US drug pricing is on the verge of change


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


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?


  • 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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Memorial Sloan Kettering Cancer Center Interactive Drug Calculator – What will it bring?


A lot of buzz has been around these days about an initiative launched by a well-know cancer center. We take a step back and think about the rationale and the benefits.

The Memorial Sloan Kettering Cancer Center launched an interactive cancer drug calculator comparing the cost of several cancer drugs with a “fair” price based on factors such as the benefits (extended life expectancy for example) and the issues (like the side effects, development costs,…). The calculated price and the official list price do not match in many cases.

The concept

The rationale

Several doctors, especially oncologists, complained and are still angry about the escalating costs of cancer drugs in the US. It is not rare to see price tags around USD 100’000 per patient per year of treatment. It is clearly unsustainable for the whole system and could be a huge issue for patients as they are required to pay a portion of the cost. See more in one of my past blog posts.

The project leader, Dr. Peter Bach, said: “Prices for many new cancer drugs don’t reflect their value to doctors and patients. Right now, manufacturers have total price control, and total control of prices has led to irrational pricing behaviors.” This situation is not easy to manage.

With the Abacus Tool, we can see the official list price and the “abacus” price, that will be determined by different factors chosen by the user.

The benefits

This tool reflects the implementation of value-based pricing, discovered by M. E. Porter. More on this concept by following this link.

As said earlier by Daniel Goldstein, “currently cancer drug prices are not linked to the benefit they provide. They’re priced on what the market can bear, which is an unsustainable system.”

Patricia Danzon agrees and states that “assigning a monetary value to an additional year of life and discounting a drug’s toxicity should be key components of any pricing system.”

Each user will find a different price depending on the value of each factor he/she decides to select. It is a real personalizable tool for each individual confronted to cancer and its financial burden.


Paying for a specific value is true in any industry apart from the pharmaceutical area. Value-based pricing should be put in place to bring benefits to patients as well as to guarantee the reimbursement of life-saving treatments to each person without destabilizing the health system budget. The ASCO initiative is also working on a conceptual framework to assess the value of cancer drugs (see below).

The value-based pricing for drugs will work its way and it is definitely worth it for all the stakeholders!

Additional resources

‘Financial toxicity’ looms as cancer combinations proliferate – Nature Biotechnology (subscription required) – 2015

How Much Should Cancer Drugs Cost? – 2015 – WSJ

Another initiative by ASCO: American Society of Clinical Oncology Statement: A Conceptual Framework to Assess the Value of Cancer Treatment Options – 2015 – Journal of Clinical Oncology

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Addressing the Financial Burden of Cancer Treatment – From Copay to Can’t Pay – JAMA Oncology


Cancer care is not only about individual health but also financial health

A new article in JAMA Oncology is raising awareness of the disastrous consequences cancer treatment could have on the financial health of patients.

There is substantial evidence that high financial burden could lead to decreased clinical benefits due to poor treatment adherence and deteriorating quality of life. This is a challenge for oncologists as they are looking to provide the best care for each patient. But what happen if she or he cannot afford it?

The authors suggest several measures to improve patients’financial health:

Restructure cost sharing and insurance design. Due to the current US insurance system designed with deductibles, copays and tiering, cancer patients could face extreme financial burden and, consequently poor health outcomes. Deteriorating health is tied to unaffordable treatments involving lack of adherence.

Eliminate low-value prescribing practices. Common high-cost practices that do not improve clinical outcomes should be excluded in order to preserve patients’financial health.

Create tools to evaluate patient risk regarding financial distress. The routine assessment of financial health should be done early and, if necessary, patient could be addressed to dedicated programs to facilitate care access like patient assistance programs offered by charities.

Improve cost transparency. Providing this information as well as out-of-the-pocket cost information are valuable and allow patients to choose healthcare providers to minimize the impact on their personal budget.

Provide financial counseling as part of cancer care. Patients need to understand what impact(s) their cancer diagnosis could have on their private life (employment, future income, family financial security,…). It is crucial in order to avoid financial pressure and improve planning for the patient’s family and relatives.

Express Scripts is also concerned about the price of cancer drugs as shown in a recent article. As a payer, it would like to really focus on value-based reimbursement and implement indication-based formularies. They will allow to better decide on which treatment/drug works best for which patient. Today, several tools are available to improve treatment decision like tumor testing, genetic analysis, predictive analytics,… Integrated care along with better claims management will complement the measures discussed above in order to provide real solutions and benefits for the patients.

Additional resources

1,495 Americans Describe the Financial Reality of Being Really Sick – NYT – 2018

Out-of-Pocket Costs, Financial Distress, and Underinsurance in Cancer Care – JAMA Network – 2017

Cancer patients skipping medicines or delaying treatment due to high drug prices – STAT News – 2017

Financial toxicity: 1 in 3 cancer patients have to turn to friends or family to pay for care – STAT News – 2016

Drug Abacus – Interactive Exploration of Drug Pricing – 2015 – Memorial Sloan Kettering

How Much Should Cancer Drugs Cost? – 2015 – WSJ

New Cancer Drugs are Expensive, but Price Controls are Misguided – 2015 – Forbes

Cost of Cancer Drugs Should Be Part of Treatment Decisions – 2015 – ASCO

Pricing in the Market for Anticancer Drugs – 2015 – Journal of Economic Perspectives

The High Cost of Cancer Drugs and What We Can Do About It – 2012 – Mayo Clinic Proceedings

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Healthcare – From volume to value – NEJM

stethoscope on open book on a white background

Behavioral economics and physician compensation…

… is the title of an article published last week in the New England Journal of Medicine.

Switching from fee-for-service to value-based payment or pay-for-performance will change the behavior of doctors in prescribing tests, procedures and drugs. As mentioned in the article, “fee-for-service reimbursement tends to promote well-compensated procedures.” Value-based payment will focus on patient outcomes and will drive a change in decision-making. Incentives will be different and drive the behavior of doctors, but incentives are strongly needed to help transition from one system to the other.

Behavioral economics views incentives as fundamental determinants of behavior, but it can help elucidate how the timing, frequency, and amount of payment influences behavior; how to address unintended consequences of incentives; and how to create environments supporting better decision-making.”

Deviations from rational decisions are often triggered by context and benchmarks. Several measures can be implemented to go over these deviations, the article highlights some of them:

– the power of default. By default, when prescribing a drug, the information system shows the generic instead of the brand;

– the loss aversion. Giving payments in advance of mandatory behavior (hand hygiene, electronic prescribing,…) pushes doctors to adhere to guidelines in order not to lose the money won;

– the incentives series. Giving payments in small and fragmented quantities is more efficacious than in larger amounts because immediate feedback is needed to influence behavior;

– the positive self-image. “Pairing performance incentives with appeals to self-image and professional identity provides an additional lever for meeting quality and efficiency goals. Making public some component of physicians’performance, at least within organizations, may enhance the effect of monetary incentives.”

The conclusion speaks for itself: “Not all clinical decisions will or should be amenable to interventions based on behavioral economics insights, but for some transformations in health care delivery and payment, such insights may be a powerful force for change. One challenge is identifying the clinicians, patients, and system inefficiencies for which incentive payments can be most helpful.”


Additional resources

Should the U.S. Move Away From Fee-for-Service Medicine? – 2015 – Wall Street Journal

The Behavioral Economics Guide – 2014 – A. Samson


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Economic crisis, health systems and health in Europe – WHO European Observatory


How did European Countries cope with the economic crisis and its impact on their national health system?

The last report published by the WHO European Observatory on Health and Health Systems on the impact of the economic crisis on health and health systems allows to take a step back and look at the deterioration of health care in the context of an economic crisis over the last few years in several European countries. It is a desk reference where it is easy to pick the country or the countries that are of interest. Austerity measures have a huge impact on the quality as well as quantity of care in specific countries. Too much cost cutting leads to catastrophic situations, like in Greece.

The structure of the report:

– In the 1st part of the report, 9 countries were chosen for in-depth analysis: Belgium, Estonia, France, Greece, Ireland, Latvia, Lithuania, Netherlands and Portugal. These are probably the most impacted by the economic crisis.

– In the 2nd part of the report, all the countries are covered with regards to their response to the crisis. For each country analyzed in this part, economic trends are evaluated as well as policy responses. Changes are then detailed by category: adjustments to public funding for the health system (budget cut, reforms, subsidies, insurance premiums, cost-containment measures,…), variations to health coverage (population, benefits, user charges,…), revisions to health service planning, purchasing and delivery (price of medical goods, salaries and motivation of health sector workers, payment to providers, overhead costs, provider infrastructure and capital investment, priority setting to change access to treatments, waiting times, prevention,…).


Additional resources:

Health and Financial Crisis Monitor – Always up to date

Systematic Review on Health Resilience to Economic Crises – 2015 – PLOSOne

Health, Austerity and Economic Crisis – 2014 – OECD Health Working Paper n. 76

European economic crisis and health inequities: research challenges in an uncertain scenario – 2014 – International Journal for Equity in Health

Effects of the economic crisis on health and healthcare in Greece in the literature from 2009 to 2013: A systematic review – 2014 – Health Policy

Impact of Austerity on European Pharmaceutical Policy and Pricing – 2013 – Deloitte Centre for Health Solutions

Financial crisis, austerity, and health in Europe – 2013 – The Lancet

Global Health and the Global Economic Crisis – 2011 – American Journal of Public Health


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The $2.6 Billion Pill — What’s behind this number – NEJM


Scrutinizing the numbers

Experts are putting into question the number released as well as the methodology used by researchers at the Tufts Center for the Study of Drug Development. Actually the Tufts announced last November it had calculated the cost of developing a new drug: USD 2.6 billion.

Jerry Avorn is not the first person suspicious about this figure. Several years ago in BioSocieties, the journal of the London School of Economics and Political Science, Donald Light and Rebecca Warburton dissected the high costs of drug development in an article: “Demythologizing the high costs of pharmaceutical research“.

Along the same line of thought, Jerry Avorn is making some thought-provoking points about the Tufts number in a NEJM Perspective article. I summarized them below:

limited analysis to “10 unnamed drug makers provided on 106 unnamed investigational compounds that they had self-originated.”

transparency issue: “numbers on which the analysis is based are not available for transparent review.”

capital costs were not updated to take into account the current interest rates: “capital costs were assessed at 10.6% per year, compounded — despite the fact that bonds issued by drug companies often pay only 1 to 5%.”

lack of consideration for “large public subsidies provided to pharmaceutical companies in the form of research-and-development tax credits or substantial payments received from the federal government for pediatric clinical activities.”

no acknowledgment for “drug-development costs borne by the public for the large number of medications that are based on external research that elucidated the disease mechanisms they address.”

opportunism by industry players as “some of the most important recent new medications were not developed by large drug manufacturers but were acquired through purchase of the biotech firms that discovered them. These, in turn, are often spinoffs based on the discoveries of NIH-funded university research laboratories.”

Beyond these methodological issues, there are two interesting points taken from the Tufts analysis:

1. The time to get the regulatory green light has been shortened allowing drugs to be quickly available for marketing (theoretically because market access hurdles remain).

2. “The most expensive weakest link points to the limits of companies’ ability to efficiently choose compounds for development and to identify adverse effects or limited efficacy earlier in the development process”. There is a clear need for better productivity processes and improved decision-making at the core of Big Pharma R&D centers.


Jerry Avorn is asking for more transparency and accuracy in the determination of the costs linked to the development of a new drug as it will lead to a better understanding on what are the key drivers and what could be done to support the most useful R&D efforts.

This will definitely help the society to contain healthcare costs and give patients a real value added as well as improved outcomes.


NEJM Article (free)

Biosocieties Article (free)


More resources on Drug Development Costs

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

The Ugly Cost Of Developing New Drugs — Can We Make It Prettier? – 2014 – Forbes

Does it really cost $2.6 billion to develop a new drug? – 2014 – Washington Post

The Cost Of Creating A New Drug Now $5 Billion, Pushing Big Pharma To Change – 2013 – Forbes



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Global Oncology Trend Report 2015 – IMS Institute for Healthcare Informatics


A must-have in oncology market analysis

A new report has been published by IMS Institute for Healthcare Informatics about trends in oncology.

It is really informative (stats, charts, visuals…) and insightful. An outstanding overview of what are the main trends (biomarkers, complexity…), the challenges (financial burden, expenditures…) and the opportunities (improved survival, new approaches…) in oncology today.

Key points

biomarkers are more widely used in treatment selection, especially for tumor types with low survival rates and few treatment options;

– new complexity for doctors, payers and patients;

– rising expenditures dedicated to cancer care linked to earlier diagnosis, longer treatment duration as well as increased effectiveness of drug therapies;

USD 100 billion of cancer expenditures registered for 2014 (CAGR 2009-2014: 6.5%);

– increasing financial burden faced by patients (patient access varies widely by country);

– growth in the use of social media by patients in order to find support to cope with their disease;

rise in 5-year survival rates for major cancers;

– promising new approaches in immuno-oncology.

The report

Global Oncology Trend Report 2015: IIHI_Oncology_Trend_Report_2015


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How to create value for drugs? Comparative effectiveness and improved patient consideration – Office of Health Economics

microscopeFuture expectations for new drugs – 3 new papers written by the experts from OHE

A series of three articles exploring future expectations for new drugs of evidence of relative effectiveness in Europe and comparative effectiveness in the USA in 2020 have been published in the Journal of Comparative Effectiveness Research.

In a value-based and outcomes-based health care environment, there is a mandatory requirement for pharmaceutical companies to demonstrate the value of their products not vs. placebo but vs. the current standard of care.

Key questions must be answered:

Market Access

Source: Bridgehead Oncology Workshop, London 2012.

As mentioned in our page on Strategy & Vision, an increasing focus and trend toward value-based healthcare initiated by M. E. Porter will really make a difference for our health systems. We will stop paying for me-too products and pay only for value-added products that will bring real outcomes for all the stakeholders.

We will also probably be much more patient-centric in the future and use patient value to better select relevant projects as described by Stuart Dollow in his recent blog post on Prioritising Projects by Predicting Patient Value. Considering the patient as a partner and valuing his/her opinion to target precisely his/her needs as well as the clinical requirements will push the pharmaceutical industry toward more value generation because of the integration of the related stakeholders in the development process.

OHE Article (where you can access all the articles and working papers) – To download working papers you have to register (it’s free).

Direct Access to the Articles

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WHO urges Europeans to work together to counter high drug prices – Reuters

More collaboration, more transparency & more value for money

DoctorsPatientsThere is a lot of fragmentation in European healthcare systems. Some of them have very comprehensive methodologies to assess the value of medicines, others are lacking these processes. Moreover, drug supply and prices are negotiated between stakeholders without making discounts and rebates publicly available.

Assessing the economic benefit of drugs is crucial today.

The last link is very interesting as it will land you on the page of the European Observatory on Health Systems & Policies website where you could find resourceful reports on health systems currently established in Europe.

Reuters article    WHO website    European Observatory on Health Systems & Policies website

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The true value of a life is not about the pharmaceutical costs – Financial Times

Drug pricing should be re-thought & Government should commit more according to John Kay

lifeA very interesting article in the Financial Times written by a well-known economist, John Kay, about life.

His conclusion: “Perhaps the greatest challenges in modern healthcare are not those of meeting the spiralling cost of advanced medical technologies. They lie in accepting that we are all going to die, and learning to do so with dignity.”

The business model of the pharma industry is based on drugs against chronic diseases (mass markets). Huge volumes of pills at moderate prices = covering the expenditure involved in drug development and clinical trials + good profits. However, less and less drugs fit that model, especially with the emergence of personalized medicine (drugs tailored to the specific DNA profile of each patient).

John Kay is talking a lot about Sovaldi (an HCV drug marketed by Gilead) and its very high price point. Personally, I think that despite the high price, this drug will cure people and it’s worth the spend. On the contrary, cancer drugs only prolong life without curing and, maybe, without a decent quality of life for the patient (especially at the end), and they have extremely high price tags. Another example: antibiotics. They have low price tag and they cure and very often save the lives of people.

As quoted by John Kay: “Perhaps governments should finance the payment of a national licence fee for drugs, with supplies then made available at a price close to production cost. A rising proportion of medical expenditure is now devoted to prolonging the lives of the very old and the terminally ill. The costs of this are potentially unlimited.”

I expect a real rethink of the whole drug pricing system. We should pay for the outcomes, for the real value delivered to the patients and the healthcare system.

FT article    Link to the article on John Kay website

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From Fee-for-Service to Fee-for-Value – Strategy+Business

Medicare is starting a new paradigm in paying for healthcare – focus on outcomes and not volume

SuperiorAppliancesSwitching from volume-based to value-based payments is key to the sustainability of the healthcare system. Why? Because all the healthcare providers will be encouraged to focus on the outcomes for the patients instead of the number of procedures undertaken for him or her.

It is not a new principle: the first author who has been speaking about Value in Healthcare is M. E. Porter in 2006 when he published a book about it. Since then, he committed a lot to raise the awareness about the importance and extent of this concept. He founded the Harvard Institute for Strategy and Competitiveness which dedicates a research area to healthcare.

I think it is really the direction where we have to go if we want to provide care to all people without wealth discrimination.

Strategy+Business article

How can we address the high price of cancer drugs? – Mayo Clinic

The high price for cancer drugs is not only a burden for patients but also for the whole society

Affordability is one of the key word coming back every time we speak about cancer drugs. This time, oncologists are joining the cancer price revolt. The Mayo Clinic published a 4-minute video really worth watching and an article detailing all the points where oncologists can act upon.

Cancer care is not only the issue for the patient but for all the stakeholders (doctors, healthcare providers, insurances, governments, relatives,…). We all need to team up to find solutions. Mayo Clinic is giving us a starting point.

The Mayo Clinic Article    The Mayo Clinic Proceedings Article

U.S. Rx Spending Increased 13.1% in 2014

The Express Scripts Drug Trend Report shows amazing trends

Charts3The 19th edition of the Express Scripts Drug Trend Report reveals new hepatitis C therapies with high price tags and the exploitation of loopholes for compounded medications drove a 13.1% increase in U.S. drug spending in 2014 – a rate not seen in more than a decade. Hepatitis C and compounded medications are responsible for more than half of the increase in overall spending. Excluding those two therapy classes, 2014 drug trend (the year-over-year increase in per capita drug spending) was 6.4%.

The Report    The Summary