Health and Science

Can this plan help control spiraling drug prices?

Gilead Sciences | AP

Washington's leading liberal think tank is talking about doing something to control rising drug prices, but will the next president and Congress listen?

The Center for American Progress—whose founder John Podesta is now chairing Hillary Clinton's presidential campaign—on Friday called for a series of steps to address what it called "this growing crisis" of prescription drug costs, which include having drugmakers "refund" money to the federal government if they don't spend a minimum amount on research and development.

CAP's proposals also include a system to "categorize new drugs" by their effectiveness relative to existing medication—which could then influence their price—and having the government license patents to competitors if a drugmaker fails to charge "reasonable prices" for medication that comes out of federally funded research.

A number of CAP's proposals—which the pharmaceutical industry immediately criticized—would require legislation by Congress, which is extremely unlikely to act on the issue of drug prices before the 2016 presidential and congressional elections.

However, the think tank said that its other proposals could be accomplished under existing laws and through regulatory action.

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CAP President Neera Tanden, herself a confidante and former adviser to Clinton, called increases in drug prices, drug spending and the share that individuals pay out of pocket for those medications "a national problem, in both the private and public sector."

"The challenge here is that drug prices are growing astronomically and becoming not only unaffordable to health-care system, but to consumers as well," Tanden said.

Tanden cited the fact that spending on prescription drugs, which more than half of all Americans take each month, reached more than $374 billion in 2014, which was 13 percent more than the previous year, the highest such percentage hike in well over a decade. The sky-high price of the hepatitis C drug Sovaldi, which costs $84,000 for a regimen, played a significant role in that big increase.

Tanden also noted a recent Kaiser Family Foundation survey found 72 percent of the public believes that drug costs are unreasonable. In that same survey, broad majorities supported the ideas of requiring drug companies to share information publicly about how they set prices, allow the federal government to negotiate for lower prices for drugs paid for by Medicare and Medicaid, and limit what companies can charge for high-cost medications such as Sovaldi.

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Maura Calsyn, one of the authors of CAP's report on its proposals, said that having an independent research entity to evaluate the comparative effectiveness of new medications would give some leverage to private insurance plans in negotiating what they will pay for those drugs. Calsyn said new drugs would be placed into one of three buckets: "no added benefit" from the medication, "minor added benefit;" and "significant added benefit."

Drugs might then be priced accordingly, with medication having additional benefits to patients justifying higher prices than current drugs.

Calsyn said that if the negotiated prices fell outside the recommended range, then the government could license patents to a drugmaker's competitors when the drugs sprang from federally funded research.

That proposal comes a week after the Institute for Clinical and Economic Review issued a draft report that said new forms of cholesterol drugs called PCSK9 inhibitors would reflect their benefits to patients if their makers charged between $3,615 and $4,811. That's a 67 percent discount to the list price of more than $14,000 for the drugs, whose costs have raised concerns that they will impose significant new burdens on health-care budgets.

Another proposal by CAP mirrors an element of Obamacare, which now forces insurers to give customers rebates if the companies don't spend a certain minimum amount of the premiums they are paid on health benefits, as opposed to administrative functions.

CAP's proposal would be for a similar floor for minimum R&D spending by a drugmaker. If the company didn't spend enough in that area, it would then pay a refund to the National Institute of Health, with the money coming from what the firm receives from Medicare and Medicaid reimbursements from the federal government.

Topher Spiro, a co-author of the CAP report, said that pharmaceutical companies spend around 18 percent on R&D, but spend more on marketing.

"The reason why is that the drugs they are marketing can't sell themselves" based on the comparative benefits they have, Spiro said.

Other proposals by CAP include providing transparency on R&D costs, providing star ratings for the comparative effectiveness of drugs, vary Medicaid drug rebates based on the relative effectiveness of medications, and lower the out-of-pocket costs for individuals from prescription drugs.

Robert Zirkelbach, spokesman for the drug industry trade group PhRMA, in response to CAP's proposals said, "Ensuring that patients have access to innovative, life-saving medicines is critical. These proposals would do the opposite by imposing arbitrary caps on pharmaceutical prices that would thwart innovation, impede the development of new medicines for patients and cost countless jobs across the country."

"Even with new treatments for hepatitis C, cancer and high cholesterol, medicines account for just 10 percent of U.S. health-care spending, a trend that is projected to continue through at least the next decade," Zirkelbach said. "The CAP proposal ignores the reality that health insurers and PBMs [pharmacy benefit managers] are already large—and growing—purchasers that use their size to negotiate significant discounts and incentivize lower-cost options. In fact, nearly 90 percent of all medicines dispensed to patients today are generic medicines that can cost 90 percent less than the name-brand version."

The health insurance industry's leading trade group, which has been vocal about rising drug costs, said it opposes "any sort of price control, any sort of government negotiation around drug prices," but also wants transparency" around how prices are being set" so that private payers can negotiate better with drugmakers.

"Because we have no window into why drugmakers are setting the prices they have set," said Clare Krusing, spokeswoman for group America's Health Insurance Plans. "Drugmakers are coming out with prices and setting them at exorbitant levels."

"How can you claim there's truly a competitive market when you're simply setting your prices higher and higher and higher?" Krusing said.

Krusing also said that the argument that R&D costs are driving drug prices doesn't hold water.

"The research and development costs no longer correlate to the actual costs of the drugs," she said.