More change needed to make US pricing truce permanent

Drug price inflation has slowed to crawl, but political pressure can only keep a lid on costs for so long.

Years of rhetoric over US drug prices are finally yielding concrete action, with the federal government’s adjustments to increase pricing transparency and improve competition for biologicals.

Big pharma appears to have heeded the message, with several companies agreeing to defer price increases last week. But in truth drug price increases had already slowed to a crawl (see graph below). And this is far from a guarantee of a lasting change – biopharma companies could quietly raise prices again once the heat is off. If the administration is serious about long-term price restraint it needs to do more than just talk.

Pharma’s latest charm offensive might simply be an attempt to head off more action by the administration. And there are questions about how much the US government can actually do to, for example, stimulate sales of cheap biosimilars that in theory can bring costs down. The fragmented US health insurance system gives pharma numerous leverage points to extract price increases, meaning that government has its work cut out if it wants to see a lasting effect.

Still, pharma seems to have called a truce, at least temporarily. Pfizer’s chief executive, Ian Read, was the first to pledge to defer price increases, and executives from Johnson & Johnson, Merck & Co, Novartis and Roche have taken this as a cue. Mr Read, it should be noted, is the sector’s most assertive advocate of higher drug prices, citing the value that medicines deliver to the healthcare system.

Slowing

A look at the data suggests that a slowdown was already happening. From July 2017 to June 2018 the consumer price index for prescription drugs climbed a cumulative 2%, with prices going into reverse in March and April. So far 2018 looks a lot like 2013, when the loss of market exclusivity for such mega-blockbusters as Lipitor, Plavix, Seroquel and Cymbalta kept price growth down to about 1%.

 

Of course there is a difference between the pure economic factors behind 2013’s slowdown and today’s politics-driven voluntary price holds. Providing signs that the latter might be fleeting, Merck’s price cuts involved the old hepatitis C drug Zepatier and six drugs worth just $12m in annual sales, while Roche’s pledge not to raise prices for the rest of 2018 came after it had already made the second of two price hikes it normally takes every year.

Pharma has shown that it can be adaptable. It is worth pointing out that some of the biggest monthly increases in the past decade came in July and August 2016 in an apparent attempt to pre-empt incoming price controls. At the time, it was widely thought that Hillary Clinton would be elected president and that the federal government would give public health programmes more leverage in negotiating prices.

While President Donald Trump’s rhetoric around drug pricing appears to be doing its job at the moment, political pressure can last only so long before policymakers move on to more pressing issues – and a shift in the spotlight could allow pharma to resume business as usual. 

Still, minor steps taken in the past week could help to break some protected markets, although these might have a limited effect.

Reversing rebates

First of all, the inspector general of the US Health and Human Services office, the department’s legal enforcement arm, has notified the White House that it plans to withdraw authorisation for biopharma companies to offer price rebates to health plans and pharmacy benefit managers in Medicare and government health plans.

Because little is known about what HHS is planning, the rebate limitations could even extend to commercial health plans, Eli Lilly’s general counsel, Mike Harrington, said during the company’s quarterly earnings call today.

Rebates have come under sharp criticism for helping to drive inflation in list drug prices, and thus patient cost-sharing because co-insurance is based on the list, rather than the net price paid (Vantage view – Why eliminating rebates won’t solve the US pricing problem, June 28, 2018).

But ending rebating could take some time, according to Rick Weissenstein, an analyst at Cowen Washington. Reviewing the new regulation and allowing public comment means that it will probably not be effective until 2020. Nevertheless, this could still be early enough to provide some cost relief to Medicare beneficiaries before the presidential election that year.

Moreover, the “rebate trap” has been cited as one reason why US biosimilar takeup has been slow. Because rebates are built around volume, switching patients to biosimilars on a piecemeal basis is actually reckoned to be costlier than keeping all patients on the original brand. Only a 100% switch to a biosimilar could save money – a move that would be resisted by physicians treating chronically ill patients who are stable on branded drugs.

Biosimilar action plan

Increasing biosimilar use is another component of the current effort, with the US FDA having put out an “action plan” that aims to break some of the roadblocks here and force branded biological agents to compete on price. 

Because so many of the barriers to biosimilar use are commercial rather than regulatory, Bernstein analyst Ronny Gal wrote that the FDA was “doing what they can from the wrong seat”; the Federal Trade Commission and the US Justice Department’s antitrust divisions are more likely to be able to address anti-competitive actions, if indeed any exist.

Nevertheless, Elaine Blais, an attorney at Goodwin Proctor, reckons the FDA commissioner, Scott Gottlieb, should say that the agency wants to work closely with the competition authorities. “I would take it as a signal that FDA is paying attention, and if there are shenanigans [in drug applications] they will refer it on to the FTC,” she told EP Vantage. 

Ms Blais’s colleague Nick Mitrokostas added that the biosimilar plan’s focus on standardised review procedures could help prevent applicants from receiving complete response letters on initial assessments, something that has been a stumbling block in the space.

And Ms Blais pointed to physician education initiatives, aimed at overcoming physicians’ reluctance to prescribe biosimilars.

Other programmes in the action plan include improving the information on intellectual property in the FDA’s Purple Book, and data sharing with overseas regulators to allow use of non-US licensed branded biologicals to support US biosimilar applications.

In total, Bernstein’s Mr Gal called the changes “necessary, incremental and likely insufficient to drive market conversions”. Mass migration to biosimilars has occurred outside the US because of national price negotiations, the one tool that many US policymakers refuse to embrace.

Mr Trump’s bully pulpit has managed to slow pharma price increases to a crawl this year. But this will last only as long as biopharma’s chiefs believe that there is more mileage in pleasing the White House than investors – and will change if price freezes result in poorer earnings and investors begin to pile the pressure on. 

And, when politics no longer keep prices in check, the only thing that will hold them back will be the same old market dynamics of payers versus pharma.

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