Can Public Policy Control Rising Drug Prices?

The Houston Economics ClubNovember 7, 2018

#BakerHealth

Vivian Ho, PhDJames A. Baker III Institute Chair in Health EconomicsDirector, Center for Health and BiosciencesProfessor, Department of Economics at Rice University Professor, Department of Medicine at Baylor College of Medicine

Outline

• What is the problem?

• Policy Options• Legislation

• Expert Recommendations

• Trump Administration

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

196

0

197

0

198

0

199

0

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7*

201

8*

Pe

rce

nt

Ch

ange

fro

m P

revi

ou

s Ye

ar

Bill

ion

s

Total ExpendituresPercent Growth

* projected

National Health Expenditures

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Ave

rage

An

nu

al P

erc

ent

Ch

ange

fro

m

Pre

vio

us

Year

Hospital Care

Physician and Clinical Services

Prescription Drugs

Epipen $608

National Health Expenditures

* projected

Epipen $349

Daraprim $750Epipen $461

Epipen $264

Medicare Trustees Estimates for ‘17-’27: Average Annual Growth in Medicare Beneficiary Costs for

Part A, Part B, and Part D Between 2017 and 2027

Source: 2018 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds

Per beneficiary spending:

2017 $5,160 $5,915 $2,110

2027 $7,443 $10,004 $3,296

3.7

5.44.6

Part A Part B Part D

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

1960 1970 1980 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Pe

rce

nt

Dis

trib

uti

on

Hospital Care Physician and Clinical Services Prescription Drugs

National Health Expenditures

Old drug price inflation - Valeant Pharmaceuticals

Average Annual Prescription Drug Price Change vs. Inflation 2006-2015

Source: Trends in Retail Prices of Prescription Drugs Widely Used by Older Americans: 2006-2015, AARP Public Policy Institute 2017.

Annual Percentage Change in Retail Prices by Drug Type, 2006-2015

Source: Trends in Retail Prices of Prescription Drugs Widely Used by Older Americans: 2006-2015, AARP Public Policy Institute 2017.

Commonly Prescribed Drugs for Seniors

The top 20 most commonly prescribed brand-name drugs for seniors in Medicare Part D in 2015 were:

Advair Diskus Nexium Restasis Ventolin HFA

Crestor Nitrostat Spiriva Handihaler Voltaren Gel

Januvia Novolog Symbicort Xarelto

Lantus/Lantus Solostar Premarin Synthroid Zetia

Lyrica Proair HFA Tamiflu Zostavax

Source: US Senate Homeland Security and Government Affairs Committee, Minority Office, March 2016

Popular Drug Price Change vs. Inflation

Source: US Senate Homeland Security and Government Affairs Committee, Minority Office, March 2016

Product 2012 Prescriptions 2017 Prescriptions Prescription Difference Percent Change

(U.S. Total) (U.S. Total) (2012-2017) (2012-2017)

Ventolin HFA 17,414,376 27,069,765 9,655,389 55%

Proair HFA 24,873,170 25,977,546 1,104,376 4%

Synthroid 23,073,988 18,411,640 -4,662,348 -20%

Lantus/Lantus Solostar 18,558,937 17,004,123 -1,554,814 -8%

Advair Diskus 17,018,219 10,700,788 -6,317,431 -37%

Lyrica 9,114,028 10,373,276 1,259,248 14%

Januvia 8,893,922 9,913,198 1,019,276 11%

Symbicort 5,246,325 9,888,532 4,642,207 88%

Xarelto 1,078,207 9,593,823 8,515,616 790%

Spiriva Handihaler 9,625,240 5,759,976 -3,865,264 -40%

Novolog 3,385,303 5,045,237 1,659,934 49%

Restasis 2,818,474 3,037,271 218,797 8%

Nexium 22,021,459 2,246,968 -19,774,491 -90%

Tamiflu 3,313,707 2,143,796 -1,172,911 -35%

Premarin 5,223,690 2,046,125 -3,177,565 -61%

Voltaren Gel 2,954,278 1,964,665 -989,613 -33%

Zetia 7,915,532 1,730,633 -6,184,899 -78%

Crestor 25,337,566 1,604,070 -23,733,496 -94%

Zostavax 2,291,538 1,344,617 -949,921 -41%

Nitrostat 4,273,413 309,442 -3,963,971 -93%

Total 214,434,372 166,165,491 -48,268,881 -33%

Total U.S. Prescriptions of Most Commonly Prescribed Brand-Name Drugs

Price

Prescription Drug Demand

Quantity

D

Q 2012Q 2017

P 2017

P 2012

Prices Matter

Historical prices for one week of treatment with Enbrel and Gleevec

15

Declining value

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Co

st

($)

Year

Prices of Gleevec vs. iPhone over time

Price of

iPhone/GHz with contract

AWP of 1 week treatment of 400mg Gleevec

Value (benefits in relation to costs) declining

Access Spending

Why we should care – patient access

https://drugpricinglab.org/tools/dpl-policy-tracker/

Policy Legislators

Allow Importation / Re‑importationMcCain (R-AZ), Franken (D-MN), Klobuchar (D-MN), Sanders (I-VT),

Ellison (D-MN)

Boost Generic Competition

Cruz (R-TX), Smith (D-WA), Stivers (R-OH), Brown (D-OH), Franken

(D-MN), Klobuchar (D-MN), Shrander (D-OR), Sanders (I-VT), Vitter

(R-LA), Leahy (D-VT), Collins (R-ME), McKinley (R-WV), Goodlatte (R-

VA)

Reduce Branded MonopoliesWyden (D-OR), Franken (D-MN), Sanders (I-VT), Lance (R-NJ),

Ryan (R-WI)

Ban/Restrict DTC Advertising DeLauro (D-CT), Franken (D-MN)

Require Price & Cost TransparencyFranken (D-MN), Wyden (D-OR), Sanders (I-VT), Baldwin (D-WI),

Durbin (D-IL), Perlmutter (D-CO), Collins (R-GA)

Use Value-based payment Ryan (R-WI), President Donald Trump

Apply Price Inflation Limiters Franken (D-MN), Wyden (D-OR), Brown (D-OH), DeLauro (D-CT)

Let Government be the Purchaser Sanders (I-VT), Baldwin (D-WI), Franken (D-MN), Klobuchar (D-MN)

Legislate Access to Treatment Sanders (I-VT)

Require Rebates to Mcare/caid Sanders (I-VT)

Drug Policy Legislation Introduced since 2015

Released: November 30, 2017

NASEM Rec A: Boost Generic Competition

• Pass legislation to eliminate pay-for-delay practice.

• Stop brand-name drugs from unfairly restricting access to samples that generic makers need to formulate competing drugs.

https://www.communitycatalyst.org/doc-store/publications/top-20-pay-for-delay-drugs.pdf

May 17, 2018 http://www.centerforbiosimilars.com/news/fda-names-companies-that-restrict-access-to-drug-samples-for-generic-testing

November 8, 2017 https://www.raps.org/regulatory-focus%E2%84%A2/news-articles/2017/11/gottlieb-end-the-shenanigans-on-delaying-generic-drug-competition

Requested Listed Drug InquiriesDrug Company # Inquiries

Absorica (isotretinoin) Ranbaxy 5

Exjade (deferasirox) Novartis 6

Letairis (ambrisentan) Giliad 10

Revlimid (lenalidomide) Celgene 13

Source: https://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplications/AbbreviatedNewDrugApplicationANDAGenerics/ucm607738.htm

NASEM Rec B: Let Government be the Purchaser

• Because prices tend to be lower when the purchaser has bargaining power that is at least comparable to that of the seller, the United States could achieve lower prices for prescription drugs by consolidating bargaining power…

• The law bars the govt. from negotiating drug prices for Medicare Part D.• Other countries are able achieve lower prices through regulations and

negotiation.

• But U.S. policy makers were lobbied heavily by drug companies.

https://www.drugwatch.com/featured/us-drug-prices-higher-vs-world/

Source: National Academies of Sciences, Engineering, and Medicine. 2018. Making medicines affordable: A national imperative.

NASEM Rec C: Require Greater Price and Cost Transparency

Source: National Academies of Sciences, Engineering, and Medicine. 2018. Making medicines affordable: A national imperative.

Source: National Academies of Sciences, Engineering, and Medicine. 2018. Making medicines affordable: A national imperative.

Source: National Academies of Sciences, Engineering, and Medicine. 2018. Making medicines affordable: A national imperative.

Source: National Academies of Sciences, Engineering, and Medicine. 2018. Making medicines affordable: A national imperative.

Source: Kaiser Health News, May 30, 2018

Frequency and Mean Overpayment Among Pharmacy Claims with Patient Co-pay, 2013

Drugs No. of ClaimsFrequency of

Claims % with overpayment

Mean

All 9,539,846 22.94 7.69

Generic 7,295,525 28.17 7.32

Brand 2,244,321 5.95 13.46

Source: Van Nuys K. et al, JAMA 2018.

NASEM Rec G: Modify the 1983 Orphan Drug Act

• Cures for rare diseases – those affecting “less than 200,000 persons in the United States” and for which “there is no reasonable expectation that the cost of developing and making available in the United States a drug for such disease or condition will be recovered from the sale in the United States.”

• Health Promotion and Disease Prevention Amendments of 1984, Public Law 98-551, 98 Stat 2815 (1984), § 4.

Benefits to Orphan Drug Makers

• 7 add’l years of patent protection.

• Expedited regulatory review process.• Including fewer patients required for clinical trials.

• Tax credits to help support drug testing.

• Orphan drugs have higher prices.

Problems with Orphan Drug Act

• Orphan drug status granted for a subset of possible patients, then use is marketed to a larger population.

• Rituximab granted orphan drug status to treat lymphoma• Now used for non-Hodgkin’s lymphoma, chronic lymphocytic leukemia, rheumatoid arthritis,

and several skin disorders.

• Orphan drugs that have reached blockbuster status (>$1b in sales)• Vioxx, Cialis, Botox

• Some drugs received multiple orphan designations.• Gleevec has had 9, w/ $3.3b in sales for 2016.

Top lobbying industries in the U.S. 2017

Top lobbying industries in the United States in 2017, by total lobbying spending (in million U.S. dollars)

Source: opensecrets.org; CRP ID 257364

Note: United States; 2017

279.57

160.7

146.2

137.27

126.09

114.16

103.4

100.81

97.3

91.51

91.18

91.04

86.24

81.99

79.62

0 50 100 150 200 250 300

Pharmaceuticals/Health Products

Insurance

Electronics Mfg & Equip

Business Associations

Oil & Gas

Electric Utilities

Real Estate

Hospitals/Nursing Homes

Securities & Investment

Health Professionals

Misc Manufacturing & Distributing

Air Transport

Telecom Services

Health Services/HMOs

Education

Spending in million U.S. dollars

Further information regarding this statistic can be found on page 8.

4 Challenges

• High list prices for drugs

• Seniors and government programs overpaying for drugs due to lack of the latest negotiation tools

• High and rising out-of-pocket costs for consumers

• Foreign governments free-riding off of American investment in innovation

4 Key Strategies

• Improved competition

•Better negotiation

• Incentives for lower list prices

•Lowering out-of-pocket costs

Examples

• Stop brand name drugs from restricting access to samples needed by generic drug makers.

• Experiment with value-based purchasing in federal programs.

• Require manufacturers to include list prices in advertising.

• Prohibit gag clauses from insurer-pharmacist contracts.

https://thehill.com/policy/healthcare/411505-trump-administration-to-require-drug-companies-include-prices-in-ads

https://www.nbcnews.com/politics/white-house/trump-signs-bills-lifting-pharmacist-gag-orders-drug-prices-n918721

https://www.forbes.com/sites/theapothecary/2018/10/26/trumps-dramatic-new-proposal-to-lower-medicare-drug-prices-by-linking-to-an-international-index/#25d27c554c3a

Concluding Remarks

• Rising drug prices are a threat to the affordability of health care and health insurance.

• Multiple policy options exist for restraining cost growth.

• Many options unlikely to discourage innovation.

• Lobbying by drug companies is preventing forceful policy action.

Can Public Policy Control Rising Drug Prices?

Thank you!

For a copy of the presentation email

bakerchb@rice.edu