US drug pricing is on the verge of change

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Drug pricing is always a topic for discussion regardless of the country where you live.

The USA have long been considered as the most expensive country when it comes to drugs. Today, several initiatives are trying to contain their price and limit the explosion of healthcare expenditures. It is not easy and several political leaders failed in front of the powerful lobby supporting the pharmaceutical industry.

Maybe, instead of price cuts, we should think of more nuanced version of price control like value-based pricing or risk-sharing agreements.

An extremely interesting article explore the future opportunity of risk-sharing agreements in the USA. It is widely used in Europe as well as in other countries but shows a slow uptake in the USA. The conclusion of the article is positive as there is room for improvement. “Most manufacturers and payers expressed interest in RSAs and see potential value in their use. Due to numerous barriers associated with outcomes-based agreements, stakeholders were more optimistic about financial-based RSAs. In the US private sector, however, there remains considerable interest—improved data systems and shifting incentives (via health reform and accountable care organizations) may generate more action.”

However, despite hot debate launched by Hillary Clinton recently about drug pricing, the US Congress is still dominated by Republicans, who is completely supporting the pharmaceutical industry. Drug pricing and healthcare coverage will be one of the hottest debate question of the US Presidential Elections this fall.

Some articles are much less optimistic as they show that the bargaining power of private payers is far from sufficient to be able to negotiate discounts.

Drug pricing has to change in the USA because affordability and healthcare coverage will define the sales potential of the product. If the drug is so expensive that no one can afford it and no insurance will pay for it, it has no future sales opportunity. It is key to find a good balance between rewarding innovation and R&D efforts AND allowing patients to access the medicine and care they need.

 

Additional resources:

Private Sector Risk-Sharing Agreements in the United States: Trends, Barriers, and Prospects – American Journal of Managed Care – September 2015

It’s Time to Rein in Exorbitant Pharmaceutical Prices – HBR – September 2015

Why we can’t stop US drug companies from charging astronomical prices – Quartz – September 2015

Drug prices: Which companies may be the next targets? – CNBC – September 2015

Rational Drug Pricing – Huffpost Business – September 2015

Why Are Drug Costs So High in the United States? – Medscape – November 2014

High Cancer Drug Prices in the United States: Reasons and Proposed Solutions – ASCO – July 2014

Higher US Branded Drug Prices And Spending Compared To Other Countries May Stem Partly From Quick Uptake Of New Drugs – Health Affairs – April 2013

Pricing and Reimbursement in U.S. Pharmaceutical Markets – NBER – August 2010

 

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A Better Understanding of the US Drug Pricing Landscape and Financial Risks Associated – Health Affairs Blog

An excellent article posted on the Health Affairs blog takes a step back regarding US drug pricing and the financial risks associated with drug development well beyond the clinical trials stage.

Key quotes from the article:

  • It may be helpful for the policy discussion to think of a drug’s value as the clinical performance and patient outcomes, while the price reflects both the value and the growing uncertainty around in-market risks of market consolidation and restricted access, branded therapeutic competition, mandatory discounts, and restrictive coverage policy.
  • As competition heats up, each sector and each entity strives to reduce input costs and maintain or improve prices — and consolidation can be an important tool to accomplish these goals. Specific to biopharma, consolidation strengthens payers’ and providers’ ability to press for drug discounts that are contractual, proprietary, and confidential.
  • Net lifetime revenues of new biopharma therapies declined from profitability in the late 1990s to slightly negative profitability by the end of the first decade of 21st century.
  • In addition to cross-sector market competition through payer and provider consolidation, there is growing intra-sectorial competition among generics, biosimilars, and branded therapeutic alternatives.
  • We should not underestimate the potential effect of mandatory price discounts on drug launch prices.
  • In-market risks for biopharma are very significant today. Because of rapid changes in the market environment, revenue expectations established when the decision is made to proceed with product development can be very different than actual revenue several years later when a product is launched.

 

Additional Resources

When Is a Virtual Business Model Suitable for Biopharmaceutical Companies? – BioProcess International – 2015

Understanding the pharmaceutical value chain – IMS Institute for Healthcare Informatics – 2014

Innovative Business Models in the Pharmaceutical Industry: A Case on Exploiting Value Networks to Stay Competitive – International Journal of Engineering Business Management – 2014

The Real Cost of “High-Priced” Drugs – Harvard Business Review – 2014

Rapid growth in biopharma: Challenges and opportunities – McKinsey – 2014

 

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Effect of price caps and reference pricing on generics entry – GABI

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A fascinating article on GABI Online and study written by researchers on the effect of price caps and reference pricing on generics entry. Another study is also available here.

The key points (quotes from the article):

Question: how the use of a price cap along with reference pricing affects the entry of generics after patent expiry?

Answer(s):

  • For reference pricing to stimulate generics entry, the price effect needs to be sufficiently small relative to the demand effect.
  • If price cap regulation is introduced, the negative effect of reference pricing on generics entry can be reversed, and that reference pricing is more likely to result in cost savings than under free pricing.
  • If the price cap is sufficiently strict, introducing reference pricing may actually increase the number of generic drugs on the market.
  • The reason for this is that binding price cap regulation reduces the brand-name price difference between reimbursement schemes with and without reference pricing. Generics makers may therefore obtain higher market shares under reference pricing. Reference pricing is more likely to stimulate generics entry and facilitate cost savings when prices are regulated than in the free pricing equilibrium.

These studies show the price dynamics in the pharmaceutical markets and the impact of price control tool ont generics entry.

 

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