FEATURE
Features
Who Pays What, and Why?
From R&D to PBMs, a look at the U.S. approach to drug pricing
When it comes to setting drug prices, the
U.S. is singular in its approach. The U.S.
is the only nation in the developed world
that does not regulate or negotiate prices
of newly approved drugs as they come to
market.
Other countries, including most Euro-
pean nations, have dedicated agencies that
communicate with pharmaceutical compa-
nies. These organizations scrutinize clinical
data about a new drug’s efficacy and risks,
then run comparative-effectiveness and
cost-effectiveness analyses to score it
against available therapies. Depending on
the results of these analyses, the agencies
issue a decision about a drug’s reimburse-
ment and negotiate a set price with the
drug’s manufacturer. And, for certain
geographies and drugs, regional organiza-
tions and hospitals also may be allowed to
negotiate drug pricing.
“The bottom line is that this country
differs from all other developed countries
in not having a process through which the
federal government evaluates a new drug’s
comparative effectiveness and weaves
that into the funding and pricing of new
drugs,” said Steven Pearson, MD, MSc,
a physician, bioethicist, and the founder
and president of the Institute for Clinical
and Economic Review (ICER), a nonprofit
health policy and comparative-effectiveness
research organization based in Boston.
“In the U.S., this has meant that drug
prices tend to go higher, due to a mix
of factors,” Dr. Pearson added. Curbing
skyrocketing price hikes, therefore, will re-
quire a multifaced approach. For example,
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one solution that receives a lot of attention
is bringing more generics to market, but
the complexities of the U.S. drug-pricing
system mean that may have little effect.
“Because there is no federal process for
negotiating prices and because there is
so much innovation, it is difficult to have
generics by themselves moderate overall
spending.”
ASH Clinical News spoke with Dr.
Pearson and other health economists
about who decides how much drugs cost,
why they cost so much in the U.S., and
how regulators, clinicians, and insurers
are trying to rein in prices.
Starting High
A newly approved cancer treatment
doesn’t always offer a drastic improvement
in patient outcomes, which is one reason
why regulatory agencies in other countries
decide not to cover certain new medica-
tions: A marginal improvement from
available options can’t justify a substan-
tially higher cost.
One oft-cited case is that of aflibercept,
which the U.S. Food and Drug Adminis-
tration (FDA) approved to treat metastatic
colorectal cancer in 2012. The drug’s
manufacturer, Sanofi, initially priced the
drug at about $11,000 per month of treat-
ment. Then, physicians at the Memorial
Sloan Kettering Cancer Center (MSKCC)
in New York penned an editorial stating
that their center would not use the drug,
which fared no better in comparative
studies than already-available, less expen-
sive therapies. 1 One month later, Sanofi
responded that aflibercept’s list price
would not change, but the company of-
fered a 50-percent discount on the price
paid by doctors and hospitals. 2
Aflibercept isn’t the only extremely
high-priced cancer treatment to gain na-
tional attention. A 2017 analysis found that
the costs of injectable cancer drugs in the
U.S., including older, on-patent drugs, are
increasing at rates higher than inflation. 3
Of the 24 injectable cancer drugs approved
between 1996 and 2012, costs increased
by an average of 25 percent. That dipped
slightly to 18 percent after adjustment for
inflation, or an average increase of about 6
percent per year. The inflation rate, how-
ever, averaged 1 percent per year.
Oral drugs that are dispensed through
pharmacies directly to patients (rather than
being administered by physicians) also are
not immune to price hikes, according to
Anna Kaltenboeck, a senior health econo-
mist and program director at the Drug
Pricing Lab at MSKCC. “Inflation among
drugs administered by physicians gener-
ally is more bounded than it is for drugs
dispensed through the pharmacy.”
For example, Novartis’s imatinib, used
for the treatment of chronic myeloid
leukemia, cost $26,000 per year when it
was initially approved in 2001 – a high
price at the time. In 2013, even though its
patent expired and generic imatinib was
made available, branded imatinib cost
more than $120,000 per year. In 2016, that
figure again jumped to $146,000 per year. 4
It appears that drug prices start out
high and only get higher. The eventual
list price is something drug manufactur-
ers begin thinking about years before the
drug is likely to come to market, while it is
still in the early stages of development.
“One reason cancer drugs demand
high prices is that some of them have no
competition – they are the only game in
town,” Ms. Kaltenboeck said. “Cancer
drugs also fall into a protected class, under
Medicare Part D, which means that plans
have to cover all or a substantial number of
these drugs, which also means that health
plans lose negotiating leverage on these
products.”
Some researchers have suggested that
pharmaceutical companies defend their
high drug prices based on the high costs of
drug development. A 2016 analysis from
the Tufts Center for the Study of Drug
Development estimated that the cost of
bringing a medicine from the laboratory to
the pharmacy is $2.7 billion. 5 Companies
may set their prices to cover those costs.
However, Ms. Kaltenboeck, who has
consulted for pharmaceutical manufac-
turers in the past, rejects that claim. “The
diligence to gauge a drug’s pricing and
revenue potential starts before clinical
development to make sure it’s worth the
investment. By the time a price is deter-
mined, which happens much later, it’s just
not a part of the conversation.”
What Does a Drug Really Cost?
While other countries have a central
agency that negotiates a price, in the U.S.,
pricing terms are restricted by the list
price and access agreements. The system
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