What’s Missing from the Debate About Controlling Drug Costs?

LOVISA GUSTAFSSON: Robin is a cancer patient. She was diagnosed with multiple myeloma, which is a blood cancer. Her treatment for this cancer, it’s an oral chemotherapy and it costs her $15,000 for 21 pills. While the drug is successfully treating her cancer, the costs of the medicine could financially bankrupt her.

SHANOOR SEERVAI: Hi everyone, welcome to The Dose. You just heard from Lovisa Gustafsson, who leads our program on controlling health care costs here at the Commonwealth Fund. Many of you know that the prices of lifesaving medicines have been going up and up for a long time and we’ve reached a point where four in five Americans think that drug prices are unreasonable. Our political leaders have started to notice this too, and they’re looking for solutions. So today Lovisa is going to talk about some of the things that are missing from the debate around drug costs and how to control them.

Lovisa, welcome to the show.

LOVISA GUSTAFSSON: Thanks for having me.

SHANOOR SEERVAI: So let’s go back to Robin’s story. Is the cost of this drug that she’s facing, is that typical for someone with her blood cancer?

LOVISA GUSTAFSSON: The story that we have encountered here with Robin I think is increasingly common across all types of patients, regardless of what disease they’re facing and they’re fighting. The cost of drugs in the U.S. has increased over time and it’s only projected to increase even further going forward. And what we’re hearing more and more from patients is that they’re not able to afford their drugs and they’re forgoing filling prescriptions and that even when they are able to get the drug, they’re facing financial hardships in other ways. Things like not being able to afford their mortgage or declaring bankruptcy because they can’t afford the care that they need to treat their, whether it’s Robin and her, multiple myeloma or another disease that they’re fighting.

SHANOOR SEERVAI: So is there any cheaper treatment that’s available for Robin?

LOVISA GUSTAFSSON: The way that we’ve set up our system is to create basically what’s called periods of exclusivity. The idea is let’s incent innovation by giving manufacturers the opportunity to get money back. And so we grant patents in which there is no competition for a drug and basically a manufacturer could charge any price they want because there is no other alternative in the market. But what we do after that period of exclusivity is introduce generics or other alternatives to products that could then compete and bring prices down over time. And when that happens, we see prices drop drastically. And that is when affordability becomes much more avail . . . affordability is much better for patients and they’re able to . . . both for patients as well as for other payers, like the governments who help pay for Medicare drugs and Medicaid drugs as well.

SHANOOR SEERVAI: So a generic drug is something that would have the same clinical benefits for Robin, but it would be less expensive.

LOVISA GUSTAFSSON: Right. They’re deemed equivalent by the FDA and they’re interchangeable even. So a pharmacist, if you’re prescribed the brand-name drug, could give you the generic because they know it’s less expensive.

SHANOOR SEERVAI: So it strikes me, if we’re talking about ways in which we can control drug prices, it strikes me that allowing more generics onto the market would be one way.

LOVISA GUSTAFSSON: Absolutely. It’s definitely a tool that we have. The FDA currently is trying to increase generic approvals and getting more of these products to market. But in certain cases it can be difficult, whether it be because there are extended patent periods or because there just aren’t manufacturers out there that are able or willing to make a particular drug to come to market.

SHANOOR SEERVAI: So let’s start with the first reason you provided, extended patent periods. What does that mean?

LOVISA GUSTAFSSON: Right. So as I mentioned, we grant, the U.S. government as well as other developed countries, grant patents to drug manufacturers when they create a new drug. And the idea here is to incent innovation, right? If you are going to spend all that money on research and development — it takes many years to bring a drug to market and there’s a lot of risk associated with it. So if you as a company are going to do that, you need to know that you can earn that money back as well as some profit. And we as a society believe that’s the case and we incent that through these patent exclusivity periods.

Now in reality, that’s basically a government granted monopoly, right? There is no competition. And so you can set prices wherever you want. What we’ve seen increasingly is that there is really a patent strategy throughout the lifetime of a product. So not just when you create it in the beginning and you say, “Hey, I made this great discovery, let’s patent that and bring it to market.” But even after it’s been on market for many years, additional patents being filed and being granted, that end up leading to very, very, very long periods of exclusivity that are much longer than was ever intended by the original law. And really longer than what’s justified.

SHANOOR SEERVAI: So what you’re saying is that you’re granted a period of exclusivity when you make a new drug, but there are ways in which drug companies prolong the period of time that a drug is considered a new drug?

LOVISA GUSTAFSSON: Right. So they may make a small tweak or they might get an indication, they might get approval for a new indication. So if the drug was originally approved for breast cancer and later on it’s approved for lung cancer — I’m making this up — then they might get an additional period of exclusivity. There are some legit reasons why we have these incentives in place for additional patents to be filed. But increasingly, it feels as though they’re being used just purely as a way to block competition and to be able to not just keep prices high but actually increase prices over time. When you look at the patents that have been approved most recently, nearly eight out of 10 are actually for existing drugs. So drugs like insulin or aspirin as opposed to truly novel new products. So almost 80 percent of patents being granted today are just adding on to an already-existing product.

SHANOOR SEERVAI: So the logic that the drug should be expensive because it costs a lot to do the research and clinical trials to bring that drug to the market really doesn’t apply here?

LOVISA GUSTAFSSON: Right. And what we’ve seen in other countries is that drugs go off patent much sooner there, in a lot of other developed countries that they have a similar practice, right? They’ll have a period of exclusivity as well. They also acknowledge this need for an incentive for innovation and the payback for innovation, but they have shorter periods and so while we, there are drugs that are still on patent here and there is no competition and prices are very high. In European countries there’s already generic alternatives or other alternatives that have come to market and brought prices down and, I mean, that ultimately comes down to what the patient has to pay. It definitely impacts our governments in terms of Medicare budgets and Medicaid budgets, but it also very directly impacts patients when they go to the counter to fill a prescription or they go with a doctor to get a drug administered.

SHANOOR SEERVAI: Are policymakers talking about changing this extended period of patent exclusivity, is there a way that they could do that?

LOVISA GUSTAFSSON: There are I think a number of regulatory approaches that we either through the FDA or through Congress could take and as well as the U.S. Patent Office in terms of making it an easier process. And so, and thinking about, what are the standards that you need to meet in order to be justified getting a new patent or getting granted a new period of exclusivity. We could perhaps change some of those standards or perhaps make an overall length of time in terms of how long a patent period, an exclusivity period really should be. Because at the end of the day, we’re a capitalist society. We believe in competition, we believe in market efficiency. This is a monopoly.

SHANOOR SEERVAI: Right.

LOVISA GUSTAFSSON: This is not a competitive market, this is not markets at work here. And so if we want to get back to that, this idea of having competition is an important factor. And I think it’s important for the long-term fiscal sustainability, both of families as well as our governments.

SHANOOR SEERVAI: This is actually making me think of another issue, which is the price of the drug to begin with. Why is it so expensive?

LOVISA GUSTAFSSON: This is another issue that people talk quite a bit about more recently, it’s this idea of launch prices, right? When a drug comes to market, how do you decide how much it should cost? Because as we just discussed monopolies, companies can charge whatever they want, right? They can arbitrarily pick something. And truthfully, a lot of times it feels quite arbitrary as to what the prices are that get charged in the U.S. People oftentimes use the term, “what the market will bear,” but what does that really mean in health care? Especially when you’re talking about people who are facing life-threatening conditions.

SHANOOR SEERVAI: Right, what does it mean?

LOVISA GUSTAFSSON: Exactly. So kind of sky’s the limit. And that’s not to say that there aren’t great drugs coming to market that aren’t worth a lot of money, but we don’t have a systematic way to think about what are prices and how, like what’s a fair price for a drug? We don’t have a systematic way of saying what’s the value, what’s the incremental clinical benefit that this new drug that’s coming to market brings. And shouldn’t the price that we pay be somehow tied to that value?

SHANOOR SEERVAI: Do other countries have a way of valuing how much a drug should cost?

LOVISA GUSTAFSSON: Just about every other developed country does, in fact, have such a process. It varies by country. Each country has a slightly different take in terms of how they go about doing it and how they think about what the value of the drug is. But the end of the day, it kind of comes down to if a drug is coming to market, just because it’s new doesn’t mean that you should get to charge a lot of money for it.

SHANOOR SEERVAI: Right.

LOVISA GUSTAFSSON: If it’s new and it’s better, then maybe you should charge more than alternatives are, but if it’s no better than what’s currently on the market or whatever the other treatment alternative is, whether it’s a drug or a nondrug treatment, you shouldn’t get more money. If you bring out a new iPhone to the market, you don’t charge more for it because it’s the same or because it’s worse, it has to have a better camera or it has to have a better battery or other type of features that are better than the existing product and therefore you get to charge more money.

SHANOOR SEERVAI: Right. And the iPhone makes it very, they make it very easy for you to see. Apple clearly publishes what they’ve improved in their new product so you can decide whether you want it.

LOVISA GUSTAFSSON: Right. The bigger screen is worth it to me, we don’t have that same transparency when it comes to our drug. What am I getting by picking the older generic that maybe is going to cost me $5 versus the new product that supposedly is better and has a lot of fancy ads on TV for it that costs $200. I as a patient don’t know what those trade-offs are. Hopefully my physician will help me navigate that process, but it’s not always entirely clear, especially when a drug first comes to market and we don’t have as much . . . we don’t have real world evidence in terms of how it works.

You see that in other countries as well where they say, it doesn’t appear as there is actually more evidence that this is better, but we’ll track it over time. If you prove over time that this actually does do better and patients have better outcomes, patients are healthier, they’re happier, they have a higher quality of life, then we can raise your price, but you only raise prices because there’s actually an improved quality of life or outcomes in terms of clinical care. In the U.S. prices just go up over time just because they go up every year, not because there’s anything better about the drug from year to year.

SHANOOR SEERVAI: So we’re in this situation where prices are very high to begin with and then they just keep going up, up, and up and up. If the government wants to control prices and in fact bring prices down, how could you possibly do this if your starting point is too high to begin with?

LOVISA GUSTAFSSON: And that’s I think one of the issues we need to think about launch prices, because there are a lot of proposals being thrown out there today in terms of, how can we bring prices down or don’t let prices go up more than inflation or hold them constant over time? But if you are at $1 million, it’s already a really, really high price. And there are, we do have negotiations, private plans in the U.S. will negotiate with manufacturers in order to get discounts or rebates, but by offering the . . . making the drug available to their patients. But how far down can you really get in those negotiations if you’re starting arbitrarily or exceedingly high? It’s a double whammy for U.S. consumers. It’s both higher prices and those high prices last for a longer period of time.

SHANOOR SEERVAI: And before we talk about the other things that policymakers are doing or what they can do in the year ahead, is there anything else that they’re not talking about that you think really should be on their radar?

LOVISA GUSTAFSSON: One other aspect which has come up occasionally but not necessarily as a central point is, it goes back to this idea of competition and in particular competition for some of the really high-cost drugs that are driving spending growth over time. And what I’m talking about here are what we refer to, they’re high-cost specialty drugs. We refer to them as biologics often. And they are, when you hear about a lot of these drugs that are coming in the pipeline that might cost $1 million or more, that’s the kind of drug that I’m referring to now. And there is a way . . . so that is a unique market in some ways because those drugs, because these specialty drugs, they’re very complex. The way that they’re created, in fact, they’re not just like pills, they’re actually technically living organisms. So it’s a very complex, it gets very scientifically tech complex very quickly.

SHANOOR SEERVAI: Way over my mind.

LOVISA GUSTAFSSON: Mine too. But there are ways to make competition for those as well. It’s just a little bit more complex. And we call those drugs that come to market as competition to biologics, biosimilars. The idea being is they’re very similar to generics, that the concept is the same as a generic. Right? But because they’re not equivalent, they have a different name, they call them similar, biosimilar. Right?

SHANOOR SEERVAI: Right.

LOVISA GUSTAFSSON: And the idea behind biosimilars is the same. They, after a period of exclusivity, they could come to market and bring prices down. Perhaps not quite as far as generics, but it’s still is a big price saving, especially when you’re talking about how expensive some of these drugs are, many tens or hundreds of thousands of dollars.

SHANOOR SEERVAI: Right. So when you say tens or hundreds, I’m just trying to think about this for an individual patient. When you say tens or hundreds of thousands of dollars, you’re saying that one person could have to pay a few hundred thousand dollars a year in order to take this high-cost specialty drug.

LOVISA GUSTAFSSON: Exactly. It’s hard to generalize too much because different patients have different forms of insurance and those are all designed differently and Medicare is different than what we get from our employer and things like that. So it can vary. But increasingly patients are facing that really high cost of the drug. Patients face deductibles and during a deductible they have to pay the whole cost of the drug. Increasingly, patients are paying, instead of paying a flat copay, like you go to the pharmacy and it costs 50 dollars for your drug. They’re using a percentage coinsurance. So you’ve paid 25 percent of the cost of the drug. If that’s a hundred dollar drug, maybe it’s not a big deal, but if it’s $100,000 drug, that’s serious money. And even though there are things in place, like sometimes out of pocket caps and things like that for the year, that doesn’t help a patient in January.

SHANOOR SEERVAI: Where we are right now.

LOVISA GUSTAFSSON: Or when you’re at the beginning of the benefit year and you’re facing a really big deductible, you could face thousands of dollars in one year, which a lot of patients, especially seniors on Medicare don’t, and they’re living on fixed incomes, they don’t have that kind of money sitting around to pay for their drug. And then you see patients, not necessarily filling it or giving up something else, whether it be buying food or paying for their utilities in the middle of the winter. So we’re talking about serious trade-offs that people are facing here, both in terms of what they’re forced to pay over the entire year or years, depending on how long you’re on these drugs. But also it can be just a timing issue that, a really big expense in one year until you hit a deductible or until you hit an out-of-pocket maximum for the benefit year.

SHANOOR SEERVAI: And so what you’re saying is with biosimilars, if we had a law that allowed more companies to bring more similar drugs to the market, then patients would have cheaper options. So for example, when you go to the pharmacy and if you have to pay a 25 percent the cost of your drug and there is the hundred thousand dollar option, but there’s also an option out there that’s $20,000, suddenly your portion, what you have to pay is much less.

LOVISA GUSTAFSSON: Exactly. And there is a law in place to try to make this happen, to bring bias, to create a pathway for these drugs to come to market. It just, this market hasn’t flourished in the U.S. the way that it has in other countries. And there can be a number of reasons for that. Part of it is that we got started a little later than like for example the E.U. So you start there sooner, but it comes back partially to our patent system, which we’ve touched on a number of times today. But if we had these extremely long patents, there are drugs that are off patent in Europe and there’s a biosimilar in the market and we still are on patent and there is no biosimilar option. So there’s that.

There also are other ways that you could streamline the process for, that the approval process in which companies need to go through in order to get their drug to the market. There could be things around, I mentioned when we discussed generics that there’s this idea of interchangeability where the pharmacist can say, “Oh, your drug prescribed you the brand name, but this generic’s cheaper. Let me give that to you.” There isn’t that interchangeability. There’s a much, much higher threshold for that to happen with biosimilars. So it just, it’s harder to get the same kind of uptake that we see in generics. And so oftentimes if there is a biosimilar available, a patient might not even know that it’s an option.

SHANOOR SEERVAI: Got it. Well it’s January, it’s the beginning of the year. What’s next? What can policymakers do to address something that is, as you’ve pointed out multiple times today, really has a huge impact on Americans making trade-offs between should I take my medicine or should I pay my utility bill?

LOVISA GUSTAFSSON: An option that came from Congress last year is around reforming Medicare Part D. That’s the Medicare draw outpatient drug benefit that seniors and other people on Medicare have. And so they’ve identified that the Medicare benefit, Part D benefit is not meeting seniors’ needs quite as much, especially with all these new really expensive drugs that are coming to market. So there were various versions of a Part D reform that we’re both in the House and the Senate. But what they would do is change the cost-sharing. So it would actually reduce how much patients have to pay, and it would put a firm cap in place. So when you hit a certain dollar threshold, it wouldn’t just keep going. Previously there was this catastrophic threshold, but patients still had to pay a portion of that indefinitely. Like even if it’s 5 percent, but 5 percent of $100,000 is a lot of money.

SHANOOR SEERVAI: Is a lot of money.

LOVISA GUSTAFSSON: So that is kind of another, is kind of a patient protection, a patient affordability type of thing, which I think there’s a lot of people see that need given the financial hardship that we’ve heard from a lot of seniors in terms of being able to afford their drugs. The real concern here is back to the patient affordability. When a patient is in the deductible and they have to pay that whole price, that’s 5 . . . even if it’s a 5 percent increase, that’s 5 percent more that a patient’s having to pay at the pharmacy counter that they really can’t afford.

SHANOOR SEERVAI: Right.

LOVISA GUSTAFSSON: We did already touch on the government negotiation and that’s another one that’s out there. That’s not quite as bipartisan but that is an option that’s still out there that people are talking about and the House is interested in figuring out what might happen with that.

SHANOOR SEERVAI: Well, here’s hoping for a year of some sort of reform to help solve this problem.

LOVISA GUSTAFSSON: Yep.

SHANOOR SEERVAI: Thanks for joining me today, Lovisa.

LOVISA GUSTAFSSON: Thank you so much for having me.

SHANOOR SEERVAI: And thank you everyone for listening. If you’re enjoying the show, please tell your friends about it or leave us a review on iTunes or wherever you find your podcasts. And if you take a medicine and you’re struggling to pay for it, share your story with us. Send us an email on [email protected].