Panelists at Allicense 2016, held this year in conjunction with the 2016 BIO International Convention, made clear that the debate over drug cost valuation that escalated last year continues to rage. Although speakers endorsed the concept of transparency, sometimes testy exchanges showed the word has different meanings to different stakeholders.
In his keynote address, James Robinson, professor of health economics at the University of California at Berkeley, introduced the topic by drolly noting, "It's not getting better." In some ways, Robinson said, relationships between payers and biopharma are worsening. What's needed, he maintained, is a strategy for deceleration in "the arms race" between the two camps.
Solutions are easier proposed than adopted, however. Robinson presented data showing that wholesale acquisition prices for the top 10 selling drugs in the U.S., before volume-related rebates and discounts, rose anywhere from 54 percent to 126 percent in the period between 2010 and March 2016.
To counter, payers increased consumer cost-sharing – growth in high-deductible health plans has increased "in linear fashion," Robinson said – and changed physician payment incentives in a move that increasingly looks like capitation 2.0. Payers also adopted more stringent prior authorization in indications such as rheumatoid arthritis that have multiple therapeutic options and imposed mandated discounts in public programs such as Medicaid. Discounts made under the 340B drug discount program could reach $13.4 billion this year, compared to approximately $3.4 billion in 2006, according to data presented by Robinson.
In addition, the Centers for Medicare & Medicaid Services (CMS) recently disclosed first-ever plans to adjust spending target for new drugs if they are used on-label, at rates not exceeding market and if "cost-effective," though the agency has not yet clarified how it will define cost-effectiveness.
"This is huge," he said bluntly.
In response to payer initiatives, biopharmas ratcheted up consumer co-pay support programs, helped physician offices navigate prior authorization restrictions, increased the size of clinical trials to support coverage – adding endpoints, subpopulations, head-to-head trials and observational studies, all at heightened development cost – and intensified lobbying efforts.
The moves and counter-moves created greater administrative burdens, higher costs, litigation and what Robinson called "demonization" of the industry.
Whether there's a basis for compromise remains to be seen. Payers want biopharmas to set their launch price benchmarks at an affordable level, adjusted for the "clinical and social value" of each drug, and to link post-launch increases to additional value for patients, according to Robinson. The industry wants payers to provide faster coverage with fewer restrictions and mandated discounts and less consumer cost-sharing.
But the devil is in the details. Despite payer rhetoric about "value-based pricing," most payers view such a metric as a benchmark – as yet undetermined – against which prices for individual drugs could be set, Robinson pointed out. Even if a standard could be established, who would set the criteria for comparison? he asked. And if post-launch prices were to increase only if their "value" to patients and society increased, how would that value be measured?
Organizations such as Memorial Sloan Kettering Cancer Center, with its DrugAbacus created by Peter Bach, and the independent Institute for Clinical and Economic Review, or ICER, are seeking to fill the value-based pricing void, but the industry has criticized those methodologies. (See related story in this issue.)
Individual negotiations between insurers and biopharmas simply extend the arms race, however, Robinson contended. When manufacturers increase prices at launch and afterward so they can offer rebates from a higher base, insurers simply tighten their formulary criteria, prior authorization, pathways and cost-sharing as bargaining tools for more rebates. Patients get caught in the middle, leading to more demonization of the industry.
Robinson proposed industry-wide standards of conduct that would reduce administrative costs and permit greater transparency, though he acknowledged that such principles would face the "collective action" dilemma of being watered down to the lowest common denominator by payers least interested in patient access and manufacturers least interested in price moderation. Still, he maintained, the effort could succeed even if everyone didn't want to play in the sandbox.
The concept struck a chord with some, though not all, participants on the Allicense panel.
Paul Hastings, president and CEO of Oncomed Pharmaceuticals Inc., of Redwood City, Calif., and vice chairman of BIO's board of directors, where he chairs the patient advocacy committee, agreed that transparency is the key to solving the pricing dilemma, maintaining that failure to undertake what he acknowledged as a "massive effort" to move in the direction of transparency is a disservice to the industry and patients. He suggested industry leaders meet and debate ground rules to jumpstart the process.
Hastings also challenged the need for continued rebates, asking rhetorically where those monies go. The answer matters, he said, because any biopharma pricing benchmark should be set after rebate amounts.
But Amy Bricker, vice president of supply chain strategy at Express Scripts, one of the nation's largest pharmacy benefit managers (PBM), shot back that 90 percent of its rebates are passed along to customers and pointed to internally gathered data suggesting that U.S. drug trend last year was 7 percent before rebates and 5 percent afterward. Moreover, she maintained, the U.S. accounts for 5 percent of the world's population but one-third of its drug spend and 50 percent of biopharma profits.
"I suggest a course correction," Bricker said.
Hastings bristled at the characterization, suggesting stakeholders sit down to develop a plan for cost transparency from discovery through development to payment of PBMs and the flow of rebate monies.
In response to a question on the merits of rebating, Hastings added that rebate negotiations should be part of the transparency initiative. Acknowledging reports of pushback from some PBMs when biopharmas seek to enter a market at a lower price than competitors instead of offering rebates, Hastings maintained that "when a [PBM] prefers a higher price so it can get higher rebates, that information should be publicly disclosed."
Cameron Durrant, who in March was named chairman and CEO of beleaguered Kalobios Pharmaceuticals Inc., said any changes in the drug pricing paradigm should take into account affordability and transparency as well as reasonable return to companies taking drug development risk. He said Kalobios plans to publish its actual costs to bring compounds through development, manufacturing and commercialization. A "reasonable" return on those costs will be derived from conversations with key stakeholders, he explained, noting that the company's investors have been "extremely supportive" of the model.
Durrant cited the 2014 study by researchers at the Tufts Center for the Study of Drug Development that determined the average cost to develop a new molecular entity had risen to approximately $2.6 billion, observing that "fewer people" believe that number. (See BioWorld Today, Nov. 19, 2014.)
"Some people believe the true cost of developing a drug is 5 percent to 25 percent of that," he said. "We play a shifting game."
Gathering feedback from all stakeholders will help to set more reasonable pricing targets, he maintained.
"We want the people we serve to converse with us," Durrant said. "We think that's a reasonable model. The 'arms race' is everyone's responsibility. Right now, we're spending more to get less. If we spend even more, will we get even less?"