Who Will Make Big Pharma Pay the EpiPenalty?
Washington is experiencing a bipartisan furor over the spiraling price hikes of EpiPen, the life-saving Epinephrine injector tens of thousands of American allergy sufferers depend on in case of emergency. On Wednesday, Democrat Elijah Cummings (D-MD) and Republican Jason Chaffetz (R-UT) of the House Oversight and Government Reform Committee blasted Mylan CEO Heather Bresch over her firm's 550 percent price increase from $94 for a two-pack in January 2007 to $609 in May 2016. Bresch, whose father happens to be West Virginia Democratic Senator Jim Manchin and whose mother Gayle Manchin apparently used her perch as the head of the National Association of State Boards of Education to push schools to stock EpiPen, continues to face questions over how much government health insurance programs pay for the allergy treatment.
But largely lost in all the talk of generic alternatives, a lower-cost Mylan offering, rebates and profit-margins is this inescapable truth. EpiPen isn't the exception to the rule of American drug pricing; it is the rule. Alone among major, modern economies, the United States government does not currently have the power to regulate drug prices in its $350 billion a year prescription market. The question isn't whether the U.S. should join most of its G20 partners in setting rates for pharmaceuticals, but when it will happen, how it will work and who will do it. And on that last question, the past 25 years have obviously shown that it won't be the Republican Party and its presidential nominee, Donald Trump.
Obvious, that is, unless you're Chris Cillizza of the Washington Post. Cillizza, whose young son suffers from a peanut allergy, offered his prescription for addressing the EpiPen disgrace. As he explained this week in "The Mylan EpiPen pricing controversy is why people hate Washington," the answer is not to get even, but to get mad:
Very few people have a father who is a U.S. senator. Or a mom who runs a national group overseeing boards of education. And very few people have children who make $19 million a year. The Manchins have all three. And that makes lots of people mad. And convinced that the entire system -- elected officials, lobbyists, trade association heads, etc. -- is morally bankrupt. And that the only solution is a full-scale removal of the establishment by someone -- Trump -- who represents everything that the establishment isn't: straight shooting, blunt talking and, yes, willing to offend...
It affirms everything people already believe about How Washington Works -- that it's a rigged deal, and they are on the outside looking in because that's the way the elites in D.C. want it. Understand that feeling, and you understand Trump's appeal.
Now, Cillizza could have gone on to document, as the worried readers of PharmExec learned in 2015, that Democrat Hillary Clinton has a 25-year track record of trying to rein in prescription drug costs. Cillizza, whose column is ironically titled "The Fix," might have mentioned that Democrats sought to empower the federal government to negotiate Medicare drug prices, only to be blocked President Bush and his Republican majorities in Congress. And Mr. Fix could have reported that Donald Trump's business career is defined by cheating investors, partners, contractors and customers.
Oh, and one other thing. Donald Trump has already shown he has no idea what he's talking about when it comes to prescription drug prices.
During the GOP primaries, Trump (like Democrats Hillary Clinton and Bernie) called for enabling Medicare to negotiate drug prices. Ending that prohibition enshrined in President Bush's 2003 Medicare Part D prescription drug program, Trump boasted, would produce YUGE savings.
"We are not allowed to negotiate drug prices. Can you believe it? We pay about $300 billion more than we are supposed to, than if we negotiated the price. So there's $300 billion on day one we solve."
There are only two problems with Trump's claim. Currently, that negotiation is illegal. Congressional Republicans are committed to keeping it that way. Second, as the Washington Post helpfully pointed out:
Total spending in Medicare Part D (prescription drugs) in 2014 was $78 billion. So Trump, in effect, is claiming to save $300 billion a year on a $78 billion program. That's like turning water into wine.
And as Bloomberg noted, total spending on prescription drugs for the entire United States was $298 billion in 2014. Even in the most accommodating scenario, Donald Trump is claiming he can get drugs for all 320 million Americans for free. It's no wonder Chris Cillizza's Washington Post fact-checking colleague Glenn Kessler called Trump's so-called plan "absurd."
Once again, we are confronted with a nonsense figure from the mouth of Donald Trump. He is either claiming to save four times the entire cost of the Medicare prescription drug system - or he is claiming to make prescription drugs free for every American. Neither is possible, so he once again earns Four Pinocchios.
But that's not the only reason why the Republican candidate couldn't be a worse choice for those Americans so furious about the obscene prices for EpiPen, Pharma Bro Martin Shkreli's Daraprim and so much else. The GOP doesn't just oppose any role for the government in negotiating drug prices for Medicare (or anything else). It was the party of Paul Ryan and Mitch McConnell who enshrined that ban in President Bush's Medicare Part D prescription drug program passed in December 2003.
As you may recall, the Bush administration originally opposed the idea of any prescription drug benefit at all. Ultimately, the completely unfunded $400 billion program included the Rx benefit, but was--and remains--available only through private insurers. (As Utah Senator Orrin Hatch later said of the passage of Part D, "It was standard practice not to pay for things.") And while those insurers negotiate with the pharmaceutical vendors, the government itself cannot.
That prohibition was a key demand of the pharmaceutical lobby. The same price leverage enjoyed by the Veterans Affairs Department and its program beneficiaries was surrendered by Medicare, with the predictable results described in a 2006 House analysis.
That report released by Democratic staff on the House Government Reform Committee showed that under the new Medicare plan, prices for 10 commonly prescribed drugs were 80% higher than those negotiated by the Veterans Department, 60% above that paid by Canadian consumers and still 3% higher than volume pharmacies such as Costco and Drugstore.com. The report concluded that:
"The prices offered by the Medicare drug plans are higher than all four benchmarks, in some cases significantly so. This increases costs to seniors and federal taxpayers and makes it doubtful that the complicated design of Medicare Part D provides any tangible benefit to anyone but drug manufacturers and insurers."
Which is exactly as Louisiana Republican Billy Tauzin designed it. Just months after shepherding the Medicare prescription bill he wrote through the House, Tauzin, the chairman of the Energy and Commerce committee, left Congress and accepted a $2 million-a-year job as president of PhRMA -- Pharmaceutical Research and Manufacturers of America.
Fast forward to 2016. Donald Trump joined Senators Bernie Sanders (D-VT) and Secretary Hillary Clinton in calling for CMS (the Centers for Medicare and Medicaid Services) to negotiate directly with pharmaceutical vendors. In response, as Politico reported in August, PhRMA met last month also met with Republican leaders in Congress, including Speaker Paul Ryan and Majority Leader Kevin McCarthy. And now, Tauzin's successor Stephen Ubl has launched a "massive" PhRMA lobbying blitz which "will dwarf the $20 million that health insurers spent on the iconic 'Harry and Louise' campaign credited with sinking Hillary Clinton's health reform plan in the early 1990s."
Which brings us--and should have brought Chris Cillizza--back to Hillary Clinton. As she explained to the Democratic National Convention her reaction to her "Hillarycare" defeat of 1993 and 1994:
Children like Ryan [Moore] kept me going when our plan for universal health care failed and kept me working with leaders of both parties to help create the Children's Health Insurance Program that covers 8 million kids in our country.
The 2016 Democratic Party platform she and Sanders produced didn't just call for a "public option" for health insurance customers. The Democrats spoke loudly where the Republicans were utterly silent, denouncing the "profiteering of pharmaceutical companies" as "simply unacceptable."
We will crack down on price gouging by drug companies and cap the amount Americans have to pay out-of-pocket every month on prescription drugs. We will prohibit anti-competitive "pay for delay" deals that keep generic drugs off the market, and we will allow individuals, pharmacists, and wholesalers to import prescription drugs from licensed pharmacies in Canada and other countries with appropriate safety protections. Democrats will also fight to make sure that Medicare will negotiate lower prices with drug manufacturers.
If this is news to the likes of Chris Cillizza, it was the call to arms the Big Pharma was warning its members about last year. On October 12, 2015, former pharmaceutical representative Tom Norton warned industry leaders about "Hillary's History on Rx Price Controls." Looking back at her career in Arkansas, as architect of the failed Health Security Act of 1993, and as a presidential candidate in 2008 and 2016, Norton cautioned the readers of PharmExec.com. Noting that she had been opposed by the pharmaceutical industry at every turn, he concluded:
Is it possible, should Clinton be elected, that she will forget all of this history? No, it's not. That's not how Hillary Clinton operates.
Public policy, as we know, is written by the winners. In the case of a successful Hillary Clinton campaign for the Presidency in 2016, I would bet a lot that among the first public policy actions of a new Hillary Clinton Administration will be a series of very tough price controls that heavily impact the American pharmaceutical industry.
Now, "price controls" is a euphemism, a term designed to raise the specter of Soviet Five-Year Plans and war-time rationing. But a more accurate description is "rate-setting," in which the government, or regulated insurers acting on behalf of or in conjunction with it, negotiate with drug firms to establish prices everyone will pay. And in countries from the UK, Canada and Australia to Germany, France and Japan, rate-setting is the mechanism by which fees for drugs, doctor visits, lab tests, hospital stays and surgical procedures are established. What makes the U.S. unique, and why in large part we spend double the percentage of GDP on health care, is the absence of rate-setting.
As the EpiPen scandal exploded in August, Vox health care journalist Sarah Kliff urged readers not to miss the forest for the trees. "EpiPen's 400 percent price hike tells us a lot about what's wrong with American health care," she warned, "Forget the $500 EpiPen. The era of the $1,000 pill is already upon us."
Drug pricing follows a predictable pattern in most developed countries. In places like Spain, the United Kingdom, and the Netherlands, the government sits down with drugmakers and haggles over how much they will pay. Each country uses a different process, but the goal is the same -- to balance drug companies' pursuit of profit with the public's interest in making useful treatments widely available and affordable.
The United Kingdom, for example, runs its bargaining through the National Institute for Clinical Evaluation (NICE). NICE exists solely to decide at what point a new treatment is cost-effective: when it will save the health care system money in the long run by preventing further disease. NICE runs dozens of these analyses each year, on drugs and surgeries and scanning devices. And it uses its findings to tell medical manufacturers: This is the price our country will pay for your service.
In the United States, there's no such negotiation process to speak of. Federal law bars Medicare, the country's largest insurance plan, from even trying to negotiate bulk discounts with drugmakers. Once a pharmaceutical company sets its price, the government-run plan that insures 49 million seniors is required to accept it.
Here, "the sky is really the limit." Unbound by the dictates of either conscience or the government, Martin Shkreli can jack up AIDS drug Daraprim's cost from $13.50 to $750 a pill. Gilead can reap massive profits by charging $1,000 a pill and $84,000 for a course of treatment with its Hepatitis C fighting Sovaldi. (That drug alone fueled steep increases in total U.S. prescription drug spending in 2014 and 2015, especially for Medicaid and Medicare.)
But as Austin Frakt detailed in the New York Times last October ("To Reduce the Cost of Drugs, Look to Europe"), other nations manage to limit these stratospheric rise in drug prices through "reference pricing." The key is in evaluating both the cost-effectiveness and efficacy of new drugs in setting prices:
Here's how it works: Drugs are grouped into classes in which all drugs have identical or similar therapeutic effects. For example, all brands of ibuprofen would be in the same class because they contain the same active agent. The class could include other nonsteroidal anti-inflammatory agents like aspirin and naproxen because they are therapeutically similar. The insurer pays only one amount, called the reference price, for any drug in a class. A drug company can set the price of its drug higher, and if a consumer wants that one, he or she pays the difference.
Setting the reference price low enough puts considerable pressure on drug manufacturers to reduce prices for drugs for which there are good substitutes. If they don't, consumers will switch to lower-cost products. In British Columbia and in Italy, the reference price is set at the lowest-price drug in the class; Germany uses an average price across drugs; Spain also uses an average, but only of the lowest-priced products that account for at least 20 percent of the class's market.
In pushing prices down, reference pricing doesn't suppress innovation; it encourages a different form of it. The market still rewards the invention of a cutting-edge drug with novel therapeutic effects. Such a drug might be placed in a new class and therefore could be priced high. But, within classes, the market also rewards innovations that lead to lower-priced drugs, because consumers switch to them to avoid out-of-pocket costs. In these ways, reference pricing promotes cost-effectiveness.
Ezekiel Emanuel made a similar point the previous month. "We're paying too much for prescription drugs," he opened, noting that cancer drugs like Yervoy, Opdivo and Keytruda routinely cost more than $120,000 a year, while Kalydeco for cystic fibrosis reaches $300,000 annually. Cerezyme for Gaucher disease runs about $300,000 per year--for life. "Despite representing about 1 percent of prescriptions in 2014," Emanuel notes, "these types of high-cost drugs accounted for some 32 percent of all spending on pharmaceuticals." And the solution, he suggests, can't just be as simple as the federal government directly negotiating for 50 million seniors when some diseases have only one or two treatments. It's not just a question of a lack of competition; but of leverage. "Unlike private insurers," Medicare "cannot maintain an approved drug list and exclude overly expensive drugs from coverage." Besides, 170 million Americans get their insurance through private carriers.
Instead, Emanuel also proposes we look to other countries. Countries like Australia, where the "60-year-old Pharmaceutical Benefits Scheme has been the single purchaser of drugs for the country, making drugs available at fixed prices that are now listed online."
While the Australian system of price controls is one approach, another possibility is the Swiss health system, which is frequently applauded by conservative commentators. The Swiss government includes only those drugs that are effective and cost-effective on its approved drug list. It then establishes a maximum allowable price for the drug, but up to that point, companies can decide what to charge. We could cap the price based on objective, quantitative measures of value. Private payers would continue to negotiate with drug companies over prices as they do now, but there would be a ceiling to prevent prices from becoming unsustainable.
Everyone, including drug company executives, believes that high prices cannot continue. Indeed, that is one reason that companies are trying to maximize profits while they can. We must come up with a comprehensive solution now.
The urgency cannot be overstated. EpiPen is just a symptom of the disease. As the Kaiser Family Foundation found earlier this month, "According to our analysis, total Medicare Part D spending for the EpiPen increased from $7.0 million in 2007 to $87.9 million in 2014, an increase of 1151%."
While the rates of cost growth for Medicare and U.S. health care overall have slowed considerably, that brighter budget picture is offset by the renewed outlays for prescription drugs. As Reuters reported in April:
U.S. annual spending on prescription medicines will increase 22 percent over the next five years, climbing as high as $400 billion in 2020, according to a report released by health care information company IMS Health Holdings Inc on Thursday.
Those figures, which take into account anticipated discounts, rebates and other price concessions that have become common, represent an annual growth rate of 4 percent to 7 percent through 2020, according to the report.
In the future, the picture will likely only get worse, as new biologics, customized genetic treatments and new generations of pain medications promise to relieve suffering and extend lives at jaw-dropping prices. As even generic drugs rise in cost, pain management treatments like Humira and Enbrel have jumped in price by 130 percent in just five years.
All of which means the United States badly needs a President who knows about making "a determination regarding the reasonableness of launch prices of a breakthrough drug" based on factors including "prices of other drugs in the same therapeutic class" and "cost information supplied by the manufacturer," as well as pricing data from comparable countries, "cost effectiveness relative to the cost of alternative course of treatment options" and "Improvements in quality of life offered by the new product." As it turns out, that language is from the Hillarycare legislation First Lady Hillary Clinton helped draft.
It would also help if our new President had experience with the disastrous launch of Bush's Medicare Part D drug plan. Luckily, we have a candidate with precisely that background. As Senator Hillary Clinton put it in early 2006:
"I voted against it, but once it passed I certainly determined that I would try to do everything I could to make sure that New Yorkers understood it, could access it, and make the best of it."
Reading Chris Cillizza this week reminded me of an old Simpsons episode. In it, Homer helps his new buddy Mel Gibson rework the boring ending to his remake of Mr. Smith Goes to Washington. When Gibson's Smith concludes the famous filibuster scene by mowing down his fellow Senators with a hail of bullets from a submachine gun, the studio executive asks, "You impaled a United States senator with the American flag. Why did Mr. Smith kill everybody?" To which Homer responded:
"It was symbolism. He was mad!"
But getting mad at Mylan and Big Pharma isn't going to stop out of control prescription drug prices. If anyone can, it's President Hillary Clinton. Believe me.