Allergan's Social Contract: Replace Rebates With Increased Patient Protection From Drug Prices

  • by: Robert Goldberg |
  • 09/08/2016
Allergan CEO Brent Saunders published a social contract with patients on his corporate blog.   In doing so, Saunders demonstrates that the first question for a leader always is: 'Who do we intend to be?' Not 'What are we going to do?' but 'Who do we intend to be?

Saunder's begins by noting that large price increases undermine the mission of medical innovation:

“Basically, in this social contract patients understood that making new medicines required significant investment.   At the same time companies, doing the hard, long and risky work of bringing new medicines to market, understood that they had to price medicines in a way that made them accessible to patients while providing sufficient profit to encourage future investment.  It was designed to be a win-win-win.  New medicines for patients.  Lower overall cost or damage of disease.  An appropriate return on capital for those taking risk by investing time and talent in the arduous and uncertain task of developing new treatments.

Those who have taken aggressive or predatory price increases have violated this social contract!

I don’t like what is happening, and despite the fact that it is hard to speak out publicly on this, now is the time to take action to spell out what this social contract means to me.  By doing so, I am conveying to my Allergan colleagues that we must keep this social contract in mind as we make business decisions that ultimately improve wellbeing, and as a result, address the hopes others place in us

Saunders first observes that “large payers making decisions that may limit patient access to our medicines in favor of a competitor based on the latter’s willingness to pay more rebates.  In order to ensure that patients and physicians have access to a full array of medical options, we believe that these intermediaries should have open access to formularies whenever possible. “

In the main however, he discusses what his company will do to reinvigorate the social contract with patients: 

We commit to these responsible pricing ideals for our branded therapeutics.
•    We will price our products in a way that is commensurate with, or lower than, the value they create by mitigating or avoiding the need for other treatment modalities or providing better quality of life to those patients without other treatment options.
•    We will enhance access to patients.  This means that Allergan will enhance our patient assistance programs in 2017 to match the current industry leader(s).
•    We will work with policy makers and payers to facilitate better access to our medicines.
•    We will not engage in price gouging actions or predatory pricing.
•    We will limit price increases.  Where we increase price on our branded therapeutic medicines, we will take price increases no more than once per year and, when we do, they will be limited to single-digit percentage increases.  Our expectation is that the overall cost of our drugs, net of rebates and discounts, will not increase by more than low-to-mid single digits percentages per year, slightly above the current annual rate of inflation. 
•    We will not engage in the practice of taking major price increases without corresponding cost increases as our products near patent expiration. While we have participated in this industry practice in the past, we will stop this practice going forward.  Where new regulatory requirements impose added costs, we will seek to reflect those costs in our pricing.
•    We commit to providing an aggregate view of the net impact of price on our business at least annually.

Three quick observations:

1.    Every biopharmaceutical company should take or make the same pledge.   Failing to do so is tantamount to siding with price gouging. 
2.    To limit out of patient of pocket costs Allergan will consider taking the rebates now pocketed by PBMs and insurers and give them directly to patients in the form of increased patient assistance. Other biopharma companies should make the same pledge.
3.    The Allergan social contract includes ensuring that the increased cost of government regulation not be passed on to consumers whenever possible and to limit price increases net of rebates.  See point 2 for how this will be done. 

If most drug companies adopt and live up to the Allergan social contract it would be the most disruptive and positive step the industry has ever taken to establish its value.    

Ultimately, biopharmaceutical companies will need to replace the current business model in which hundreds of billions in rebates go to corporate profits, not patients and in which so-called drug value framework builders are focused on driving down drug prices to increase rebates under the guise of making drugs affordable to patients.   

Hence, the social contract developed by Brent Saunders is also a call to replace a business model that has become financially and morally unsustainable.  To increase and accelerate access now, companies have to reward insurers and PMBs less and help patients more by reducing the cost (and increase in cost) of medicines.  Otherwise any social contract with patients will be an exercise in hypocrisy.  

Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.

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