Category

Healthcare Costs

Creating Stakeholder Dialogue Around Drug Pricing

By | Drug Costs, Healthcare Costs, Healthcare Value, Informed Patient, Rising Cost, Uncategorized | No Comments

The increase in prescription drug pricing and spending has been one of main factors contributing to the high costs of healthcare in the United States. In fact, according to a 2015 report by the National Center for Health Statistics, the national health expenditure for prescription drugs made up 10.1% of the total national health expenditure that reached $3.2 trillion that year [1]. Certain measurements of drug pricing villanize manufacturers an industry with outrageous cost and spending of prescription drugs. For example, patent exclusivity, research and development efforts, and competition in the market are generally blamed for the initial price increases. However, these measurements also cause skepticism and inaccuracies, thus shining a negative light on pharmaceutical companies. Therefore, the outliers misrepresenting pharmaceutical companies and the number of failed drugs need to be addressed in order for patients to have a better understanding on drug pricing.

Two outliers that don’t represent the overwhelming amount of biopharmaceutical companies are Mylan and Turing Pharmaceuticals. In 2007, Mylan Pharmaceutical acquired EpiPen, a handheld device that injects epinephrine to an individual with life-threatening allergic reactions, and increased the price of the drug by 500% [2]. The price rose from $100 to $600 in 2008 without any justification [3]. To no surprise, the company came under fire by the media for its unethical approach. The price increase can be attributed to Mylan’s patent use which allowed them to profit off of the drug without facing competition from a generic drug for a period of time [4]. In a similar situation, Martin Shkreli, founder and CEO of Turing Pharmaceuticals, raised the price of the drug Daraprim from $13.50 to $750 a tablet overnight [5]. What were once ‘affordable’ drugs became unaffordable for the vast majority of users causing outrage and shaming for pharmaceutical companies. Again, there are outliers that don’t represent the overwhelming majority of pharmaceutical companies that are developing new and novel drugs.

According to the 2017 Edelman Trust Barometer, the trust in the healthcare industry is slowly increasing compared to last year [6]. The trust in pharma in the U.S. seems to be “neutral.” With pharmaceutical companies like Mylan and Turing, it’s understandable why Americans might not be fully invested in pharma. When pharmaceutical companies make the headline in the news, it usually is unfavorable.

Furthermore, research and development is key when it comes to developing new drugs and used as justification for drug pricing. As we know, the process of creating a drug involves a lot of trials and errors where high costs are incurred in order to satisfy regulations imposed by the Food and Drug Administration (FDA); thus, it can create opportunities to price the drug even higher than it actually cost to get it out to the market. According to the 2017 Edelman Trust Barometer, 8 out of 10 people believe the pharmaceutical industry puts profit over people [7]. In reality, pharmaceutical companies only realize 39% of initial gross drug expenditures [8]. In addition, companies like Gilead are helping subsidize the cost of its drug, Epclusa, in Australia, which will help approximately 200,000 Australians that face the challenges of hepatitis C [9]. For example, Merck created an HPV vaccination program for cervical cancer in Rwanda [10]. Despite the media’s negative coverage, several other pharma companies have partnered with organizations like the Gates Foundation and UNICEF to provide medications for the developing world [11].

Lastly, it’s critical to address the failed formularies that ultimately lead to higher pricing as these costs must be recouped. The price to develop a drug is over $500 million [12]. According to the Tufts Center for the Study of Drug Development, the cost to develop and win marketing approval for a new drug is $2.6 billion [13]. The variance in the two aforementioned distinguish by fourfold, but it’s really expensive. Aside from this statistic, during clinical research phase studies, only 25-30% of initial drugs move to phase 4 where the drug is trialed by volunteers with the disease of interest [14]. The development of a drug can take a long time, especially when it comes to illnesses like cancer or HIV. During this time, the initial fund to conduct these studies starts to deplete. As patients, we need to understand that these are factors that even pharmaceutical companies have no control over.

As we wait for a viable healthcare reform under the current administration, it’s important to push for one that restores the well-being and decreases the burden of millions of Americans. During the process, there needs to be increased dialogue between patients and providers, such as pharmaceutical companies. All to avoid situations like that of Mylan and Turing. If drug pricing continues to increase, the biopharmaceutical industry will face more scrutiny. There will be increasing tension between patients, pharmaceutical companies, and pharmacy benefit managers (PBM). It’s important for all stake holders to be open and transparent in order to resolve these issues successfully. In an ever changing environment, we must learn to understand the process in order to appropriately resolve issues plaguing our society. We are ever changing.

To further explore the drug pricing trends, CHI is organizing the 5th Annual Healthcare Executive Roundtable on October 12, 2017, in Manhattan, New York. The Center for Healthcare Innovation’s “Understanding Value in Consumer-Orientated, Patient-Centric Era” Roundtable is an intimate, invitation-only, expert roundtable discussion for healthcare executives, key opinion leaders, and patient groups to discuss how stakeholders throughout the healthcare ecosystem can address critical issues related to healthcare value, quality, and cost. This year’s Roundtable will focus on several key market forces that affect the current state of healthcare in the U.S. Please visit http://chisite.org/roundtable/ for more information.

Work Cited

[1] Health Expenditures. Centers for Disease Control and Prevention. https://www.cdc.gov/nchs/fastats/health-expenditures.htm. Accessed September 14, 2017.

 

[2] Mylan Raised EpiPen’s Price Before the Expected Arrival of a Generic. The New York Times. https://www.nytimes.com/2016/08/25/business/mylan-raised-epipens-price-before-the-expected-arrival-of-a-generic.html?mcubz=3. Accessed September 14, 2017.

 

[3] Mylan finalizes $465 million EpiPen settlement with Justice Department. CNBChttps://www.cnbc.com/2017/08/17/mylan-finalizes-465-million-epipen-settlement-with-justice-department.html. Accessed September 14, 2017.

 

[4] Mylan Raised EpiPen’s Price Before the Expected Arrival of a Generic. The New York Times. https://www.nytimes.com/2016/08/25/business/mylan-raised-epipens-price-before-the-expected-arrival-of-a-generic.html?mcubz=3. Accessed September 14, 2017.

 

[5] Drug Goes From $13.50 a Tablet to $750 Overnight. The New York Times. https://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html. Accessed September 20, 2017.

 

[6] Trust in Healthcare: Making Progress. Edelman. https://www.edelman.com/post/trust-healthcare-making-progress/. Accessed September 20, 2017.

 

[7] Trust in Healthcare: Making Progress. Edelman. https://www.edelman.com/post/trust-healthcare-making-progress/. Accessed September 20, 2017.

 

[8] Majority of Drug Revenue Not Going to Pharmaceutical Companies. The American Journal of Pharmacy Benefits. http://www.ajpb.com/news/majority-of-drug-revenue-not-going-to-pharmaceutical-companies. Accessed September 20, 2017.

 

[9] New Hepatitis C Drug to be subsidized in Australia. The Pharma Letter. https://www.thepharmaletter.com/article/new-hepatitis-c-drug-to-be-subsidized-in-australia. Accessed September 25, 2017.

 

[10] Even Pharma’s Good Deeds Are Criticized. Forbes. https://www.forbes.com/sites/johnlamattina/2013/05/06/even-pharmas-good-deeds-are-criticized/#612c29ec4cd3. Accessed September 20, 2017.

 

[11] Even Pharma’s Good Deeds Are Criticized. Forbes. https://www.forbes.com/sites/johnlamattina/2013/05/06/even-pharmas-good-deeds-are-criticized/#612c29ec4cd3. Accessed September 20, 2017.

 

[12] R&D Costs For Cancer Drugs Are Likely Much Less Than Industry Claims, Study Finds. NPR. http://www.npr.org/sections/health-shots/2017/09/11/550135932/r-d-costs-for-cancer-drugs-are-likely-much-less-than-industry-claims-study-finds. Accessed September 20, 2017.

 

[13] Cost to Develop and Win Marketing Approval for a New Drug Is $2.6 Billion. Tufts Center for the Study of Drug Development. http://csdd.tufts.edu/news/complete_story/pr_tufts_csdd_2014_cost_study. Accessed September 28, 2017.

 

[14] Step 3: Clinical Research. U.S. Food & Drug Administration. https://www.fda.gov/forpatients/approvals/drugs/ucm405622.htm. Accessed September 20, 2017.

 

The Shift from Volume-to-Value: Innovating Payment Systems

By | Healthcare Costs, Patient Engagement, Volume-to-Value | No Comments

The U.S. healthcare system has been facing serious issues when it comes to the quality and cost of healthcare today. These issues have called for a shift from the traditional volume-based care to value-based care. One key factor driving this change is the need for patient-centered care for our current growing elderly population and those with chronic disease [1]. In addition, there is a need for a different type of payment system that won’t punish providers for focusing on keeping people healthy and avoiding unnecessary care [2]. The last factor is the current payment system contributes nothing to improving health [3].

According to a report by the Centers for Medicare & Medicaid Services, the total health spending in the U.S. in 2016 reached nearly 3.4 trillion dollars [4]. In addition, 45% of all Americans suffer from at least one chronic disease, which in financial terms turns out to be an average costs of $6,032 annually [5]. The high cost of care can be attributed to the traditional volume-based care (fee-for-service) that promotes profit over quality of care [6]. This means physicians must focus on volume of patients and getting rewarded for it. As previously mentioned, there are individuals that suffer from serious illnesses that calls for better care on behalf of the providers.

Furthermore, in order to successfully shift to value-based care, the current payment model must be changed to one that incentivizes physicians to promote better care. Physicians aren’t paid for time spent on educating their patients. However, they are paid for coordinating tests [6]. This ends up hurting patients because physicians aren’t focused on improving patient outcomes but rather making sure that they follow procedures that don’t add much value to patient engagement. The numerous tests and medicine prescriptions are illusions of high quality care. In reality, even though our health care spending is astronomical, millions of Americans are uninsured or receive care that is inadequate.

To further elaborate on the issues with the current payment system, according to a survey conducted by PwC’s Health Research Institute (HRI), fee-for-service payments make up 53% of a physician’s revenue [7]. Therefore, in the initial stages of the shift to value-based, physicians must accept a temporary loss of revenue [8]. Sure, it’s a hard pill to swallow. However, in order to see change, financial losses at the beginning stages is a reality that must be accepted. It seems that in order to create a balanced system that works for providers and patients, more financial risks have to be incurred by organizations.

In 2017, the topic of healthcare coverage has taken the spotlight under the current administration that aimed to replace the Affordable Care Act (ACA). If there ever were a better time to leverage the use of technology to help reduce certain costs, it would be a great time to do it now. As we know, the healthcare industry is a complex ecosystem where traditional thinking is favorable compared to innovative ideas. Value-based care is innovative to a certain extent and seems promising. In the end, as the health care landscape changes once again, implementing a payment model that aligns with the objectives of high quality and better care is needed.

To further explore these value-based trends, CHI is organizing the 5th Annual Healthcare Executive Roundtable on October 12, 2017, in Manhattan, New York. The Center for Healthcare Innovation’s “Understanding Value in Consumer-Orientated, Patient-Centric Era” Roundtable is an intimate, invitation-only, expert roundtable discussion for healthcare executives, key opinion leaders, and patient groups to discuss how stakeholders throughout the healthcare ecosystem can address critical issues related to healthcare value, quality, and cost. This year’s Roundtable will focus on several key market forces that affect the current state of healthcare in the U.S. Please visit http://chisite.org/roundtable/ for more information.

References:

[1] From Volume To Value: Achieving Bold Change In Our Healthcare Payment Systems. Forbes. https://www.forbes.com/sites/billfrist/2016/06/30/from-volume-to-value-achieving-bold-change-in-our-healthcare-payment-systems/#65afc8f09c82. Accessed September 7, 2017.

 

[2] From Volume To Value: Better Ways To Pay For Health Care. Health Affairs. http://content.healthaffairs.org/content/28/5/1418.full#ref-1. Accessed September 7, 2017.

 

[3] Patient-Centered Care: What It Means And How To Get There. Health Affairs. http://healthaffairs.org/blog/2012/01/24/patient-centered-care-what-it-means-and-how-to-get-there/. Accessed September 7, 2017.

 

[4] 2016-2025 Projections of National Health Expenditures Data Released. Center for Medicare & Medicaid Services. https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2017-Press-releases-items/2017-02-15-2.html. Accessed September 7, 2017.

 

[5] Why Public Health Is Necessary to Improve Healthcare. National Association of Chronic Disease Directors. http://c.ymcdn.com/sites/www.chronicdisease.org/resource/resmgr/white_papers/cd_white_paper_hoffman.pdf. Accessed September 7, 2017.

 

[6] From Volume To Value: Better Ways To Pay For Health Care. Health Affairs. http://content.healthaffairs.org/content/28/5/1418.full#ref-1. Accessed September 7, 2017.

 

[7] Healthcare’s Alternative Payment Landscape. PricewaterhouseCoopers. https://www.pwc.com/us/en/health-industries/health-services/assets/pwc-hri-alternative-payments-2015.pdf. Accessed September 7, 2017.

 

[8] Patient-Centered Care: What It Means And How To Get There. Health Affairs. http://healthaffairs.org/blog/2012/01/24/patient-centered-care-what-it-means-and-how-to-get-there/. Accessed September 7, 2017.

 

Patient Engagement and Cancer

By | Healthcare Access, Healthcare Costs, Patient Engagement, Patient-Driven Healthcare, Patients | No Comments

The Cancer Moonshot Initiative was announced by former President, Barack Obama on January 12, 2016. He tasked his Vice President, Joseph Biden, with heading the operation, encouraging the collaborations, and funding opportunities this initiative will need to successfully bring about the cure to cancer by the year 2020. Biden, who lost his son to cancer in 2015, has said that this hits too close to home for so many Americans and asks to hear your story.

 

A large part of the over goals of the Cancer Moonshot is to bring about the cure for cancer, but this isn’t the only value it can bring. Great strides have been made in the last year, it’s important to take a step back and evaluate how these leaps and bounds will affect those whose lives are already being negatively impacted by cancer. What has already been done to make the process of diagnostic testing, receiving a diagnosis, and starting/continuing treatment easier?

 

As it stands, the process of navigating through existing red tape between different healthcare facilities can be difficult.

Patient Engagement

In recent years, the importance of patient-driven medicine has come to the forefront of the medical field. It has become more important than ever for cancer patients and their families to stay in communication with their doctors following their diagnosis. With the changing landscape of cancer treatments, involvement from patients and their caregivers is a necessity.

 

For patients of rare cancers, such as mesothelioma, a cancer diagnosis can bring forward a whirlwind of paperwork, phone calls, and appointments with specialists. The need for comprehensive cooperation between organizations can help to make this period of time easier and should be a priority for the coming years.

 

With easier access to medical records of patients, they have a hand in their own care. This can bring a much needed feeling of stability to those whose lives have been uprooted by a diagnosis. Not only will better patient engagement lead to more empowered patients, but patients who have a better understanding of their own healthcare issues and treatment plans.

 

The Mesothelioma Cancer Alliance is dedicated to sharing real and relevant information to help those who have been diagnosed with mesothelioma, or any other type of cancer, through the difficulties of treatment and caregiving.

 

Examining the Cost of Drugs

By | Drug Costs, Healthcare Access, Healthcare Costs, Rising Cost | No Comments

drugprices

In a previous blog post, I discussed the complicated nature of drug pricing and the public relations issues that the biotech and pharma industries face. Issues include high-priced drugs and accusations of price gouging as well as unusually or unnecessarily high profits stemming from supposed greed within the biotech and pharma industries. In this blog, I want to provide a few examples of profits, how these profit margins compare to other industries, and the ethics of profiting from potentially life-saving and necessary therapies.

As I pointed out previously, drug pricing is unusually complex. While it is true that manufacturer pricing tends to be a black box, that is, pharma companies closely guard how they price their products, this price is rarely passed on, in full, to the patient. Instead, insurers cover what co-pays do not which is typically a fraction of the whole cost. The involvement of insurance companies as well as government entities (Medicare and Medicaid) are also undoubtedly taken into consideration for drug pricing. Other complicating factors such as intellectual property, foreign market pricing, and drug development costs must be factored in to how drugs are priced by the manufacturer.

In large part due to this lack of transparency, consumers have griped about drug pricing and pointed to pharma profits as being too high, excessive, or, perhaps, unethical.   

An article posted by the BBC [1] in 2014 took the pharma industry to task by highlighting Pfizer’s 2013 profit margin of 42% as evidence of their greed and profiteering. However, as stated in the same article, this figure is inflated due to Pfizer’s spin-off and profit from their animal health branch, Zoetis, which netted Pfizer $10.5B that year. Neglecting this influx of cash, their profit margin came in at 24% which the author claims as “spectacular”. While higher than some industry peers, or other biotech/pharma companies, this is not atypical from profit margins of other industries according to BusinessInsider [2] listing “Software and Tech” at 26.9% and “Beverage and Tobacco” at 29.2%. In terms of industry peers, BI lists pharma and biotech’s average profit margin at 19.3% which is generally in line with most other S&P500 sectors.

In terms of sales, from 2010 to 2013, Pfizer’s sales revenue dropped from $67B all the way to $52B, a drop of over 22% [3]. Since 2013, Pfizer’s profit margin has dipped as low as 9.4% in the 4th quarter of 2014 [4]. In fact, by their financials, in addition to the cash influx from Zoetis, Pfizer cut roughly $5B from their liabilities in 2013 by reducing “Unusual Expense” which inflated their net income for the year, thus boosting their profit margin. So, while their overall revenue was declining, their net income shot up for one year, and the BBC decided to pick this anomaly as their benchmark.  

In terms of increasing profits year over year, a recent article from Forbes [5] suggested that biotech and pharma companies are facing an uphill battle to increase yearly profits. From their calculations, the top 15 biotech companies only posted a year over year profit increase of 2.4%; dramatically lower than annual profits Apple posted between 2010 and 2012 at 78.5% 66%, 44.6%, and 9.2%, respectively [6]. So, while their sales and revenues are in the billions of dollars, their revenues, over a yearly basis, are not increasing as dramatically as the public may perceive them to be.

The underlying issue here, however, is the ethicality of profiting, no matter to what extent, at the expense of patients in need. The argument boils down to if an average profit margin of 19.3% for the biotech/pharma industry is too high and ethical to do so. On one hand, cutting-edge therapeutics should be provided to patients in need at the lowest cost possible. Therapies should never be a burden to the patients that require them. After all, if the cost is too prohibitive to even get it to a patient, what is the point of developing a therapy? On the other hand, these industries are still composed of businesses that rely on profits to continue to develop innovative technologies, attract the best qualified, most intelligent talent to the their organization, and deliver on the promise to save lives and improve global health.

Of course there’s always room for criticism and room for improvement. Non-profit entities have shown promise for reducing costs associated with drug development and reducing risk for larger companies, but their effectiveness has yet to be proven as the number of non-profit companies remains low. Also, many companies such as Pfizer and Abbvie participate in prescription assistance programs that provide their drugs for free to needy patients unable to afford them.[7,8] In these cases, the drug industry has provided ways to reduce the price burden on the patient.

The Center for Healthcare Innovation remains unbiased, objective and neutral. In future posts, I will continue to look at drug pricing and focus on the issue of high-priced drugs and how this affects public perception of pharma as well as increases costs throughout the healthcare system.

References

  1. http://www.bbc.com/news/business-28212223
  2. http://www.businessinsider.com/sector-profit-margins-sp-500-2012-8
  3. http://www.marketwatch.com/investing/stock/pfe/financials
  4. https://ycharts.com/companies/PFE/profit_margin
  5. http://www.forbes.com/sites/johnlamattina/2015/03/23/big-pharma-but-not-such-big-money/
  6. http://www.wikinvest.com/stock/Apple_(AAPL)/Data/Revenue_Growth/2012
  7. http://www.pfizer.com/health/financial_assistance_programs/patient_assistance_programs
  8. https://www.pparx.org/prescription_assistance_programs/list_of_participating_programs