It is almost impossible to read the news today without coming across an article about the high prices of drugs and various approaches to bringing drug prices down. I have discussed the general problem of drug prices in previous posts (Drug Prices and the Pharmaceutical Market, Pharmaceutical Pricing-- The Story That Just Keeps Going, and What the Market Will Bear: Pricing Pressures and Pharmaceutical Value). However, in today’s post I will briefly discuss two very different developments in the drug-pricing story. The first is a resolution aimed at pricing that was recommended for adoption by the American Medical Association (AMA) House of Delegates. The second development is the growing concern over the difficult-to-gauge gap between the list or “retail” price of drugs and the actual amounts paid by different payors.
On the first development, the AMA House of Delegates recently supported the adoption of Resolution 236 Retail Price of Drugs Displayed in Direct-to-Consumer Pharmaceutical Advertising. The text of the resolution as adopted is brief:
Resolution 236 asks that our American Medical Association advocate to the applicable Federal agencies (including the Food and Drug Administration, the Federal Trade Commission, and the Federal Communications Commission) which regulate or influence direct-to-consumer advertising of prescription drugs that such advertising should be
required to state the manufacturer’s suggested retail price of those drugs.
The AMA is a powerful lobbying group, but it raises the question of whether the FTC or the FDA has any authority to require the disclosure of retail prices in direct-to-consumer (DTC) advertising of prescription drugs. My quick response would be no–– neither the FDA nor the FTC has such authority. The FTC’s Division of Advertising Practices “protects consumers from unfair or deceptive advertising and marketing practices that raise health and safety concerns, as well as those that cause economic injury.” Accordingly, from the very beginning of DTC prescription drug ads, the FTC has aimed at ensuring that consumers are not misled or deceived: “In particular, it is important to protect consumers from deceptive information but not to stifle truthful information that could benefit consumers.” There is almost no chance that the FTC would find that an ad is deceptive or misleading because it fails to state the price of the item advertised. Similarly, the FDA’s focus in prescription drug advertising also is on ensuring that the ads are not misleading (and that they do not suggest the product can be used for conditions for which the FDA has not approved the drug). In my recent post on DTC ads A Better Balance Between Accelerated Access And High-Priced New Drugs: A New Conditional Approval Option I made the argument that those ads are generally misleading with respect to the effectiveness of the advertised drugs. So while it is significant that the AMA is continuing to express its concern about prescription drug prices, this particular action by the AMA is not likely to have any effect at all.
The other development I will briefly discuss in this post is the growing awareness of the gap between retail prices (such as those the AMA would like to see disclosed in DTC ads) and the prices actually paid by a variety of payors (the “price gap”). How big is the price gap? QuintilesIMS Institute addressed the question in its Annual Report Medicines Use and Spending in the U.S. (May 2017). The executive summary of the report began with what is truly the bottom line:
Spending on medicines increased by 5.8% to $450Bn in 2016, growing at less than half the rate seen in the last two years, based on invoice prices. After adjusting for estimated rebates and other price concessions by manufacturers, which continued to rise in 2016, net spending was $323Bn, up 4.8% over 2015 levels. When adjusted for these concessions, as well as economic and population growth, medicine spending increased 2.6% in 2016 and has increased by an average of 1.1% per year since 2006, while the balance of medicines being used has shifted strongly to specialty medicines from traditional treatments.
The Report then went on to summarize its findings with respect to year-over-year increases for drugs already in the market:
The average net price for brands already in the market is estimated to have increased by 3.5% in 2016, up from 2.5% in 2015, while remaining significantly lower than prior years. This reflects the heightened competition among manufacturers and more aggressive efforts by health plans and pharmacy benefit managers to limit price growth. Invoice price levels, prior to the impact of concessions, increased 9.2% in 2016…. [emphasis added.]
What are the takeaways from the IMSQuintiles Report? The ridiculous annual increases in retail prices for existing drugs (the 9.2% in the Report) are the attention-grabbing headlines of a number of stories on drug prices, but only the starting point for the price negotiations with payers and pharmacy benefit managers (PBMs). The price gap is a much more complicated part of the drug pricing story, which is closely linked to another major part of the pharmaceutical marketplace, the role of PBMs. Back in March, Bloomberg BNA reported that Senator Wyden (D.Ore) “proposed legislation that would force drug middlemen to disclose secret discounts they receive from manufacturers, a sign of growing scrutiny of the role played by pharmacy benefit managers in high prices.” Wyden’s proposal, S.637 - Creating Transparency to Have Drug Rebates Unlocked (C-THRU) Act of 2017 is, as the title suggests, about increasing transparency in prices (for Medicare Part D drugs), which in theory can lead to more negotiating power on the buyer side and lead to lower prices overall. This kind of transparency in the prices actually charged for drugs is very different from the “transparency” that is the subject of a number of state laws seeking to require disclosure of the costs of developing individual drugs. Sarpatwari et al reviewed those initiatives in The New England Journal of Medicine and pointed out the conceptual and practical difficulties with “cost of development” disclosure mandates. My own analysis is that transparency in the actual prices paid, which is the focus of the Wyden proposal would be helpful. Marketplaces require information to work. While much of the information needed for the pharmaceutical marketplace to work is information about the actual effectiveness of a drug, prices paid by other parties is also extremely useful. The problem of rising drug costs is unlikely to be solved by information about prices, but it would at least be a step in the right direction.