Saturday 12 December 2015
The Coming Increased Transparency in Pharmaceutical Pricing in the United States?
Pharmaceutical pricing has been viewed as a black box type of affair. However, a recent Wall Street Journal article authored by Jonathan D. Rockoff titled “How Pfizer Set the Costof Its New Drug at $9,850 a Month” reveals some of the process for at least one drug. The author essentially observes that the process was mostly influenced by the price of other comparable drugs, the reaction of prescribing doctors to the price, and the amount of paperwork a health insurer may require a prescribing doctor to prepare to justify the medical necessity for the drug. The amount of work by Pfizer in assessing some of those concerns and others is impressive. The author makes a fascinating observation about his research: it seems that the price was not tied to the research and development cost for the particular pharmaceutical, which the author notes is the primary justification made by pharmaceutical companies for high prices. So, would this mean that if insurers increased the amount of paperwork for prescribing doctors for drugs that cost more than $5,000 that the price would drop? Could the solution be that simple? My guess is no. But, I do wonder about the amount of money expended on the marketing of new drugs. On the other hand, the claimed cost of developing new pharmaceuticals often includes the cost of failure as well as the cost to directly develop a successful drug. Moreover, it is clear from the article that commercialization costs, such as concerns about costly Food and Drug Administration trials are a large factor in bringing a drug to market. It also doesn’t seem to be much of a shock that the pricing of new drugs would include analyzing the price of similar drugs which possibly may be non-infringing substitutes.
The other interesting question is why the increased transparency now. Well, for one, U.S. Democratic presidential candidate Hillary Clinton has set her sights on the pharmaceutical industry. She has numerous proposals designed to lower the cost of prescription drugs, including reducing the exclusivity period for data for biologics. Some proposals are similar to U.S. Democratic presidential candidate Bernie Sanders' proposals described on this blog, here, and some take them another step. For example, one proposal focuses on pharmaceutical companies that receive Federal funding for research and development:
Clinton’s proposal would require pharmaceutical companies that benefit from federal support to invest a sufficient amount of their revenue in R&D, and if they do not meet targets, boost their investment or pay rebates to support basic research. If elected President, she will convene business leaders, experts on drug pricing, and consumer advocates to set new parameters for federal support in order to ensure this requirement. The basic principle is based on a provision of the Affordable Care Act that required insurance companies to pay rebates to consumers if their profits and administrative costs were an excessive share of benefits actually paid out to consumers.
PhRMA has strongly opposed Clinton’s proposals, here, and so has the Republican Party, here. The second reason for the transparency is the U.S. Senate’s recent hearings (started on Wednesday) on pharmaceutical pricing—which currently appear focused on generic pricing. I expect that we’ll see more—rather than less—information released about how companies are pricing pharmaceuticals very soon.