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A	
  Brief	
  History	
  of	
  Drug	
  Pricing	
  
	
  
Tony	
  Barrueta	
  	
  
Senior	
  Vice	
  President,	
  Government	
  Rela5ons	
  	
  
	
  
	
  
	
  
	
  
Partnership	
  for	
  Quality	
  Care	
  
May	
  15,	
  2015	
  
How	
  a	
  Market	
  is	
  Supposed	
  to	
  Work	
  
•  Sellers	
  	
  sell	
  for	
  as	
  much	
  as	
  they	
  can,	
  leveraging	
  their	
  market	
  power	
  
–  Measured	
  by	
  op5onality	
  vs	
  indispensability,	
  oFen	
  translated	
  as	
  price	
  
elas5city	
  
•  Buyers	
  buy	
  for	
  as	
  liHle	
  as	
  they	
  can,	
  leveraging	
  their	
  market	
  power	
  
–  The	
  measure	
  of	
  this	
  is	
  the	
  ability	
  to	
  walk	
  from	
  the	
  table,	
  by	
  saying	
  “no”	
  
and	
  having	
  an	
  alterna5ve	
  
•  Hopefully,	
  through	
  a	
  process	
  of	
  compe55on,	
  prices	
  are	
  determined	
  
based	
  on	
  common	
  benefits	
  to	
  the	
  buyer(s)	
  and	
  seller(s)	
  	
  	
  
•  The	
  process	
  of	
  compe55on	
  is	
  protected	
  by	
  law	
  to	
  prevent	
  
an5compe55ve	
  compe55ve	
  conduct	
  and	
  to	
  avoid	
  the	
  development	
  of	
  
monopolies	
  and	
  monopsonies	
  
2	
  
Who	
  Pays	
  for	
  Drugs?	
  
3	
  
26	
  
49	
  
60	
   66.4	
   63.9	
   61.6	
  11	
  
13	
  
11	
  
7.5	
   6.8	
   9.6	
  
63	
  
38	
  
20	
  
11.5	
   10.9	
   9	
  
0%	
  
20%	
  
40%	
  
60%	
  
80%	
  
100%	
  
1990	
   1995	
   1997	
   2006	
   2007	
   2010	
  
Cash	
  
Medicaid	
  
Medicare	
  Part	
  D	
  
Commercial	
  Third-­‐Party	
  
14.6	
   18.4	
   19.8	
  
Sources:	
  	
  	
  IMS	
  Health	
  Retail	
  Method-­‐of-­‐Payment	
  Report,	
  1999	
  as	
  cited	
  in	
  Report	
  to	
  the	
  President,	
  “Prescrip5on	
  Drug	
  Coverage,	
  Spending,	
  
U5liza5on	
  and	
  Prices,”	
  Office	
  of	
  the	
  Assistant	
  Secretary	
  for	
  Planning	
  and	
  Evalua5on,	
  HHS,	
  April	
  2000;	
  IMS	
  Health	
  Na5onal	
  Prescrip5on	
  Drug	
  Audit	
  
2010;	
  Medicine	
  use	
  and	
  shiFing	
  costs	
  of	
  healthcare:	
  A	
  review	
  of	
  the	
  use	
  of	
  medicines	
  in	
  the	
  United	
  States	
  in	
  2013,	
  IMS	
  Ins5tute	
  for	
  Healthcare	
  
Informa5cs,	
  April	
  2014,	
  p	
  48	
  
How	
  the	
  PharmaceuJcal	
  Market	
  Works	
  
•  The	
  law	
  provides	
  monopoly	
  protec5on	
  for	
  sellers,	
  both	
  in	
  terms	
  of	
  
patents	
  and	
  other	
  forms	
  of	
  market	
  exclusivity	
  	
  (for	
  a	
  variety	
  of	
  
reasons)	
  
•  “Buyers”	
  are	
  divided	
  into	
  	
  ul5mate	
  consumers	
  (pa5ents),	
  selec5ng	
  
intermediaries	
  (prescribers),	
  distributors	
  (pharmacies)	
  and	
  payers	
  
(public	
  and	
  private	
  coverage)	
  
•  Public	
  and	
  private	
  third	
  party	
  payment	
  is	
  now	
  predominant,	
  and	
  the	
  
product	
  selectors	
  (physicians)	
  are	
  oFen	
  an5-­‐price	
  sensi5ve	
  
•  For	
  three	
  decades,	
  buyers	
  (public	
  and	
  private	
  third	
  party	
  payers)	
  have	
  
had	
  their	
  bargaining	
  power	
  systema5cally	
  undermined	
  by	
  policy	
  
•  Alterna5ve	
  approaches	
  by	
  organized	
  systems	
  are	
  also	
  undermined	
  by	
  
policy	
  
4	
  
What	
  Led	
  to	
  a	
  Spike	
  in	
  Spending	
  in	
  2014?	
  
5	
  
Source:	
  Medicines	
  Use	
  and	
  Spending	
  ShiFs,	
  Report	
  by	
  the	
  IMS	
  
Ins5tute	
  for	
  Healthcare	
  Informa5cs	
  2014	
  
The	
  Trend	
  
6	
  
Source:	
  Express	
  Scripts	
  2014	
  Drug	
  Trend	
  Report	
  Execu5ve	
  Summary,	
  p	
  2	
  
How	
  We	
  Got	
  Here	
  
7	
  
•  1988:	
  Medicare	
  Catastrophic	
  Coverage	
  Act	
  (MCCA)	
  –	
  drug	
  industry	
  awakens	
  
•  1990:	
  Omnibus	
  Budget	
  Reconcilia5on	
  Act	
  (OBRA	
  90)	
  –	
  establishes	
  Medicaid	
  best	
  price,	
  killing	
  
off	
  discoun5ng	
  
•  1995:	
  Uruguay	
  Round	
  Agreements	
  Act	
  –	
  extends	
  protec5on	
  from	
  17	
  years	
  to	
  20	
  years	
  from	
  
date	
  of	
  first	
  filing	
  of	
  patent	
  applica5on	
  
•  1997:	
  FDA	
  permits	
  direct-­‐to-­‐consumer	
  (DTC)	
  adver5sing	
  
•  2003:	
  Medicare	
  Moderniza5on	
  Act	
  (MMA)	
  –	
  adds	
  Part	
  D	
  to	
  Medicare,	
  non-­‐interference	
  
provision,	
  formulary	
  regula5on	
  
•  2007:	
  Oral	
  Chemotherapy	
  Parity	
  Law	
  Trend	
  Begins	
  –	
  states	
  begin	
  passing	
  legisla5on	
  
manda5ng	
  the	
  coverage	
  of	
  oral	
  chemotherapy	
  (by	
  June	
  2014,	
  34	
  states	
  and	
  D.C.	
  have	
  laws	
  on	
  
the	
  books)	
  
•  2010:	
  Affordable	
  Care	
  Act	
  (ACA)	
  –	
  ins5tutes	
  out-­‐of-­‐pocket	
  limits	
  on	
  spending	
  for	
  consumers	
  
•  2014:	
  Gilead	
  introduces	
  Sovaldi/Harvoni	
  
Reminder	
  
8	
  
1988:	
  MCCA	
  
1990:	
  OBRA	
  introduces	
  
Medicaid	
  best	
  price	
  
1995:	
  Uruguay	
  Round	
  Agreements	
  Act	
  –	
  
extends	
  protec5on	
  from	
  17	
  years	
  to	
  20	
  years	
  
2006:	
  Medicare	
  Moderniza5on	
  Act	
  (MMA)	
  implemented–	
  Part	
  D	
  
2007:	
  Oral	
  Chemotherapy	
  Parity	
  Law	
  Trend	
  Begins	
  –	
  states	
  begin	
  passing	
  legisla5on	
  
manda5ng	
  the	
  coverage	
  of	
  oral	
  chemotherapy	
  (by	
  June	
  2014,	
  34	
  states	
  and	
  D.C.	
  
have	
  laws	
  on	
  the	
  books)	
  
2010:	
  Affordable	
  Care	
  Act	
  (ACA)	
  –	
  ins5tutes	
  out-­‐of-­‐pocket	
  limits	
  on	
  spending	
  for	
  consumers	
  
2014:	
  Gilead	
  introduces	
  Sovaldi/Harvoni	
  
1997:	
  FDA	
  permits	
  direct-­‐to-­‐consumer	
  (DTC)	
  
adver5sing	
  
13 14
2014	
  Sales	
  of	
  Sofosbuvir	
  Exceed	
  Gilead’s	
  Purchase	
  of	
  Pharmasset	
  
Source:	
  amfAR	
  February	
  2015	
  issue	
  brief	
  -­‐-­‐	
  Hepa55s	
  C	
  and	
  Drug	
  Pricing:	
  The	
  Need	
  for	
  a	
  BeHer	
  Balance	
  9	
  
RealiJes:	
  Some	
  Math	
  
10	
  
	
  $94,500	
  Harvoni	
  List	
  Price	
  
	
  -­‐46%	
  average	
  discount	
  (source:	
  NYTimes)	
  
	
  $51,030	
  
	
  X	
  100,000	
  KP	
  Members	
  (51K	
  diagnosed)	
  
	
  $5.1	
  Billion	
  
	
  
Total	
  2014	
  Pharmacy	
  Spend	
  for	
  KP:	
  $4	
  Billion	
  
Sovaldi’s	
  pricing	
  dispariJes	
  
11	
  
Source:	
  	
  AARP.org	
  and	
  B.	
  Berkrot	
  and	
  D.	
  Beasley,	
  “U.S.	
  lawmakers	
  want	
  Gilead	
  to	
  explain	
  Sovaldi’s	
  heWy	
  price,”	
  Reuters,	
  March	
  21,	
  2014.	
  
Reminder:	
  It’s	
  Not	
  Just	
  Hep	
  C	
  Drugs	
  
§  Out	
  58	
  cancer	
  drugs	
  approved	
  by	
  the	
  FDA	
  
between	
  1995	
  and	
  2013,	
  launch	
  prices	
  
increased	
  by	
  10%	
  a	
  year,	
  or	
  about	
  $8,500.	
  
§  The	
  FDA	
  approved	
  12	
  cancer	
  drugs	
  in	
  2012.	
  	
  
Eleven	
  of	
  them	
  were	
  priced	
  at	
  $100,000	
  per	
  
year.	
  	
  	
  	
  
§  The	
  price	
  of	
  cancer	
  drugs	
  on	
  the	
  market	
  for	
  
years	
  are	
  also	
  increasing	
  at	
  dizzying	
  rates.	
  	
  	
  
§  Ima5nib	
  was	
  $30,000	
  a	
  year	
  when	
  it	
  was	
  
approved	
  in	
  2001	
  –	
  it	
  now	
  costs	
  over	
  $92,000	
  
per	
  year.	
  	
  	
  
§  Cancer	
  drug	
  prices	
  doubled	
  within	
  the	
  last	
  
decade,	
  from	
  an	
  average	
  of	
  $5,000	
  per	
  month	
  
to	
  $10,000	
  per	
  month.	
  	
  
12	
  
Challenge	
  
•  Public	
  and	
  private	
  conversa5ons	
  on	
  the	
  issue	
  tend	
  to	
  veer	
  towards	
  
“managing”	
  the	
  problem	
  of	
  the	
  cost	
  –	
  by	
  calling	
  for	
  more	
  clinical	
  evidence,	
  
crea5ng	
  new	
  regula5ons	
  around	
  how	
  to	
  manage	
  care	
  for	
  pa5ents,	
  how	
  to	
  
help	
  pa5ents	
  with	
  co-­‐insurance	
  costs,	
  etc.	
  
	
  
•  This	
  problem	
  cannot	
  be	
  solved	
  by:	
  
o  Withholding	
  clinically	
  appropriate	
  treatments	
  
o  More	
  research	
  
o  Elimina5ng	
  cost	
  sharing	
  
	
  
•  The	
  pricing	
  stands	
  in	
  the	
  way	
  of	
  achieving	
  the	
  public	
  health	
  benefits	
  that	
  
these	
  drugs	
  promise.	
  	
  	
  
	
  
	
  
13	
  
Moving	
  Past	
  False	
  Choices	
  
14	
  
OWen,	
  this	
  conversaJon	
  is	
  about	
  a	
  false	
  choice:	
  without	
  protecJon	
  of	
  market	
  
dominance	
  and	
  resulJng	
  high	
  profit	
  levels,	
  innovaJon	
  dies.	
  	
  
	
  
We	
  think	
  that	
  dialogue	
  needs	
  to	
  change.	
  
	
  
There’s	
  3	
  Key	
  QuesJons	
  We’re	
  Asking:	
  
1.  Is	
  the	
  problem	
  of	
  drug	
  pricing	
  best	
  discussed	
  as	
  a	
  public	
  health	
  or	
  insurance	
  coverage	
  
problem?	
  
2.  Who	
  decides	
  the	
  meaning	
  of	
  value?	
  Payers	
  or	
  manufacturers?	
  Society?	
  
3.  Is	
  it	
  5me	
  for	
  a	
  new	
  social	
  contract	
  when	
  it	
  comes	
  to	
  patent	
  rights	
  and	
  market	
  exclusivity?	
  
	
  
	
  
Summary	
  
•  Drug	
  prices	
  are	
  increasing	
  at	
  an	
  unsustainable	
  rate	
  without	
  any	
  sign	
  of	
  
aba5ng.	
  	
  
•  Pharmaceu5cal	
  market	
  compe55veness	
  has	
  been	
  systema5cally	
  
undermined	
  for	
  three	
  decades.	
  
•  The	
  most	
  robust	
  debate	
  today	
  is	
  about	
  comple5ng	
  the	
  job	
  of	
  
insula5ng	
  consumers	
  from	
  drug	
  prices	
  –	
  which	
  will	
  further	
  facilitate	
  
price	
  gouging.	
  
•  Americans	
  are	
  paying	
  the	
  most	
  for	
  drugs,	
  yet	
  facing	
  the	
  most	
  
significant	
  obstacles	
  to	
  access.	
  
•  Laws	
  that	
  reinforce	
  the	
  status	
  quo	
  must	
  be	
  changed	
  so	
  that	
  a	
  
compe55ve	
  market	
  with	
  affordable	
  pricing	
  can	
  be	
  restored.	
  
15	
  

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A Brief History on Drug Pricing

  • 1. A  Brief  History  of  Drug  Pricing     Tony  Barrueta     Senior  Vice  President,  Government  Rela5ons             Partnership  for  Quality  Care   May  15,  2015  
  • 2. How  a  Market  is  Supposed  to  Work   •  Sellers    sell  for  as  much  as  they  can,  leveraging  their  market  power   –  Measured  by  op5onality  vs  indispensability,  oFen  translated  as  price   elas5city   •  Buyers  buy  for  as  liHle  as  they  can,  leveraging  their  market  power   –  The  measure  of  this  is  the  ability  to  walk  from  the  table,  by  saying  “no”   and  having  an  alterna5ve   •  Hopefully,  through  a  process  of  compe55on,  prices  are  determined   based  on  common  benefits  to  the  buyer(s)  and  seller(s)       •  The  process  of  compe55on  is  protected  by  law  to  prevent   an5compe55ve  compe55ve  conduct  and  to  avoid  the  development  of   monopolies  and  monopsonies   2  
  • 3. Who  Pays  for  Drugs?   3   26   49   60   66.4   63.9   61.6  11   13   11   7.5   6.8   9.6   63   38   20   11.5   10.9   9   0%   20%   40%   60%   80%   100%   1990   1995   1997   2006   2007   2010   Cash   Medicaid   Medicare  Part  D   Commercial  Third-­‐Party   14.6   18.4   19.8   Sources:      IMS  Health  Retail  Method-­‐of-­‐Payment  Report,  1999  as  cited  in  Report  to  the  President,  “Prescrip5on  Drug  Coverage,  Spending,   U5liza5on  and  Prices,”  Office  of  the  Assistant  Secretary  for  Planning  and  Evalua5on,  HHS,  April  2000;  IMS  Health  Na5onal  Prescrip5on  Drug  Audit   2010;  Medicine  use  and  shiFing  costs  of  healthcare:  A  review  of  the  use  of  medicines  in  the  United  States  in  2013,  IMS  Ins5tute  for  Healthcare   Informa5cs,  April  2014,  p  48  
  • 4. How  the  PharmaceuJcal  Market  Works   •  The  law  provides  monopoly  protec5on  for  sellers,  both  in  terms  of   patents  and  other  forms  of  market  exclusivity    (for  a  variety  of   reasons)   •  “Buyers”  are  divided  into    ul5mate  consumers  (pa5ents),  selec5ng   intermediaries  (prescribers),  distributors  (pharmacies)  and  payers   (public  and  private  coverage)   •  Public  and  private  third  party  payment  is  now  predominant,  and  the   product  selectors  (physicians)  are  oFen  an5-­‐price  sensi5ve   •  For  three  decades,  buyers  (public  and  private  third  party  payers)  have   had  their  bargaining  power  systema5cally  undermined  by  policy   •  Alterna5ve  approaches  by  organized  systems  are  also  undermined  by   policy   4  
  • 5. What  Led  to  a  Spike  in  Spending  in  2014?   5   Source:  Medicines  Use  and  Spending  ShiFs,  Report  by  the  IMS   Ins5tute  for  Healthcare  Informa5cs  2014  
  • 6. The  Trend   6   Source:  Express  Scripts  2014  Drug  Trend  Report  Execu5ve  Summary,  p  2  
  • 7. How  We  Got  Here   7   •  1988:  Medicare  Catastrophic  Coverage  Act  (MCCA)  –  drug  industry  awakens   •  1990:  Omnibus  Budget  Reconcilia5on  Act  (OBRA  90)  –  establishes  Medicaid  best  price,  killing   off  discoun5ng   •  1995:  Uruguay  Round  Agreements  Act  –  extends  protec5on  from  17  years  to  20  years  from   date  of  first  filing  of  patent  applica5on   •  1997:  FDA  permits  direct-­‐to-­‐consumer  (DTC)  adver5sing   •  2003:  Medicare  Moderniza5on  Act  (MMA)  –  adds  Part  D  to  Medicare,  non-­‐interference   provision,  formulary  regula5on   •  2007:  Oral  Chemotherapy  Parity  Law  Trend  Begins  –  states  begin  passing  legisla5on   manda5ng  the  coverage  of  oral  chemotherapy  (by  June  2014,  34  states  and  D.C.  have  laws  on   the  books)   •  2010:  Affordable  Care  Act  (ACA)  –  ins5tutes  out-­‐of-­‐pocket  limits  on  spending  for  consumers   •  2014:  Gilead  introduces  Sovaldi/Harvoni  
  • 8. Reminder   8   1988:  MCCA   1990:  OBRA  introduces   Medicaid  best  price   1995:  Uruguay  Round  Agreements  Act  –   extends  protec5on  from  17  years  to  20  years   2006:  Medicare  Moderniza5on  Act  (MMA)  implemented–  Part  D   2007:  Oral  Chemotherapy  Parity  Law  Trend  Begins  –  states  begin  passing  legisla5on   manda5ng  the  coverage  of  oral  chemotherapy  (by  June  2014,  34  states  and  D.C.   have  laws  on  the  books)   2010:  Affordable  Care  Act  (ACA)  –  ins5tutes  out-­‐of-­‐pocket  limits  on  spending  for  consumers   2014:  Gilead  introduces  Sovaldi/Harvoni   1997:  FDA  permits  direct-­‐to-­‐consumer  (DTC)   adver5sing   13 14
  • 9. 2014  Sales  of  Sofosbuvir  Exceed  Gilead’s  Purchase  of  Pharmasset   Source:  amfAR  February  2015  issue  brief  -­‐-­‐  Hepa55s  C  and  Drug  Pricing:  The  Need  for  a  BeHer  Balance  9  
  • 10. RealiJes:  Some  Math   10    $94,500  Harvoni  List  Price    -­‐46%  average  discount  (source:  NYTimes)    $51,030    X  100,000  KP  Members  (51K  diagnosed)    $5.1  Billion     Total  2014  Pharmacy  Spend  for  KP:  $4  Billion  
  • 11. Sovaldi’s  pricing  dispariJes   11   Source:    AARP.org  and  B.  Berkrot  and  D.  Beasley,  “U.S.  lawmakers  want  Gilead  to  explain  Sovaldi’s  heWy  price,”  Reuters,  March  21,  2014.  
  • 12. Reminder:  It’s  Not  Just  Hep  C  Drugs   §  Out  58  cancer  drugs  approved  by  the  FDA   between  1995  and  2013,  launch  prices   increased  by  10%  a  year,  or  about  $8,500.   §  The  FDA  approved  12  cancer  drugs  in  2012.     Eleven  of  them  were  priced  at  $100,000  per   year.         §  The  price  of  cancer  drugs  on  the  market  for   years  are  also  increasing  at  dizzying  rates.       §  Ima5nib  was  $30,000  a  year  when  it  was   approved  in  2001  –  it  now  costs  over  $92,000   per  year.       §  Cancer  drug  prices  doubled  within  the  last   decade,  from  an  average  of  $5,000  per  month   to  $10,000  per  month.     12  
  • 13. Challenge   •  Public  and  private  conversa5ons  on  the  issue  tend  to  veer  towards   “managing”  the  problem  of  the  cost  –  by  calling  for  more  clinical  evidence,   crea5ng  new  regula5ons  around  how  to  manage  care  for  pa5ents,  how  to   help  pa5ents  with  co-­‐insurance  costs,  etc.     •  This  problem  cannot  be  solved  by:   o  Withholding  clinically  appropriate  treatments   o  More  research   o  Elimina5ng  cost  sharing     •  The  pricing  stands  in  the  way  of  achieving  the  public  health  benefits  that   these  drugs  promise.           13  
  • 14. Moving  Past  False  Choices   14   OWen,  this  conversaJon  is  about  a  false  choice:  without  protecJon  of  market   dominance  and  resulJng  high  profit  levels,  innovaJon  dies.       We  think  that  dialogue  needs  to  change.     There’s  3  Key  QuesJons  We’re  Asking:   1.  Is  the  problem  of  drug  pricing  best  discussed  as  a  public  health  or  insurance  coverage   problem?   2.  Who  decides  the  meaning  of  value?  Payers  or  manufacturers?  Society?   3.  Is  it  5me  for  a  new  social  contract  when  it  comes  to  patent  rights  and  market  exclusivity?      
  • 15. Summary   •  Drug  prices  are  increasing  at  an  unsustainable  rate  without  any  sign  of   aba5ng.     •  Pharmaceu5cal  market  compe55veness  has  been  systema5cally   undermined  for  three  decades.   •  The  most  robust  debate  today  is  about  comple5ng  the  job  of   insula5ng  consumers  from  drug  prices  –  which  will  further  facilitate   price  gouging.   •  Americans  are  paying  the  most  for  drugs,  yet  facing  the  most   significant  obstacles  to  access.   •  Laws  that  reinforce  the  status  quo  must  be  changed  so  that  a   compe55ve  market  with  affordable  pricing  can  be  restored.   15