Prescription Drug Affordability & Innovation: Policy Options & Stakeholder Views

The Alliance for Health Policy hosted a briefing on current issues in prescription drug affordability and innovation, focusing on potential policy and private-sector approaches to this complex issue. The panel included:

  • Henry Waxman, Waxman Strategies
  • Joel White, Council for Affordable Health Coverage
  • Steve Miller, Express Scripts
  • David Mitchell, Patients for Affordable Drugs
  • Robert Zirkelbach, PhRMA
  • Larry Kocot of KPMG moderated the discussion.

The discussion included specific proposals for steps that can be taken by the private sector, the public sector, and policy makers to better provide affordable access while also providing incentives for the development of innovative new drugs. Those policy options included the following:

Value-Based Pricing

All of the panelists discussed the potential of value-based pricing to align incentives and thereby help control costs. Mr. Miller discussed an example of how value-based pricing can work: Express Scripts took responsibility for patient adherence in return for better pricing on hepatitis C drugs. The lower prices permitted the company to offer treatment to more people, even those with less advanced cases of the disease.

One concern raised about value-based pricing is how value-based contracts for private coverage affect the pricing formulas for drugs under Medicare and Medicaid. Mr. Miller and Mr. White both raised this concern. Mr. White explained, “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.”

Fostering More Competition

Mr. White stressed the importance of competition in controlling costs. He cited the example of hepatitis C medications: “By the time the third product came on the market, we had 46 percent discounts on that product. … These are the kinds of things that we want to encourage from an innovation standpoint.”

Several panelists cited the backlog of drug approvals at the Food & Drug Administration as one important obstacle to greater competition, an issue that FDA Commissioner Scott Gottlieb has said the agency will prioritize.

Improving Access to Generics and Biosimilars

Rep. Waxman suggested looking at anti-competitive behaviors such as “pay for delay,” in which a drugmaker is permitted to pay a generic manufacturer to delay introducing generic competition to the market. He noted, “Even the Supreme Court said that pay for delay ought to be looked at with a great deal of scrutiny.” Rep. Waxman and Mr. Mitchell both cited Risk Evaluation and Mitigation Strategy (REMS) as a policy that should be updated to prevent abuse that keeps generic drugs off the market.

Rep. Waxman also suggested that the FDA can help generate competition by, for example, reaching out to encourage manufacturers to bring generic competitors to the market.

Several panelists also raised the issue of biosimilar drugs requiring a much higher standard for approval than small-molecule generic drugs, and that new guidance from the FDA on biosimilar drug approvals could encourage more competition among biologic drugs.

Price Transparency

One area of disagreement on the panel was the role of price transparency. Mr. Mitchell raised concerns about patients not knowing the true cost of drugs and cited the lack of transparency as a cost driver. Mr. Miller disagreed, warning that complete transparency would enable anti-competitive price signaling: “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.”

Price Negotiation by Government Payers

There was also a range of views on whether Medicare could save costs if it were permitted to negotiate drug prices. While some panelists recommended more latitude for Medicare in negotiating prices, Mr. Zirkelbach argued that in countries where the government sets formularies and prices for drugs, there is less access to new, innovative medications. Rep. Waxman disagreed that the tradeoff is that clear-cut, and while he did not advocate that the government should negotiate prices, he also did not rule it out.

Under Medicaid, one option Rep. Waxman mentioned was permitting states to operate pharmacy benefit managers.

Health Information Technology

Mr. Miller said that compelling doctors to electronically prescribe would help to reduce costs and to reduce fraud. He also recommended electronic prior authorization for expensive drugs: “It is patient friendly, it is doctor friendly, and it actually saves money.”

Comparative Effectiveness

Rep. Waxman noted that “patients, providers and payers lack that information about comparative effectiveness of drugs … when critical health care decisions are being made,” and he said that increased investment in comparative effectiveness research could provide useful information for these decisions.

The Importance of Bipartisanship

Rep. Waxman noted that historically, “all the legislation dealing with pharmaceutical issues have passed with bipartisan support,” and he stressed that bipartisanship will be necessary to move forward with new policies to address drug affordability. Mr. Mitchell also called for bipartisan action, adding that “the most enduring legislative achievements have come with bipartisan support.”

Learn More

You can watch a video of the full conversation (above) or read a transcript of the event.