by Amanda Conschafter, blog editor
Widespread debate erupted several weeks ago when a pharmaceutical start-up bought and raised the price of a 60-year-old drug by 5,000 percent. In the face of public backlash, the company’s CEO agreed to a reduced price. And when a San Diego-based company introduced a $1 alternative, patients and the media alike celebrated. But the incident has fueled a broader public debate about the cost and value of prescription medications.
Aptly accused of price gouging, the hedge-fund-manager-turned-CEO who first incited the controversy quickly become a target of public vitriol. Pharmaceutical developers moved to illustrate a key distinction; there are profit-driven entities that purchase drugs with the single goal of inflating prices, and then there are pharmaceutical companies that reinvest profits in new drug development that ultimately benefits patients. (The average drug created by a major drug developer costs at least $4 billion; it can cost as much as $11 billion.)
Such breakthrough therapies can be pricey, though Centers for Medicare and Medicaid Services data show that retail pharmaceutical expenses are the same percentage of overall U.S. health care spending as they were in 1960—about 10 percent. Meanwhile, their long-term effect is to depress health care spending in other areas. For instance, patients with HIV/AIDS now experience a lower rate of expensive hospital stays due to prescription medications. Likewise, hepatitis C patients can now avoid costly liver transplants due to new cures for the degenerative condition.
In addition to reducing health care costs in other areas, new medications sustain and improve lives—a fact that patients recognize. A recent Kaiser Health poll shows that the majority of Americans think prescription drugs developed in the last two decades made U.S. patients’ lives better; 42 percent said prescription drugs have made lives “a lot” better.
But public dialogue on costs and value largely overlooks a crucial topic: patient access. Breakthrough – albeit expensive – drugs hold obvious value for patients. But do health plan structures allow patients to access them?
In many cases, health plans’ use of cost-sharing mechanisms such as high co-pays and co-insurance threatens to price patients out of access. Faced with co-insurance rates of 25%, 30% or higher, patients may have to choose between vital medications and everyday necessities. Some opt to go without treatment rather than risk bankrupting their families.
The prescription cost debate could intensify these challenges. As with last month’s Institute for Clinical and Economic Review price evaluation for new cholesterol-lowering drugs, analyses of medications’ value often feed cost evaluations. And those evaluations can present a high-stakes conundrum: either pharmaceutical companies adopt the price points proposed by analysts, or health plans reduce overall costs by limiting the medications’ availability to patients.
In the case of ICER, analysts suggested a price that’s a 67% reduction of two cholesterol medications’ list prices. ICER’s founder explained that, if the cost of new LDL cholesterol-lowering medications proves to be higher than the benchmark created by ICER, “doctors, insurers, and other parties may need to work together to determine ways to limit the use of these drugs.”
Journalists, pundits and even presidential candidates are jumping at the chance to condemn the sort of profit-hungry price gouging seen recently. But a productive, comprehensive dialogue should give equal time to the role of health plan structures, whose cost-sharing requirements place a growing and often insurmountable burden for patients.