What is the Future of Drug Pricing?

With the 2016 election behind us, some may feel that there could be clarity on the debate surrounding drug prices.

While I see the merits in these arguments, I believe that the answer is still unclear. For the last few years, the industry has witnessed a roller coaster of events that has caused the stock prices of several drug companies to skyrocket up and tumble down, based on tweets from politicians and congressional hearings to state ballot initiatives.

To get an understanding of this issue, it may be best to determine what has happened, where we are, and where we may be headed. While many elements of the drug price debate can be traced back to Gilead’s introduction of Sovaldi in late 2013, Mylan’s price hike of the EpiPen seemed to cause the greatest outrage among the public and media.

Yes, there were justified issues surrounding Turing Pharmaceuticals and Valeant, but Mylan’s decision that followed a long line of companies that have also been raising drug prices hit at the wrong time during the height of the election, and also impacted a large group of consumers. To review, Mylan CEO, Heather Bresch, was roundly criticized for increasing the cost of the EpiPen, which is an emergency treatment for patients suffering a life-threatening allergic reaction.

Many stakeholders were surprised to witness the steady rise in price for the product in recent years, as the EpiPen jumped from a cost of $100 in 2008 to $164 in 2011, and now up to $600. As Mylan raised the price of the EpiPen, sharp increases in company executive pay coincided with the hikes. The fallout has been severe since this revelation.

Congressional hearings ensued, blame has been traded between pharma and the payer community, and the threat of increased regulatory oversight has cast a cloud over whether drug companies can plan for future mergers and acquisitions. In response to the criticism, Mylan said it will provide $300 instant savings cards to patients who must pay full price for the drug out of pocket.

This equals a 50% price cut for people without insurance, or for patients with high-deductible plans. Additionally, the company said that it has donated 650,000 EpiPen and EpiPen Jr auto-injectors to half of US schools, and said that most commercially insured patients received the product for free. But will this be enough to quell the firestorm?

This year has seen different reactions on the congressional and state policy front concerning drug pricing. Sen Bernie Sanders (I-VT) and Rep Elijah Cummings (D-MD) are among the leading voices trying to stop drug price increases by promoting greater generic utilization, and calling for transparency on pharmaceutical research and development costs. Many voices on both sides of the aisle have increased their calls discouraging the use of pay-for-delay tactics, giving Medicare the power to negotiate drug prices, and the expansion of importation policies to force down costs.

Most recently, spurred by the EpiPen controversy, Rep Rosa DeLauro (D-CT) announced the Prescription Drug and Medical Device Review Board Act, which aims to create a national review board to stop pharmaceutical corporations from charging excessive prices to consumers. Per the Congresswoman’s announcement, “an Interagency Drug and Device Price Review Board would collect data on drug and device prices and manufacturing costs, and if necessary, take enforcement action against manufacturers that charge consumers excessive prices.”

This bill will ensure that American families retain access to life-saving drugs by allowing the Price Review Board to take enforcement action against pharmaceutical corporations, including shortening monopoly protections, imposing monetary fines, and recouping previous tax benefits for life saving treatments.¹ In 2016, several states introduced drug pricing legislation, with many looking to policies taking shape in Vermont and California. Earlier this spring, Vermont Governor Peter Shumlin enacted bill S. 216, titled An Act Relating to Prescription Drugs.

This legislation requires the state to identify 15 drugs on which the state spends significant health care dollars, and which has experienced wholesale acquisition cost growth by 50% or more over the past 5 years, or by 15% or more over the past 12 months, creating substantial public interest in understanding the development of the drug’s pricing. While California had legislative initiatives this year on drug price transparency, it was Proposition 61 that captured stakeholder attention this year.

Proposition 61, officially known as the California Drug Price Relief Act, was a ballot initiative that would have prevented state agencies from purchasing drugs at prices higher than those negotiated by the US Department of Veteran Affairs. This was a preferable metric to advocates because the department pays the lowest price for prescriptions drugs.

Even though federal law mandates a 24% discount off a drug’s list price to start, officials could negotiate even more favorable discounts depending on the drug. Even though this initiative was defeated, this is likely not the last time this issue is being heard in this forum, as Ohio has a similar measure that will appear on its state ballot in 2017.

Mylan’s public scrutiny has accelerated a dialogue into how PhRMA companies may deal with the optics of price increases. Recently, Allergan CEO, Brent Saunders, wrote a post on his company’s blog that may serve as the new industry standard.

Within the post titled “Our Social Contract with Patients, Saunders states that, “Where we increase price on our branded therapeutic medicines, we will take price increases no more than once per year and, when we do, they will be limited to single-digit percentage increases. Our expectation is that the overall cost of our drugs, net of rebates and discounts, will not increase by more than low-to-mid single digits percentages per year, slightly above the current annual rate of inflation.”²

The question is whether this stance will become the norm and will future price increases such as this avoid harsh government scrutiny?

In October, Valeant announced that it will raise prices on several products in its neurology, urology, and gut drug categories, but these prices will be limited to single-digit increases. Some CEOs have reported that bad actors, such as Turing and Valeant, are examples of simple outliers in the industry, and the real cost for research and development needs to be reimbursed adequately, since better science produces better outcomes that need to be equated fairly in the market.

Considering these events, pharma has been positioning the industry into taking a more aggressive stance heading into 2017. The industry has been battling patient groups and the payer community for the last few years, and these deep philosophical battles show no signs of slowing. In addition to fighting legislation and ballot initiatives on price transparency, the group has increased its dues by 50% for its members in anticipation of future lobbying initiatives.

It has also increased its criticism of the Institute for Clinical and Economic Review (ICER), which uses evidence-based analysis to examine whether several factors, including drug prices, are effective at improving outcomes and lowering costs. With pharma advocating that increased generics are influencing the overall marketplace downward, conclusions made by ICER could influence how much payers are willing to tolerate pharma’s pricing perspective.

The policy battle is brewing, as October’s National Conference on Medicare, Medicaid and Duals sponsored by America’s Health Insurance Plans, witnessed payers calling for regulatory changes that could allow them to potentially exert greater influence over drug cost in Medicare and Medicaid plans. The potential direction of drug prices got even murkier with the surprise announcement by the Department of Justice.

Since 2014, the department has been probing whether generic drug firms have been colluding with each other regarding generic prices. According to a November 4, 2016, Wall Street Journal article, generic companies receiving subpoenas related to the probe include Teva, Mylan, Dr. Reddy’s Laboratories, Taro Pharmaceuticals, Endo International, and Actavis.

If the allegations are true, it would be interesting since policy makers called for increased generic utilization to stem price increases. However, recent years have witnessed sharp increases in generic pricing that have been explained by many because of several extrinsic circumstances.

In conclusion, while we have an answer now as to who the next US President will be, unfortunately, we are no closer to knowing how the debate on drug prices will unfold. We have not heard enough details from President-elect Donald Trump to know how the health care system will be regulated. Additional uncertainty surrounding drug companies comes from Wall Street.

Investors are anxious to know whether innovation or raising drug prices will be the main reason for determining future earnings. If CEOs are handcuffed by the perception accompanying increased prices, and innovation slows either due to lack of research and development or mergers and acquisitions, there could be a significant re-pricing of drug companies for some time.

Battle lines are already being drawn around the increasing price of insulin, the introduction of expensive cholesterol drugs, and the uncertainty surrounding the impact of biosimilars. Acting Administrator for the Centers for Medicare and Medicare Services, Andy Slavitt, has expressed concern that in the next few years, the pressure of rising drug costs on Medicare will require action to mitigate these continuing issues. 

RON LANTON III, ESQ is president of True North Political Solutions, LLC. He has over 20 combined years of government affairs and legal experience. This includes activities on the municipal, state, and federal levels of government. Most recently, he worked for a pharmaceutical wholesaler where he created and oversaw the company’s government affairs department, served as their exclusive lobbyist, and advocated for the company’s various health care customers. Prior to that, Ron worked at a government affairs consulting firm in Arlington, Virginia, where he focused on health care, energy, commerce, and transportation issues. He has also clerked for a federal magistrate, was appointed as a municipal commissioner on environmental issues, and has served as consultant to Wall Street firms on financial issues. He has been a featured industry speaker on issues such as pharmaceutical safety and health care cost containment. Ron earned his juris doctor from The Ohio State University Moritz College of Law and a bachelor of arts from Miami University of Ohio. He is also a “40 Under 40” award recipient. He is admitted to practice law in New York, Illinois, and the District of Columbia.