trying to solve when we look at what is happening in the marketplace? I think for example, a lot of the specific examples that had been highlighted in the media, have one common theme. These are all generic medicines where the prices have increased dramatically because there weren’t other competitors on the marketplace. Because of the generic backlog, particularly at the time, it was easy for someone to come in, and increase the price and really not — and be able to get away with it. I think what we want to make sure, is that we do have targeted incentives, empowering the FDA to be able to incentivize generic medicines, so we can have competition in the marketplace. That’s why we are fortunate today that 90% of all medicines that are given to patients are generic copies of medicines that are 80-90% lower price than their original brand medicine, and that’s what’s helping to be able to fund future innovation. On the brand side, I want to sort of raise this idea that a patent is nothing more than monopoly, and there is no competition, because that’s not exactly how it works in the real world. We saw this recently with the hepatitis C medicines that came out in 2014, where we did have a new cure that came in the marketplace, and within a couple of months, even while that medicine was on patent, two other companies released hepatitis C treatments that were also cures. That enabled payers to be able to negotiate significant savings to the point that Steve mentioned: We are paying less for these medicines today in the United States than almost any country in Europe. So, we do want to recognize that even with — when a medicine in patent, there continues to be significant competition that happens within brand medicines. Again, you have large, sophisticated payers. Express Scripts is negotiating on behalf of more payers than many European countries. They have the ability to do that and that’s enabled us to be able to have a system that is incentivizing some of the most exciting innovation, and yet, we are continuing to spend the same share of our healthcare dollar on medicines today as we did decades ago.

LARRY KOCOT: David, go ahead. I’m going to go right back to you with the next question.

DAVID MITCHELL: A few things that need to get corrected here. I agree with Mr. Zirkelbach that you should look at the long-term pricing trends and you will see, if you look at this slide, which is Dr. Miller’s data, that brand drug prices have continued to escalate. The only thing that is arresting the overall growth in drug spent in this country, is generics. Also, up on this stage, people are ignoring, in a way, the fact that drug companies set the price for the drugs, as Chairman Waxman said, using monopoly pricing power during the time of their five, or seven or 12-year exclusivity, depending on whether they are a small molecule drug, an orphan drug, or a biologic. When — with all due respect, Mr. Zirkelbach, Mr. Zirkelbach makes the claim that drug prices are not taking a larger share of our spend in this country, I will use multiple sclerosis drugs. Disease affecting multiple sclerosis drugs used to cost, in 2004, $16,000 on average, for a course of treatment for a patient. Now, $84,000. In 2004, they accounted for 50% of the overall treatment costs for the patient — today, 75% of the overall cost of treatment. Drug prices are going up because drug companies set prices that are high, and then everybody else down the system has to figure out a way to deal with it. We use pharmacy benefit managers, supposedly, to negotiate on our behalf, for example, under Medicare Part D, but the fact is, none of us knows what the hell they are negotiating. We don’t know what deals are struck, we don’t know who is getting the rebates, I don’t know how much of any of it is reaching patients, honestly. There was a recent little dispute that happened between Anthem and Express Scripts, in which it was reported that Anthem was paying $10 for prescription, everybody else was paying $5 for prescription. I wonder if your employer treats its largest customer that way, what it is it doing to me as a patient?

We have to have two things happen: A, we have to arrest the monopoly pricing power of the drug companies, we need Medicare negotiations long haul. Two, we need transparencies on the part of PBMs. We to be able to look inside and see what they are doing.

LARRY KOCOT: Steve, I’m not going to ask you to respond to that publicly. Reducing the burden of prescription drug costs, obviously enjoys bipartisan support, although the approaches from Republicans and Democrats are not necessarily aligning on solutions. This week, the Democrats publicly announced their campaign for better jobs, better wages and better future. One of the first pillars of a better deal, what they are calling this, is lowering the cost of prescription drugs. Democrats have proposed a three-prong program: First appointing a price gouging enforcer, secondly allowing Medicare Part D to negotiate drug prices, and then thirdly requiring pharmaceutical manufacturers to justify price increases. Do these proposals, or any of the transparency proposals, David, that you mentioned, in the States, that they are considering or being considered in the States, did these really solve any of the problems that we’ve been discussing? Joel, why don’t I start with you?

JOEL WHITE: I’m not sure what they solve, other than the ability to scratch a political itch. I found the document interesting in that it didn’t include anything on generics. We know there is a big backlog of generics. It directly goes to the point about competition. There was nothing in there on value-based payment, but that is where a lot of the creativity and innovation in the private sector is happening. I think it was a missed opportunity. Just to kind of think about them one by one, the price gouger and chief type thing. I mean, okay, it seems more like, “gotcha” politics to me. We could have one for hospital world, we could have one for doctor world, we could have one for hammers in the defense industry, and really do some important work, I suppose. But aligning the incentives is more important than the gotcha-type politics, right? And that’s what we want to do, and that’s what value-based arrangements get into. The second thing on the non-interference and getting HHS involved in negotiating drug prices; I want to go way back in history, back when I had hair and dinosaurs walked the earth, I was on staff of the Ways and Means Committee, and we came up with a Part D model where the non-interference language is included. There was a reason for that language, right? We wanted to make sure that the private sector could aggressively negotiate discounts with manufacturers, okay? We knew that if you got HHS in the middle of those negotiations, and it’s not just with the manufacturers, it’s with the pharmacies too, that that would muddle up the process. We also knew something that — bringing 44 million people to the table in a negotiation, which Medicare would bring, is a lot of people, but then I think about, let’s just say, Express Scripts, with 120 million people and how much more of a negotiation that would be. So, I think some of these proposals we have seen for 15-16 years, they have never gone anywhere. Non-interference doesn’t save any money. It’s been repeatedly scored by CBO as not saving money, unless you restrict access to drugs for patients, and when we came at this challenge, we said, we want to save money, but we don’t want to harm access, we don’t want to harm safety, we don’t want to harm innovation, and I’m not sure that the Democratic approach gets an A on that.

LARRY KOCOT: So, Joel, what you are saying is that the answer in Part D, isn’t necessarily a negotiation part, it’s allowing for example, to protect the classes, which take negotiation off the table, because all are covered, right?

JOEL WHITE: Well, it’s interesting, on the six protected classes, because Quintiles IMS looked at this in October of last year, I think, and they found on some of those protected classes, you still had discounts of up to 90%, which — why is that? You had multiple competitors within the categories. And to get to that Tier 1 Preferred status, there was still quite a bit of competition. So, again, I would argue in the Part D world, there are some challenges. Med Pack has pointed out some challenges, people are getting to the catastrophic phase of the benefit much more rapidly.

LARRY KOCOT: Reinsurance is a huge problem.

JOEL WHITE: And reinsurance is a huge problem, and I think a lot of people are talking about point of sale discounts and rebates and things like that. I think there are creative ways to get into Part D and figure out how to drive down costs, but again, it’s not where the bulk of people are. Getting them coverage was the important first step.

LARRY KOCOT: Steve, do you agree that taking negotiating power away from PBMs and plans is a better alternative to this?

STEVE MILLER: Yeah, so the problem for Medicare Part D — so, Medicare Part D has been a phenomenal benefit. It has come in under budget and the satisfaction of seniors is incredibly high, but it can be made better. We did a study where we actually looked at the cost of medications for 64-year old’s and 66-year old’s. The reason we didn’t look at 65 is because people are aging in during different months, during their 65th year. Just that one year difference, the benefit costs almost a third different. Now, you are not a third sicker just over that one year. It actually points out, that’s the impact of the rules of Medicare. So, the rules of Medicare that may open access for the six classes concerned, or easy medical exceptions for patients to get to drugs, actually is what adds to the cost. If you wanted to change it, it’s not whose negotiating that is crucial at all, it’s the basic rules. So, if you look at the VA, the VA gets great price on drugs, because the VA says, we are going to cover beta blockers, we are going to cover one beta blocker. And if you want our beta blocker, it’s going to be really cheap. We are going to give 100% of the market share to one company. You want our ace inhibitor, you are going to get a great price, because we cover one ace inhibitor. So, if Medicare wanted to save money, we have to change the rules, not who is negotiating.

I also want to talk about transparency for just one second. That is, you know, we think the transparency for patients is really crucial. Patients should know exactly how much they are going to pay when they get to the pharmacy counter. We think that transparency for our clients is crucial; they should be able to audit our contracts and see exactly if they are getting all the rebates or not getting the rebates. Where you don’t transparency is for competitors. I will give you a great example: There is nothing more transparent than buying gas. You see a BP station with a $1.50 and you’ll see Joe’s Quick Fill right across the street at $1.50. Now, do you think BP buys better than Joe’s Quick Fill? The answer is, absolutely yes. But what they are doing with transparency is they are price signaling. BP is telling Joe, if you say at a buck fifty, I will stay at a buck fifty. If you go below that, I’m going to go below that. And all we are going to do is, we will have the same market share, but we will each be making less. So, we’ve got to be really carefully when we talk about transparency. We want transparency for patients, we want it for the payers, what we don’t want it for, is competitors. We would have never gotten the price of hepatitis C down like we did, if each company knew exactly what the other company was willing to put on the table.

LARRY KOCOT: David, do you want to take a word? Then I have one more question and then we will go to the audience for questioning. Go ahead and make a comment.

DAVID MITCHELL: Medicare negotiation. The PBMs have formularies. The PBMs have drugs, not necessarily for Medicare, but in the private sector, and they use formularies to help lower price. Formularies are not a way of restricting access to patients, necessarily, depending on how they are implemented. If, for example, Medicare were to negotiate a price that was especially advantageous for a certain drug and a class, as long as there is a viable — what did you call it? Escape route? A viable medical alternative, that when my doctor and I conclude that whether the drug isn’t working right for me, or certain side effects — I take a bunch of drugs, they cause all sorts of side effects, don’t work well for me, there should be a way to get to an alternative drug. We could put that in place in Medicare —

LARRY KOCOT: That’s already in place in Medicare though.

DAVID MITCHELL: I’m saying that Medicare could then bargain using a formulary, because the gentleman at the end of the table said, CBO said we wouldn’t save anything, because there wouldn’t be a formulary. I’m saying, Medicare could employ a formulary that would not necessarily restrict access to patients done right.

LARRY KOCOT: I guess the point is: They can do that today, and they do do that today.

DAVID MITCHELL: They can’t negotiate over drugs.

LARRY KOCOT: No, they don’t negotiate over drugs, but the statute requires formularies and there are exceptions and rules for the formularies —

DAVID MITCHELL: But Medicare cannot negotiate with the drug companies over drug prices, under Part D.

JOEL WHITE: The plans do. The plans negotiate with the drug manufacturers for Medicare, on behalf of Medicare —

DAVID MITCHELL: But we can’t see inside the PBS.

JOEL WHITE: — to get a lower price, and they get on average —

DAVID MITCHELL: But I have no idea —

LARRY KOCOT: You are talking about transparency, that’s — that’s —

DAVID MITCHELL: No, I’m talking about two things. I’m talking about Medicare could negotiate effectively using a formulary and still protect patients. It’s lonely up here when you are the only guy who doesn’t get paid by any of these people. Medicare could negotiate using a formulary in a chief savings, like those that were addressed in the CBO scoring. And, there could be a way to protect patients, and money could be saved. And, if we are not going to do that, if we are going to continue to use PBMs as the expression of our negotiating authority under Medicare, to negotiate on behalf of Medicare patients, such as myself, then we should be able to see inside — and there are transparent PBMs, there is one up in Minnesota, in his neck of the woods, called Clear Scripts, that negotiates, and everybody can see what the deals are like inside Clear Scripts. This idea that we have to have secrecy and opaqueness so that none of know how much of a rebate is going into the PBM pocket, or the insurer pocket, that needs to stop, so that we can see what’s actually being done to benefit patients.

HENRY WAXMAN: Medicare negotiates fees for all providers. They negotiate and they set fees. There is only one place where they cannot set a fee, and that’s in the pharmaceutical benefit. The pharmaceutical benefit was set up to make sure that the government could not negotiate. It was written into the Part D law. The government may not negotiate for a lower price; which is quite amazing, when suddenly Medicare, buying drugs for Medicare beneficiaries, bringing in millions of new patients, couldn’t get a discount for all of those new patients that are there. So, what we had was a decentralization and highering the plans and the plans could then get the PBMs, and each plan could run a PBM system, and maybe you try to protect the competition of one PBM for another, but nobody knows what happens when a PBM gets a discount. We need more transparency —

LARRY KOCOT: More transparency is what you are saying. I just want to be clear on the issues here, because —

HENRY WAXMAN: More transparency, but I think Medicare does a pretty good job of getting the prices set for the beneficiaries.

LARRY KOCOT: We probably would have to have a different forum on how good of a job Medicare does in negotiating with all different providers, because having been there, I would take issue with you in terms of necessarily whether there is the best negotiating skills there with all providers. That is a different issue.

HENRY WAXMAN: Well, we had Medicare Advantage plans, and you can see how they negotiate with their providers. We could try to have some comparativeness. But to say that Medicare couldn’t do the job of setting up formularies for prescription drugs, denies the fact that Medicare does that sort of thing, whether you like the way they do it at all times, but nobody likes the way all the PBMs do it, and no one likes the way the manufacturers set the prices, so it’s not a clear-cut situation that Medicare can’t be involved.

LARRY KOCOT: One more comment, Robbie, and then we are going to move on.

ROBERT ZIRKELBACH: Yeah, just one quick point on that. What I think is important to keep in mind is that, we know what happens when governments get in the business of setting formularies and setting prices. In every single situation where that happens around the world, patients have less access to the newest, most innovative treatments. One of the advantages of the current system, is that patients have choices, and seniors have choices in Medicare. If they don’t like the way one company sets up a formulary and the benefits, they can choose another. When the government is doing it, it’s take it or leave it. And then you’ve got government bureaucrats who are sitting there deciding what medicines patients get access to, and I think that one of the things that we want to continue to preserve, is the fact that not only do we lead the world in the development of new treatments, but we also — patients have access to those treatments and have access to them earlier than they do in any other part of the world.

HENRY WAXMAN: In every other country, where they have a healthcare system, the government either negotiates a price, or it’s a reference price. And what we have missed by contracting out all of this activity, is the ability of the government to do the best it could. Now, I don’t think we are ready to get to that point, but to say that it never could be done effectively and you can’t get access to breakthrough medicines, I don’t think is an accurate statement.

LARRY KOCOT: Let’s move on, breakthrough therapies and personalized medicine are expensive to bring to market, I think we all agree on that, right? The public seems to be demanding more innovation, but patients either can’t afford the price or some, for a variety of reasons, don’t want to pay the price. That’s not a value judgement, it’s just a fact. How do we reconcile these contradictory market forces, and are there policy options that manufacturers, payers, employers and patients can all agree to, to encourage innovation and higher value at a lower cost?

JOE WHITE: I will take a stab. So, I think it is contradictory, right? Like, we want the cures, we want — if you are a patient with hepatitis C, you were thrilled at the announcement that Solvaldi was coming out and then the other products. And if you are blind or you have cancer and you are curing cancer, lung cancer, and other cancers, you are thrilled that these products are coming out. But they are very expensive, right, from an individual standpoint. So, there is this tension going on. I think part of the challenge is that we’ve got — we still have siloed care in the U.S. and when we have a medicine that comes out, let’s just stick with the hep C example, and its curative in nature, we’ve saved a significant amount of resources on the physician and hospital side, but we are not capturing that in the same pot of money as the payer, right? So, figuring out how to share those savings, and create better aligned incentives is going to be pretty important if these innovations continue to snowball and speed up over time.

ROBERT ZIRKELBACH: I think one point I would make on that. You know, when people — you poll and ask people about medicine costs, you know, if you give them a choice, what would you rather have? More medicines, even if they are expensive, or fewer medicines that are less expensive? Overwhelmingly, people choose the first option. So, there is a tension that exists out there, and it’s a healthy tension that every society grapples with, but I think generally people recognize that we need to continue to innovate and have the incentives to go after the hardest to treat diseases. You know, we still have 95% of orphan diseases out there that have no treatment options. Even though we are in this exciting time of medical innovation, there is a significant unmet medical need that continues to exist and we need to continue to be striving and going after those difficult diseases. So, I think that balance is important, but I think we would do ourselves a significant disservice if we went too far and said, you know what, lower cost is the ultimate goal, when in reality, the goal should be, how do we make sure we have treatments for patients who don’t have treatments today.

LARRY KOCOT: You mentioned some that you thought everybody could agree to?

HENRY WAXMAN: Well, I think we have to look for agreement, by looking at the problems and talking through possible solutions. There are direct solutions and there are indirect solutions. I don’t think anybody wants a European system where we have government run the prices for everything. My point before was that, they are successful in holding down costs, but we have other objectives than holding down costs. The objectives is to give incentive for the development of these new breakthroughs. So, our approach to the issue is to have people, particularly members, sit down and say, what can you do about this problem? What can you do about this problem? Go part by part, and see if we can develop a consensus on some things, on a bipartisan basis. What I would be concerned about, is when somebody comes in and says, here is a solution, we will have negotiated prices. Or, we will have government set the prices. Or we will have importation of drugs. Those things sound good, but if it sounds too good, it’s probably not going to work, and probably not going to get through Congress. So, rather than approach it with a solution, start looking at the problems, and then look at solutions to the problem in a more narrow way, in order to get the bipartisan support.

LARRY KOCOT: Very good point. Steve, I’m going to ask you to speak to this, and then David, I’m going to give you the last word on this one, and then we are going to go to the audience.

STEVE MILLER: Congressman Waxman, as usual, is correct. When you look at things like direct negotiation, it sounds simple, but unless you change the rules, it doesn’t work. It turns out, for Medicare, all the rebates actually flow back to Medicare. So, they don’t stay with any of the PBMs, because it’s required by government to go back to the plan sponsor. What do plan sponsors do with their rebates? They usually use it to offset premium prices. So, we have the ability, actually, to give rebates at the point of sale. We can do it today, we do it for customers today, we could do it even in Medicare, if they desired. The trouble is, that helps that individual patient, but it makes the premium price for everyone else go up, because those rebate dollars are no longer available. So, Medicare already requires all of the rebates to go back. So, when you are worried about where they are going, they are going back to Medicare. As far as these other solutions: Reimportation or transparency issue — transparency, like I tried to point out, sounds great, but if you think about it, if you are at Wal-Mart, do you know what Wal-Mart pays for Coke versus Pepsi? Do you think Wal-Mart wants to tell Coke what they are paying Pepsi? The reality is, and the FTC has looked at it, the SCC has looked at it, when competitors know each other’s prices, it sets a floor under prices, it does not create competition and drive prices lower. These are why we actually have to – as Chairman Waxman points out, look at the problems, and then come up with real solutions. There are certain things that are real easy. Very few people are against electronic prescribing of controlled substances, or electronic prior authorization. It’s great for patients, it’s great for doctors, it’s great for the system. Where it gets really hard is when we talk about negotiating drug prices, because people keep pitting these things — innovation versus affordability. What I’m contending is, you can actually have both, and value based pricing, getting biosimilars in the marketplace, those types of solutions allow you to continue to have both.

LARRY KOCOT: Okay, thank you, David. Sarah, do we have questions from the audience? Anybody stepping up to the mic? No, maybe she’s heading to the ladies’ room. Okay. Steve Miller mentioned adherence; what is the role of health and delivery system reform in driving how prescription medications are used, not just priced? What is the potential impact on spending and health outcomes?

STEVE MILLER: Yeah, that’s actually a great question, and we have actually been moving towards this, so for the first time, we are actually incenting pharmacies. We pay them differently if their patients will be more adherent. So, when you think about value based contracting, it doesn’t have to be just with the pharmaceutical manufacturers on their drug, you can actually do it with the rest of the provider community. By incenting adherence with the pharmacies, we can actually now have doctors, pharmacies, patients, payers, all aligned to drive high adherence. It turns out that if Americans would take their drugs as prescribed, there is about $350 billion in annual savings there, because it means less visits to the clinics, doctors and hospitals. So, this is really a crucial thing; getting patients to be adherent. But let’s also remember, the price of the drug impacts adherence. If a patient can’t afford their co-pay, they are much more non-adherent and we’ve looked at price sensitivity across all sorts of diseases, and it varies by the disease based on if the patient is symptomatic or not symptomatic, and the downstream sequala of that disease.

JOEL WHITE: This is a behavioral problem whose costs are on par with the use of tobacco. But we don’t hear the ads on the television, we don’t see a lot of the strategies that are being employed. One thing that we could do is, reform Part D’s medication therapy management benefit, which Larry, you and I worked on a little bit. It’s not doing a very good job. By giving plans, I think, additional data on patients when they, for example are admitted to the hospital for medication related error or condition, when they get discharged, the plan is notified, so the plan knows, oh, this patient has this problem, you should outreach, change up the drugs or have a conversation with them to better manage their prescriptions so that they don’t get readmitted to the hospital and incur even more costs. That is going to require a fundamental change in the Part D benefit.

LARRY KOCOT: In fact, I also worked on the enhanced MTM model that is now being implemented, to get to just that point, is to realign the incentives, to encourage more of this realigned behavior that is going to result in better drug use, as well as lower cost. I see we have an audience question here.

AUDIENCE MEMBER: A brave soul. Hi, Diane Hasselman, I’m with the National Association of Medicaid Directors. Question for any of you: Two, three pieces of advice that you would give to Medicaid Directors throughout the country, on ways that they might best leverage their position, leverage their purchasing power, to advance greater value in this area?

STEVE MILLER: Obviously, scale makes a difference. When you can buy at scale, you can actually get bigger discounts. This is what the pharmaceutical manufacturers respond to. And so, when you can develop coalitions for buying, it makes a big difference. The second thing is actually — and so, also advocating for legislation where you can do value-based contracting. Right now, the way the regulations are at the state level, you can’t do that, and that’s actually a big problem. And so, you are not being able to take care — take advantage of best commercial practice. So, getting to scale, changing legislation for value-based contracting is crucial. Then there is nothing more important in Medicaid than actual adherence. Even the simple drugs, we are not getting the patients to take those drugs and we have to work a lot closer with providers, with the state agencies, to come up with solutions for adherence. I will just give you one example: We’ve now developed predictive models for adherence, so we can actually predict which patients are going to be adherent, and which ones aren’t. What’s surprising is, it’s not as much about money as you often think. And so, there are lots of poor patients who actually want to be adherent, but barriers get in their way. So, we have to come up with creative solutions to help those patients.

HENRY WAXMAN: When we adopt a legislation to get the discounts on Medicaid drugs, we took away the ability of the states to decide on a formulary. We said, you have to take all the drugs of this company that is going to give the discount on the drugs. I would be interested in the Medicaid directors thinking about whether it would make sense to try out a state sets its own formulary, and decide whether they want to go along with providing every drug available that a manufacturer might produce. It would be interesting to see what would develop. We prohibit that at the federal level.

LARRY KOCOT: We did a program on the 25th anniversary of the rebate program, and we actually asked that very question: Is that an anachronistic now? It served its purpose, but are we at a point where we can move to value-based pricing and formularies in individual states? And it’s a very good question.

HENRY WAXMAN: Yeah. We could do more in value-based if we had the research of what is the relative value of one drug as opposed to another, but we don’t have that knowledge.

LARRY KOCOT: States would be a great laboratory though. Another audience question?

AUDIENCE MEMBER: Edward Abrahams, Personalized Medicine Coalition. There has been more of a discussion about the high cost of pharmaceuticals than innovation and meeting unmet medical needs. My question is, the things in your mind that the government could do to encourage innovation and here I’m thinking about the Orphan Drug Act, which was obviously very successful, and I’m just wondering if anybody has any thoughts about proactive government policy that recognizes our changing understanding of science and medicine, based on the opportunities of today.

STEVE MILLER: I will just throw in one quick thing, and that is, being a basic scientist by training, funding the NIH is the single greatest thing we do. The NIH is a workhorse for innovation and the great thing about it is, they let the discoveries flow out to the community, so the community can actually make new companies, make new products, and so it’s really been a powerhouse for innovation for the United States. It’s unique to the United States, and we need to make sure that we protect the funding for the NIH.

ROBERT ZIRKELBACH: Just real quickly, I would mention PDUFA. Congress has a date that they have to reauthorize that program in the coming months, and it should continue to be a priority, because making sure that the regulators have the ability to keep up with where 21st century science is at, is absolutely critical.

JOEL WHITE: We need to make it easier for people to participate in the precision medicine initiative, by changing the HIPAA law to allow them easier opt in to research type studies and then share that data broadly across state lines.

HENRY WAXMAN: One of the purposes of the legislation, called the 21st Century Cures, was to advance the efforts to get precision medicine.

LARRY KOCOT: We have time for one more question. Sarah, if you don’t mind, I’m going to go from the cards to the audience, since you are brave enough to stand up and ask the question yourself.

AUDIENCE MEMBER: Thanks. Nick Florca with Inside Health Policy. I noticed during the discussion that there wasn’t — besides David mentioning the Creates Act, there wasn’t actually much mention of pending legislation that you all want to see passed this Congress, besides maybe the user fees. I’m wondering, is there any legislation that you all are monitoring that you think has a reasonable chance of passing this Congress and you want to see being passed in Congress since there are a lot of drug pricing proposals being put forward. If you are not talking about legislation, is that because you think that these drug pricing issues should actually be solved administratively, and that that’s actually a better way to pursue these changes?

DAVID MITCHELL: I just want to take the opportunity again to do the commercial for the Creates Act, while we are on it, before others offer other alternatives. Creates is endorsed by people from CAP, all the way to the Heritage Foundation. It has Republican and Democratic sponsors. It really would make a meaningful difference. It could save 3.3 billion dollars, which could be put to good use in other places, and it’s a legislation that could move now. It could increase competition and everybody up here has talked about the importance of increasing competition, speeding generics to market. Creates could accomplish that, and it could be passed in this Congress. So, for those of you who work in this Congress, I urge you to take a look.

JOEL WHITE: We are working on getting legislation introduced in the House and the Senate to reform Best Price, Stark and a kick-back law. We want a value-based insurance design and Blumenauer and Black have a bill in the House. We need to pass FDARA, which passed the House, it needs to pass the Senate now, as a way to speed competition. I think integrating electronic prior authorization in Part D makes a heck of a lot of sense, and that requires Congressional change. Then we definitely need to fund the infrastructure to make these value-based arrangements more fruitful. So, if you work for Congress and want to issue us a bill to lower drug costs in a way that doesn’t harm access, talk to us.

LARRY KOCOT: General Waxman, you have a whole slate that you proposed. Do you want to just wrap it in a bow and have someone introduce it, or –?

HENRY WAXMAN: I think that is not an accurate statement. What we have said is: There are certain problems, and we ought to look at these problems which are driving up the price of drugs. What are the solutions? Let’s talk through possible solutions and find where we can get bipartisan agreement. I don’t think we are going to solve these problems, because there is no magic bullet entirely, but we can do some things now like the Creates Act and at least start thinking about the others. But I think we are going to need a lot of people who are going to be willing to work on this issue over a long term. It’s not easy to change things where you have a lot of vested interest that could stop legislation, but it’s easier to pass legislation if you have bipartisan support around some common-sense solutions to obvious problems.

LARRY KOCOT: Thank you. Good clarification. Anyone else?

STEVE MILLER: I will just stay that we support the Creates Act and have been pushing that hard. The other thing is EPA or electronic prior authorization, electronic prescribing are both going to be introduced this session, so we are excited because those things are crucial.

LARRY KOCOT: Sarah, with that — I’m sorry, we’ve got to cut it off here. I’m going to turn it back over to you for final comments.

SARAH DASH: Great, thank you. I will just come up here so everyone can see. Thank you so much for an incredibly thoughtful discussion on what is a really complicated issue. I think my key takeaways certainly are there are a number of potential problems, but it is important to define the problem that we are trying to address, and then really look carefully at the solutions, and what the potential outcome of those solutions would be. I hope that you will all share your key takeaways on the blue evaluation forms, especially because there are probably five, or six or ten spinoff briefings that we could do just based on today’s discussion. Please tell us not only what you want to hear about, but if there are formats that would be helpful for you. Please join me in thanking Larry and our panel for a fantastic discussion.