Welcome to the Frog Hot Tub
Although the pharmaceutical and biopharma industries must maintain reasonable profitability, they have a moral duty to society.
I recently attended a commercial payer pharmacy and therapeutics committee to which I have contributed for many years. As usual, we were reviewing new therapeutic agents and new indications for existing agents. I noticed that although the cost of new treatments once shocked committee members, we have reached a point of discussing agents that cost anywhere from $10,000 to more than $50,000 per year with almost no eye rolling or sarcastic comments.
Is it possible we have just accepted the seemingly limitless pricing practices of the industry? This level of desensitization drove me to draw an analogy to the fable of the frog that will tolerate boiling water if the temperature is raised gradually. The reality is that the frog is smart enough to jump out of the water before it will cook him alive, whereas that does not appear to be true (yet) for humans attempting to provide health care in an environment of ever-increasing pharmaceutical costs.
Despite a relatively small negative impact of the COVID-19 pandemic in 2020, the global pharmaceutical industry achieved a record revenue of approximately $1.27 trillion, with 48.7% of that total from North American and oncology sales alone totaling $99.5 billion.1 Overall, the industry has continued to be a strong financial performer and is recovering rapidly from any pandemic impact.
Although most of the high-cost agents we discussed at our meeting were drugs for rare diseases or oncology treatments, I was particularly intrigued by a new treatment for heart failure (HF). Although HF is certainly not a rare disease, there are multiple categories of drugs available with documented effectiveness, and new entries for this indication should either be significant therapeutic advancements or reasonably priced. Vericiguat is a novel oral soluble guanylate cyclase activator that was approved based on a single phase 3 study (NCT02861534), which compared a placebo in patients with reduced ejection fraction receiving guideline-based treatment. Despite what could be described as, at best, a modest effect on outcomes and no mortality benefit,2 combined with criticism that many enrolled patients were not receiving optimized baseline treatment, the drug is priced at about $700 per month or $8400 per year. In our desensitized state, does that cost make sense from a value-based perspective?
It has long been acknowledged that health care spending as a percentage of the US gross domestic product is not sustainable. In recent years, the fastest-growing segment of that spend has been pharmaceuticals, especially specialty drugs. In most of the developed world, pharmaceutical pricing is regulated through governmental price controls. However, in the United States it is argued that price controls are counter to our free market economy and to our values, an argument the industry fortifies through aggressive lobbying efforts.
Of course, that is a nonsensical albeit successful argument, given that most sectors of our economy are regulated markets, especially health care.
Health care insurers in most US markets are regulated at the federal and state levels, and almost all aspects of operating costs and revenue for health systems are heavily regulated, directly or indirectly. It is illogical, unfair, and non-sustainable that most aspects of health care delivery are subject to regulatory controls, however a major and growing contributor to cost, pharmaceuticals, are not subject to similar regulatory standards. The Trump administration really highlighted the idiocy of this approach with the Most Favored Nation Model proposal.3 This regulatory model would have limited payment to health care providers for facility-administered drugs based on governmental price controls imposed by other countries, while doing nothing to address the cost of pharmaceuticals in this country. Health care providers would have been forced to absorb the difference; this is not price control. It is also noteworthy that the pharmaceutical industry often does not behave as expected in a free market economy. For example, as more biologic treatments with similar efficacy have entered the market for the treatment of conditions such as psoriasis and rheumatoid arthritis, the costs have continued to increase, which defies free market dynamics. There are 3 major manufacturers of therapeutically interchangeable insulins. However, the price of these agents has relentlessly increased over the past decade. How does that behavior reconcile with a free market argument?
Although rational economic policy standards could be developed to regulate defensible and reasonable pharmaceutical pricing in the United States, it is not the only regulatory approach that should be considered. Other behaviors in the industry that drive up and sustain unreasonable costs must also be addressed. Pay-to-delay agreements should be criminalized; to the average person it is unclear how this collusive behavior is even legal. Patent abuse is rampant, and abuse of the court system to dramatically delay market competition must be addressed. Bad policy decisions by the regulatory agencies that should be protecting the interests of the public, including financial interests, should be identified and reversed. An example is the unapproved drug initiative by the FDA, an unmitigated disaster of a policy decision. The pharmaceutical industry was given free license to dramatically increase the cost of old drugs with market protection granted by the FDA under the pretext of improving drug safety, but the reality is that all we did was spend a lot more money for the same old drugs, especially within health systems. This is not value.
Although the pharmaceutical and biopharma industries must earn reasonable levels of profitability to continue their mission, the cost to society must be defensible, reasonable, and sustainable. This can be achieved through use of established pharmacoeconomic principles with broad agreement concerning how those principles should be applied to establish costs aligned with the value of new and existing therapies. Unfortunately, I am not optimistic that this will happen anytime soon. Back to the hot tub.
ABOUT THE AUTHOR
Curtis E. Haas, PharmD, FCCP, is the chief pharmacy officer for the University of Rochester health care system in New York.
1. Mikulic M. Global pharmaceutical industry – statistics & facts. Statista. November 5, 2020. Accessed June 4, 2021. https://www.statista.com/topics/1764/global-pharmaceutical-industry/
2. Armstrong PW, Pieske B, Anstrom KJ, et al; VICTORIA Study Group. Vericiguat in patients with heart failure and reduced ejection fraction. N Engl J Med. 2020;382(20):1883-1893. doi:10.1056/NEJMoa1915928
3. Most favored nation (MFN) model. Federal Regis. 2020;85(229):76180-76259. Accessed June 18, 2021. https://www.govinfo.gov/content/pkg/FR-2020-11-27/pdf/2020-26037.pdf