When we talk about the cost of a unique new life saving medication (see gene therapy) the process is a little like hostage negotiation. The government gives the pharmaceutical manufacturer a 5 year monopoly and allows the company to set the price. The insurer has meetings with itself and decides how it’s going to deal with the situation, and to the patient and family it becomes a “your money or your life” situation.
When legislators decry Medicare’s inability to negotiate with a pharmaceutical company they are revisiting a politically influenced law that Congress passed in the wee hours of the morning December 8, 2003. (see FDA chapter) Some believe Medicare D could save a lot of money if they were allowed to negotiate with the companies that sell costly medications. Currently by law they can’t.
The law didn’t become a big political issue because of a later law that protects most of the people on Medicare. If the yearly outlay for a drug exceeds $6350, the situation is officially a “catastrophe,” and the Medicare recipient is only responsible for a small copayment.
The legislation that authorizes the government to pay the other 80 percent of the annual cost of the expensive drugs started as a bill that limited “total out-of-pocket charges for people on Medicare.” It was championed by Otis Bowen. A country doctor from a town of 5000 in northern Indiana, Otis was his state’s governor before he was appointed secretary of Health and Human Services by Ronald Reagan. Known as “Doc” Bowen, he “kept a prescription pad handy, and recommended remedies to cure the common cold and sore throat for both colleagues and members of the press.” When his bill to help people on Medicare was introduced Reagan wasn’t keen on the idea. But his administration was caught red handed giving weapons to Iran and money to the Central American counter revolutionary fighters known as “contras.” His party was in the midst of a huge scandal and the Republicans lost control of Congress.
In 1988 a few liberal senators promoted the Medicare Catastrophic Coverage Act. It included a tax that was controversial, and it had a drug benefit that, at the time, didn’t amount to much.
Senator Lloyd Bentsen made sure the legislation didn’t cover most medicines. It was just for catastrophes and at the time, there weren’t many. Bentsen, the senator who brokered the compromise, was a fearsome poker player. You never knew what cards he held. He was a B-24 bomber pilot during the Second World War and was shot down on twice. Looking and dressing like Hollywood’s version of a successful politician, the senator was tall and thin, had a deep, voice, and wore elegant clothes. When he went to a party and his wife wouldn’t leave he, famously, would playfully toss her over his shoulder like a sack of potatoes and carry her out.19” In 1988 when Michael Dukakis was the Democratic presidential candidate, Bentsen was his running mate and they lost.
In most of Europe, when a new drug becomes available countries go through a process. Germany makes sure the medication is safe and effective. Then the country allows the manufacturer to set a price and sell it. During its first year the new drug is compared to existing therapies and its relative “value” is determined. Then the company and government authorities bargain and usually arrive at an acceptable price. If they disagree they arbitrate. The panel of five that hears both sides includes a representative of the government and a person who speaks for the insurer, and their decision is binding—if the manufacturer doesn’t strongly disagree and doesn’t choose to stop selling the drug in the country. In seven years Germany has assessed “More than 300 drugs and fewer than 30 were withdrawn.18”
In the U.S. doctors often don’t know (and many don’t want to know) how much people pay for their medications. Health insurance policies often have formularies that cover part of the cost, so some people pay more out-of-pocket than others for the same drug.
Most of the medications people take are generics. When there are more than two manufacturers price competition can be intense.
Pharmaceutical Manufacturers handle the negotiations for unions, hospitals, benefit managers, the military, and the Veterans Administration. Formulary management works for the Veterans Administration. They, for example, only carry one or two beta blockers. Companies bid for the contract. All the VA business goes to the brand that provides the best price.
Medicaid doesn’t have to parley. The law says the program automatically gets the best price available.
In the world where everyone negotiates, health insurance plans include a prescription drug benefit. Their programs are managed by PBM’s, prescription drug management companies. Some of them are owned by a large health insurance company. Three independent management corporations control 75% of the market. They bargain, receive a service fee from their clients, share their financial gains with health plans,” and commonly determine the drugs that insurers cover, and their “tier” position.3
Cheap generics have low co-pays. Preferred brand name drugs are up a step. The newer, very expensive medications are typically in the top row. The person who takes the pricy drug and is not on Medicare commonly has to pay a percent of the list price.
For illustration, the formulary of the University of Maryland Health Advantage has 5 drug levels, and five escalating sums of money. The following is taken from their web site. It is the 30 day co-pay for each filled subscription.13
- Tier one: $4 co-pay for preferred generic drugs.
- Tier two: $15 co-pay for generic drugs that didn’t make the preferred list.
- Tier three: $47 co-pay for preferred brand name medications.
- Tier 4: $100 co-pay for brand named products that didn’t make the preferred list.
- Tier 5: 33% of the manufacturer’s list price.
The medications on the top row are “specialty drugs” and typically cost $50,000 to $100,000 a year. The amount Medicare Part D spent on specialty drugs nearly quadrupled in the five years between 2010 and 2015. Their cost rose from $8.7 billion to $32.8 billion a year. By 2015 they accounted for 31 percent of the programs net spending.4 Drugs in the most expensive group usually include:
- combinations of anti retroviral (HIV) drugs,
- multiple sclerosis modifying agents,
- Orphan drugs—medications that are not in high demand for people over 65.
- A number of the very expensive, cancer fighting medications.
Thirty three percent of a costly drug’s list price is a lot of money for most Americans who are not on Medicare. Pharmacy committees that place the drugs in tiers meet regularly. When the drug insurer also covers a person’s general medical care, committees realize some expensive prescriptions are not being filled. If a person can’t afford a needed medicine, the drug’s absence may allow their condition to become so bad that they need to be hospitalized. If that happens, the insurer will be on the hook for the cost of at least part of the resulting medical care. Thus these committees need to walk the tight rope between keeping their plan solvent and avoiding prices that make people choose between their money and their health.5
One variety of $60,000 to $100,000 per year drugs that are on the top tier are medications used to help prevent flares of multiple sclerosis. These are among the medications whose prices matter the most to manufacturers because they account for a major part of the profits. An estimated million Americans are living with the chronic neurologic condition. The cause is unknown but the immune system of people with the problem, attacks and destroys the myelin, the insulation that surrounds nerve fibers. Over time the axons, the part of the nerve cell that conducts electrical impulses, can be destroyed. “The disease has a highly variable pace and many atypical forms.16.” In 85% of the people neurologic deficits (which come in many forms and can be quite significant) come, stay for a while, and then disappear. Symptomatic remissions can then improve or disappear over a period of time.
A number of drugs that block parts of the immune system seem to minimize the flares. They are different in many ways, but each requires years of follow up on or off therapy to see if they prevent symptomatic flares or MRI changes. And each of them, for unclear reasons, costs about $62,000 a year6
CURRENT CASH PRICES FOR A ONE MONTH SUPPLY OF Multiple Sclerosis MEDICATION
DRUG NAME——-DOSE————-WALMART–WALGREEN
| Aubagio (Genzyme) | 14MG (30) | (Pharmacist could not locate in database) | $4,757.19 |
| Avonex (Biogen Idec) | Prefill 30MCG/0.5ML Kit | $4,877.08 | $5,058.19 |
| Betaseron (Bayer) | 0.3MG INJ (14) | $5,154.54 | $5,809.69 |
| Copaxone (Teva) | 20MG 1PK=30 INJ | $5,507.32 | $6,000.09 |
| Extavia (Bayer) | 0.3MG INJ (15) | $4,430.46 | $5,589.99 |
| Gilenya (Novartis) | 0.5MG CAP (28) | $5,372.18 FINGOLIMOD | $4,790.19 |
| * | … | … | … |
| Rebif (Merck KGaA/Pfizer) | 44MCG/0.5SYG INJ (12) | $5,150.54 | $5,304.49 |
| TysabriBiogen idec | $$5629.49 | ||
The man responsible for the 1990 law that ties the costs of drugs provided by Medicaid to the bargains obtained by insurance companies was Senator David Pryor. The son and grandson of sheriff’s, he was “arguably the most popular Arkansas politician of the modern era.” In 1975, when he was the state’s governor his “frazzled wife ran away from the state’s mansion and left her three sons in the care of her husband, setting Little Rock on its thoroughly Southern ear.” She went to school for two years, and produced a feature length film, a “kind of a witchcraft western”. Then she returned to her family “as a complete person.”14
As the Chairman of the Senate Special Committee on Aging, Pryor believed “the high cost of prescription drugs was one of the biggest problems burdening seniors.” He held hearings and “attacked drug Industry leaders.” Then he decided to help Medicaid—the government program for the poor and disabled. It covers the cost of nursing homes for many and is funded by the state and federal government. The feds on average, pay 57%, of the costs: 50% in wealthier states: up to 75% in states with lower per capita incomes. The program provides health coverage to about 64 million Americans.
In the late 1980s many states were in financial trouble. They tried to limit the use of prescribed drugs by people on Medicaid by creating “restrictive formularies, co-pays, and monthly maximums.” It didn’t work and their costs remained high. At the time states were paying full sticker price for prescribed medicine while insurance companies and the VA were often given discounts of 30% to 40%.
Two states tried to bargain with Pharma and were attacked by industry. Pharma argued that if states withheld “brand-name drugs without generic equivalents from a Medicaid enrollee (they would be) endorsing “second-class medical treatment for the poor.”
In the late 1980s President George H.W. Bush and his White House staff decided to “shrink the budget deficit by about $50.5 billion. The legislation they produced was “massive”– 533-pages long—“the 5-year Omnibus Budget Reconciliation Act (OBRA 1990)”. Its size and scope allowed Pryor and colleagues to add their “Medicaid Prescription Drug Rebate Program” to the bill. It granted Medicaid “most-favored customer” status, and required drug manufacturers to sell their meds to Medicaid at the “best price” available to any other purchaser. If a company wanted their products to be covered by each state’s Medicaid prescription program they had to accept the federal pricing provisions.
In 1992 Congress created the 340B program. It protected hospitals and some clinics from drug price increases.8
Countries around the world negotiate, but each nation does it a little differently:
- In most countries governments create formularies–lists of medicines they will, at least partially pay for.
- When a new drug is introduced in France the drug makers sign a series of five year price contracts.
- The Brits won’t pay for a cancer medication if an extra month of life costs too much. The country’s “excellence institute,” NICE, usually only approves drugs that cost less than 30,000 pounds ($39,000) per quality adjusted life-year, which is equal to a year of life in perfect health.”
The Brits with prostate cancer recently bumped up against the institute and refused to keep a stiff upper lip. Enzalutamide and abiraterone are expensive drugs. Each of them can stop the growth of castration resistant prostate cancer for months. They work in different ways and it’s possible that when one fails the other might still be effective.
Enzalutamide was approved by the British National Health Service in October 2013. The following January NICE tried to prevent the government from paying for Enzalutamide if a man in England or Wales had already been treated with another expensive drug for prostate cancer, abiraterone. Men in Scotland weren’t affected and they could still receive Enzalutamide. There was an outcry and a petition. Political leaders and “Tackle Prostate Cancer”, (an organization) protested. And NICE changed its guidance saying: “there is not enough evidence to make a recommendation about how the two drugs should be used.”
- https://www.kff.org/medicare/fact-sheet/an-overview-of-the-medicare-part-d-prescription-drug-benefit/
- https://www.pbs.org/newshour/health/why-a-patient-paid-a-285-copay-for-a-40-drug
- https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2019/02/12/drug-price-debate-targets-pharmacy-benefit-managers
- https://www.cbo.gov/system/files/2019-03/55011-Specialty_Drugs_WP.pdf
- https://www.brookings.edu/wp-content/uploads/2017/05/wp28-formatted-new_.pdfhttp://files.kff.org/attachment/Issue-Brief-Medicare-Part-D-A-First-Look-at-Prescription-Drug-Plans-in-2017
- https://www.healthline.com/health-news/ms-why-are-ms-drug-prices-so-high-071913#1
- https://dash.harvard.edu/bitstream/handle/1/8965555/Berman.pdf?sequence=1
- Discounted Drugs for Needy Patients and Hospitals — Understanding the 340B Debate. Walid F. Gellad, M.D., M.P.H., and A. Everette James, J.D., M.B.A. N Engl J Med 2018; 378:501-503 https://en.wikipedia.org/wiki/340B Drug Pricing Program
- https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4802694/ https://www.parliament.uk/documents/post/postpn_364_drug_pricing.pdf https://www.bloomberg.com/businessweek The Pharmaceutical Journal21 APR 2017 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4049385/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4802694/ UK: http://www.dailymail.co.uk/health/article-2702145/NHS-limits-use-prostate-cancer-drug-Guidelines-mean-life-prolonging-medicine-not-given-men-received-new-treatment.html#ixzz4ruOLMLao http://www.telegraph.co.uk/business/2017/07/15/nhs-became-embroiled-global-drugs-price-clash/ http://apps.who.int/medicinedocs/documents/s20974e http://apps.who.int/medicinedocs/documents/s20974en/s20974en.pdf
- NEJM Oct 10, 2019. https://www.nejm.org/doi/full/10.1056/NEJMp190979
- Unions and employers negotiate the price of group health care premiums. People who receive emergency care in an out-of-network hospital are sometimes presented with a crazy high bill—but the amount they pay is negotiable.
- Page 8 University of Maryland Health Advantage—2018 comprehensive formulary https://www.ummedicareadvantage.org/Portals/3/Documents/2018%20Website%20Documents/CIA%202018/March_CY%202018%20Comprehensive%20Formulary.pdf
- https://encyclopediaofarkansas.net/entries/david-hampton-pryor-118/ https://www.washingtonpost.com/archive/local/1979/03/16/barbara-pryor-is-back-as-a-complete-person/eca3ec90-0de8-4162-a40d-bd1ace642827/
- https://www.commonwealthfund.org/publications/issue-briefs/2019/nov/what-can-united-states-learn-drug-spending-controls-france
- Ellen Mowry, associate professor of Neurology–Johns Hopkins. (uptodate)
- https://www.who.int/medicines/technical_briefing/tbs/TBS2016_Pricing_Policies.pdf
- https://www.commonwealthfund.org/blog/2019/arbitration-answer-high-drug-prices
- https://www.nytimes.com/2006/05/24/washington/24bentsen.html https://www.nytimes.com/1989/10/09/us/retreat-congress-catastrophic-care-debacle-special-report-new-medicare-law-fell.html