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Here’s what’s shaking up the drug launch pricing space. Experts weigh in.
With the entry of more retail-facing industries in the healthcare space, there’s a greater push to bring down launch prices-as with CVS’ recent decision to allow plans to exclude drugs above a certain threshold price from their policies, according to Michael Abrams, managing partner of Numerof & Associates.
“Launch prices have been rising in recent years, and it's promising that some businesses are taking steps to combat this,” Abrams says.
Jeremy Schafer, PharmD, senior vice president at Precision for Value, says drug launch pricing is facing pressures like never before-and from multiple angles, including federal and state governments, payers, cost effectiveness bodies, providers, and even patients. “Pharmaceutical manufacturers cannot expect a drug’s price to remain hidden in the excitement of launch,” he says. “Visibility to the price is growing and is scrutinized by a myriad of stakeholders. As a result, the dynamics of pricing will need to change.”
Nadina J. Rosier, PharmD, managing director, head of Health & Benefits Consulting, Pharmacy at Willis Towers Watson, agrees. “Prescription drug pricing and rising costs have long been a central conversation amongst plan sponsors struggling to ensure affordable healthcare benefits for their members,” Rosier says. “The subject of drug pricing, and specifically drug prices for newly marketing and launched products, has been a sore subject of discussion in the healthcare marketplace, most notably when the new hepatitis C products were brought to market with hefty price tags in recent years.”
Now, the government has turned up the pressure on pharmaceutical companies and PBMs to rein in prescription drug prices, including a focus on the ability for Medicare to negotiate more favorable drug prices, anti-kickback statutes specific to rebates earned and paid by PBMs, and pharmacist gag clauses.
Plan sponsors are left wondering how any of these contemplated legislative changes will impact their healthcare benefits in a positive or adverse way.
Price Transparency Necessary
Healthcare executives will need to assess the needs of their client base and determine how they can either provide or leverage further transparency in drug pricing, according to Abrams.
“For providers, this means informing consumers about lower-cost generic or name brand alternatives that may be less expensive under their policy and, when a necessary drug is not sufficiently covered under a current plan, to negotiate with insurers on patients’ behalf,” he says. “For insurers, it means making sure that an array of cost-effective prescription options are covered under patients’ policies. Should they make the determination to exclude a certain drug, other adequate substitutes should be covered, and manufacturers should be informed of the insurer's decision, giving them an opportunity to lower their prices.”
Executives are struggling with the lack of highly innovative approaches to truly reduce drug costs, notably specialty drug prices, in a meaningful way, according to Rosier.
“New-to-market drugs carry costs as high as $1 million per patient annually, not including additional lab and monitoring tests with hefty fees,” Rosier says. “There is continued burden for executives to look at various options that limit or redefine patient access to services and channels, steering members to lower cost drugs, pharmacies, and sites of care.”
Potentially negative effect of these approaches, while cost saving relative to other options, is member engagement and member satisfaction with their benefits declines, according to Rosier. “This ultimately can impact an employer’s ability to recruit and retain attractive and talented employees in today’s competitive market,” she says.
According to Paige Smith, director of analytics, OneDigital Health and Benefits, both the pharmaceutical companies and the PBMs bear responsibility to fix the broken launch pricing structure. "Employers contract with PBMs and put their trust in them to help make medication costs affordable for their employees- this is what they are being paid to do," Smith says. "PBMs as well as the pharmaceutical companies are losing sight of the consumers who need affordable medications and are being driven visions of high profit margins.”
Schafer says healthcare executives need to understand that a drug’s price will be evaluated and judged differently depending on the stakeholder involved and that finding the right balance of profitability with market acceptance will be challenging. “It will also be crucial that healthcare executives understand how different stakeholders will react to a price and how to explain the price in a rationale that the stakeholder will understand and appreciate,” he says. “It may also mean developing dramatically new ways to do business that enhance transparency while also reducing cost.”
Manufacturers seem to be increasingly wary of the threat that regulators will soon step in to mandate lower prices, according to Abrams. “With the right stimulus from the markets, and the proper response from manufacturers, we can avoid the toxic consequences of over-regulation in healthcare pricing,” he says.
Changing the Landscape
With challenges caused by rising drug prices, the drug launch pricing landscape may start to look a bit different. The entry of retail industries like CVS, Amazon, and others means that drug launch pricing may soon be getting a consumer-facing makeover, according to Abrams.
“These companies know how to incentivize partners to provide a better deal for their consumers-after all, their livelihood depends on it,” he says.
“In addition, as we’ve already seen, inter-industry mergers are shaking up the drug launch pricing space by refusing to cover drugs that exceed a certain price threshold,” Abrams says. “This puts pressure on manufacturers to be more accountable to set lower prices even at launch.”
Schafer offers five changing dynamics for healthcare executives: