Hello, my name is Peter Pitts. I'm a former associate commissioner of the US Food and Drug Administration, and the president of the Center for Medicine in the Public Interest. What I'd like to talk to you about today is the very hot political topic of drug pricing.
It seems that whenever you pick up the newspaper, or turn on the television, or listen to the radio, or attend cocktail parties, the topic du jour relative to healthcare and healthcare reform most certainly is the price of drugs. This is becoming even more intense as we welcome in the new Congress and the new House of Representatives under Speaker Pelosi.
I suppose the best place to start is with the customer, with the client, with the patient. When most people say my drugs are too expensive, what they generally mean is my copay or my coinsurance is too expensive.
Yet, when you pick up and read a story about the newest cancer drug, or the newest drug for hepatitis C, or high drug prices writ large, the numbers that are thrown around are about the list price. That's relevant and it's interesting, but it isn't really the whole story.
It's like they say, everything you read in the newspaper is true, except for those things you know about personally. When you talk about drug costs, you need to focus on not just the list price, which is the big sexy sounding number, but how that number is discounted through payers and PBMs, through to pharmacies, and ultimately onto the patient in the form of their copay and coinsurance.
More and more, the average citizen, the average patient, is beginning to understand that the price of drugs isn't exclusively due to the list price that they might read about in the paper, or hear about from their friends and family, that it really is an ecosystem that lots of people touch.
That's certainly true when it comes to members of Congress. For the first time ever, probably in a serious way, last year Congress and the administration began talking about not just drug prices from a manufacturer perspective, but also from the PBM and the payer perspective.
Why aren't, for example, these double‑digit 20-, 30-, 40% discounts, 50% discounts being passed along in the form of lower copay and coinsurance?
For those companies doing business with the government, whether it's through Part B, or Part D, or other programs, obviously there's going to be legislative language, rulemaking language, that's going to guarantee that a certain percent of the discount offered by the manufacturer be passed down to the patient. That's a new piece of information.
Clearly, doing away with things like the gag rule is long overdue. Games are being played by everybody. The fewer of them there are, ultimately the better off the patient is. Now, we talked a lot during the debate over the Affordable Care Act, about bending the curve. That's certainly important.
Bending the curve looks at healthcare expenses from a 30,000‑foot level. While that is crucial, and absolutely must be addressed, the average voter, citizen, patient is not thinking that way. They're thinking about what's coming out of their pocketbook, out of their wallet, on a per regional basis.
Obviously, the higher the copay, the higher the coinsurance, the less likely it is that a patient's going to be compliant and adhering to their doctor's program. That has significant financial implications. Where are we going to go from here? I think the days of having one group point the fingers at the other is over.
It had a long and successful shelf life. Payers and insurance companies pointed the finger at pharmaceutical companies. Pharmaceutical companies didn't know what to do because they have to do business with payers and PBMs, so they don't want to bite the hand that feeds them.
At a certain point, the public perception of the pharmaceutical industry, at least as I see it, becomes so negative that it becomes deleterious to their ability to do business, and to deal with policymakers, regulators logically. I think what we're going to see as we move forward in 2019 with a new Congress, is a focus on drug prices.
I'll be curious to see how honest the various CEOs of innovative drug companies will be when they're asked why they're raising prices. Pfizer and other companies recently announced their 2019 price increases. Pfizer did a very interesting thing. They were honest.
They said that their drug price increases would result in a net corporate profit of zero. If you think about that, it opens up the conversation as to why that is. How can a company as large as Pfizer, or Merck, or Novartis, or Bristol‑Myers, Squibb, now plus Celgene, pick your company, how can they raise prices and yet their net profit is raised to zero?
To do that, you need to do the proper math. If you're going to do algebra, you need all parts of the equation to find X. In this case, how do you factor in discounts? How do you factor in formulary positions, and why that's relevant to discounting?
The things that were always kept very commercial confidential, things that were considered too complicated for the average person, the average legislator to think about, this is now clearly on the table. Certainly, for those payers and PBMs that are doing programs for state and federal governments, they're going to be playing under much brighter rays of sunlight.
The transparency regulations are going to have teeth, and people are going to want to know exactly what's going on. The theory here is that this will benefit the end user. Whether that results in being the case, I suspect, remains to be seen, but it absolutely is going to happen.
Initially, if you want to look back and say, "What really began this conversation?" I think you need to look back at the early days of this evolving conversation with this new discontinuous innovation within the hepatitis C group, where the large payer groups threw up their hands up and said, "Oh my God. $83,000 a pill. Can't afford it. It's going to bust the bank."
Very shortly afterwards, they recognized that the math of the cure versus a treatment that only 50 percent being the conjugated pegylated therapies, would pay for itself and then some. I was on a panel in Denver, when this first broke, with a Rocky Mountain PBM. They said, "Well, $83,000. We can't afford that. That's too expensive."
I asked the representative, "Well, most large PBMs receive significant discounts on this medicine. What's your discount?" "We get a 32 percent discount." I asked him, "What's 32 percent of $83,000?" She said, "I'm not sure." I said, "Well, somebody at your office knows the answer."
The dishonesty of harping on $83,000 a pill when, in fact, nobody paid, least of all the PBM was reimbursing at $83,000, began to make people realize that the canard of the list price versus the actual price was relevant. What also is going to come to bear here...This certainly brings in the Part B medications.
Can payers and PBMs continue to base their copay and coinsurance on the list price, even though that's not what they purchased the drug for? This can be clearly a case in 340B type programs, as hospitals come under the radar as well.
Clearly now with the HHS' new Inpatient Prospective Payment System, patients are going to begin to understand exactly what their costs per item are going to be when they consider going to the hospital, or in those areas where there's a choice choosing the hospital.
They're going to be shocked to learn that hospitals actually make money on the products that they use. In this case, specifically drugs and devices. It remains to be seen how they feel about that, or whether there's the ability to negotiate, or whether hospitals will use various types of pricing as competitive advantages over other hospitals in their region.
All this is really a relatively new thing. It's coming about because of this new concept of drug pricing as a healthcare ecosystem issue. Now, when you think about it, this does not sound revolutionary. It doesn't sound like rocket science. Unless you do think about it, you simply assume that the list price that you read about in the newspaper is the price that everybody pays.
That's not true, and it's never been true. Now, the pharmaceutical industries are smart enough to tee up the fact that they shouldn't be the only ones sitting in front of a congressional subcommittee, testifying on the cost of healthcare.
Clearly, we want to encourage innovation in all categories, certainly in orphan diseases and Alzheimer's disease, which unless we really focus in on it, is going to bury us all under the weight of that terrible burden, both from a societal standpoint and an economic standpoint. We all have to work together.
We're not going to get innovation on a discontinuous level that regularly, as you didn't have to see. We have to be willing to pay for incremental innovation because that's where the ultimate success comes year after year after year. All of a sudden, your five incremental innovations are working where you started, and it looks pretty discontinuous to positions.
Every time I speak to a reporter and I talk about the role of PBMs, payers, and pharmaceutical companies, they always ask me, "Well, can you give me examples on specific products, or services, or devices, and the discounts that they get that results in impact on the consumer?"
I really can't because these companies don't share their confidential information with me. The question becomes, will the government either on the federal or state level, or both, begin to share information based on their contracts with the various participants?
That would be very interesting. Once you make public these types of numbers, obviously, the negotiation process becomes much more complicated. People have more data points to fill in as they go forward to negotiate. How does that look over time? How does that look on a value‑based system?
If we're going to move towards a value‑based reimbursement system, we don't need to know only the price of the drug or the percent of the discount, but also the efficacy of the product that's being used. How's that captured and how's that shared? How do you do that within a HIPAA compliant way? How do you validate the data that you get?
We all agree that we want to pay for things that work, but value is in the eyes of the beholder. Perhaps a step forward...and this is probably a good place for me to conclude. As we move forward, it's in everybody's interest to understand that value, that positive patient outcomes are the denominator of this entire conversation.
The numerators are many, many different things that can include discounts, can include formulary positions, and can include all sorts of things, hopefully, all of which are legal. The denominator absolutely must be value‑based on positive patient outcomes. The technology is there to capture better information.
The systems are being developed to understand whether or not they are valid, and whether the information can be combined, and in what way. We're in for quite a ride. We're going to have to deal with the political, the regulatory, and scientific aspects of all of these issues.
It's worth it because we are in the business of advancing public health and making people's lives healthier and better. That's a never‑ending quest. It is almost a religious mission, which we should all remember that when we think about whether it's money first or patients first.
They're both important, but I think at the end of the day, therapeutic outcomes and driving better outcomes for every patient, needs to be at the heart of every conversation.
Thanks very much for your attention. Good luck and keep the faith.