Top Ways Drug Launch Pricing is Changing

September 24, 2018
Tracey Walker
Tracey Walker

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.”

Balance Needed

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.”

Changing Dynamics

Schafer offers five changing dynamics for healthcare executives:

  • Government. State laws, like the measure passed in California, are establishing requirements for reporting around price, according to Schafer. “A manufacturer has to look at different state laws now and understand how they will impact not only the market in that state, but the broader market as well,” he says. “For example, while California may have passed SB-17, the broader U.S. market will be able to identify changes in pricing due to California’s law and the release of public information.”
  • Cost-effectiveness evaluation. Cost-effectiveness models are growing in importance as the U.S. marketplace shifts from volume to value. The most prominent of these models, according to Schafer, ICER, has grown significantly in influence. “ICER has committed to conducting reviews of significant new products even before they launch, giving payers a headstart on evaluation,” he says. “ICER partnerships with the VA and influence on manufacturer contracting and pricing have become an important dynamic in the drug pricing environment.”
  •  Patients. “Patients have a larger financial stake in drug prices than before with the increase in high-deductible plans and coinsurance,” Schafer says. “The advent of copay accumulator programs that prevent copay assistance from covering a patient’s out-of-pocket accumulation means that manufacturers must think about how price impacts patients, not simply rely on assistance programs.”
  • Payers. Payers are increasingly aggressive in managing drugs with high cost, including adding rare disease drugs to exclusion lists, and in the case of CVS, excluding certain products with an ICER finding of >$100,000/QALY, according to Schafer. “Manufacturers need to consider how payer management can derail a launch via an ultra-restrictive coverage environment,” he says.
  • Transparency. “The call for more transparency in drug pricing has impacted not only manufacturers but other stakeholders as well, such as PBMs,” Schafer says. “Healthcare stakeholders need to consider ways to increase transparency while also maintaining the confidentiality.”