Price vs. Value: The Story and the Rest of the Story

A new report, by Public Citizen and Carleton University, urges Congress to pass legislation allowing Medicare to reduce brand name drug prices to the level of Medicaid, or the VA, and to introduce mandatory generic substitution for all plans under Part D. Currently, the federal government is prohibited from leveraging its Part D purchasing power. And Senator Bernie Sanders has called for “wartime powers” to break the patents on drugs.

Here’s the truth behind the headlines.

Let’s start with Sovaldi. The study does not mention that one pre-Sovaldi “best practice” treatment for Hepatitis C, the drug Pegasys, requires one injection a week for 48 weeks — and very few patients see the treatment through to completion, so much physician time and drug cost is wasted. Nor is it that much cheaper: At about $7,000/month, the full course of treatment is over $70,000 — barely less than the cost of the three months needed for Sovaldi to work a cure. But why let the facts get in the way. Data recently published by the PwC Health Research Institute suggests that the use of Sovaldi will actually drive down overall spending within a decade.

Also, is anyone really paying “$1000 per pill?” Certainly nobody with insurance. And for those without coverage there are generous programs supplied by the manufacturer. What rates have large payers negotiated? Large payers negotiated discounts of between 40-50% off of the list price but these discounts were not passed on to the consumer.

Let’s tackle the VA next. The VA’s national formulary covers 59 percent of the 200 most popular drugs in the country. (Medicare covers 85 percent.) Media reporting missed these important facts.

“Negotiating prices” for Medicare Part D. Allowing the Feds to negotiate drug prices would result in prices going up and patient choice going down. That’s why the Non-Interference Clause, the legislation that prohibits Federal price negotiation was created in the first place. It’s interesting and important to note that the legislative language was drafted by Senators Ted Kennedy and Tom Daschle.

According to the Congressional Budget Office, Part D cost an extraordinary 45 percent less than what was initially estimated between 2004 and 2013 and premiums for the program are roughly half of the government’s original projections. These unprecedented results are largely due to Part D’s market-based structure. Beneficiaries are free to choose from a slate of private drug coverage plans, forcing insurers to compete to offer the best options to American seniors. In fact, the CBO observed that Part D plans have “secured rebates somewhat larger than the average rebates observed in commercial health plans.” What’s more, the CBO has said that doing away with the non-interference clause “would have a negligible effect on federal spending.” In a report from 2009, they explained that such a reform would “have little, if any, effect on [drug] prices.” In fact, allowing the feds to negotiate drug prices under Part D would likely have a negative effect on the program. The CBO predicts that when HHS forces pharmaceutical firms to lower the cost of a particular drug, this tactic brings with it “the threat of not allowing that drug to be prescribed.”

Senator Sanders’ calls for “wartime powers to break patents.” There is no such thing as a free lunch. While opaque and seemingly arbitrary drug pricing deserves immediate attention, the value of innovation must not be ignored. Innovation is hard. Today it takes about 10,000 new molecules to produce one FDA-approved medicine. This observation itself is disconcerting, but further, only 3 out of 10 new medicines earn back their R&D costs. Innovation is slow. As any medical scientist will tell you, there are few “Eureka!” moments in health research. Progress comes step by step, one incremental innovation at a time.

As Abraham Lincoln said, “Patents add the fuel of interest to the passion of genius.”

Doesn’t innovations come from government-funded research? Nope. A study in Health Affairs presents a data-driven perspective that gives the NIH its due – but in the proper frame of reference. For example, fewer than 10 percent of drugs had a public sector patent, and drugs with public-sector patents accounted for 2.5 percent of sales.

And as far as “mandatory generic substitution” is concerned, while a good way to save payers money in the short term (including our nation’s largest payer—Uncle Sam), it often has a deleterious impact on patient care — an issue that is researched and quantified. This is even more important when it comes to medicines that have a narrow therapeutic index. Narrow therapeutic index means that small changes in blood concentration have the potential to result in serious therapeutic failures and/or serious adverse drug reactions.

A study fielded by the National Consumers League demonstrated that switching a patient to a generic medicine doesn’t always result in positive outcomes:

• 15 percent of general Rx users saying that they or a family member experienced therapeutic substitution.
• Nearly half of Rx users (47 percent) were dissatisfied (or their family was) with how the process occurred and report that this substitution did not result in lower out-of-pocket costs.
• More than a third (40 percent) said that the new medication was not as effective as the original one, and nearly a third (30 percent) experienced more side-effects following the substitution.
• Large majorities of Rx users think that the potential side effects of the new medication, the patient’s medical history, how well the drug works and the prescribing physician’s opinion are factors that are absolutely essential when decisions are made about therapeutic substitution.

The repercussions of choosing short-term savings over long-term results, of cost- based choices over patient-centric care are pernicious to both the public purse and the public health. Skimping on a more expensive medicine today but paying for an avoidable hospital stay later is a fool’s errand.

As Harvard University’s David Cutler has noted, “Virtually every study of medical innovation suggests that changes in the nature of medical care over time are clearly worth the cost.” When it comes to the price/value debate it’s important to look at the whole picture.

Peter J. Pitts, a former FDA Associate Commissioner, is President of the Center for Medicine in the Public Interest and an Executive Partner at YourEncore.