Getting schooled on drug pricing

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  • 09/04/2014

Thought provoking lead story in this week’s edition of BioCentury, Back to School Issue: Paying the piper. Here’s the challenge:

Pharma has lost its pricing power in many countries, as evidenced by reimbursement authorities' willingness to delay or outright deny access to drugs whose costs are deemed unacceptable. Now, the availability of a costly drug in the U.S. that could be given to millions of people has sparked the strongest backlash against drug pricing the industry has yet faced - in the last major market where the government has not adopted any form of drug price controls, according to the U.S. Department of Commerce.

Last year, in "Facing Reality," Back to School argued biopharma companies can no longer assume the market will support premium pricing, even for drugs that deliver meaningful and measurable improvements over the standard of care.

This year, BioCentury's 22nd Back to School essay goes on to argue that the last bastion of free pricing is crumbling, and biotech and pharma had better start experimenting with new pricing models based on value for money while they still have the chance.

And here’s the conclusion:

Back to School does not suggest drug pricing and reimbursement can be fixed easily, and certainly not by the drug industry on its own. Finding approaches that will get new and better medicines to patients sooner, that compensate companies for the health benefits their drugs provide and that don't break the bank will come only through vigorous and collaborative experimentation.

Nevertheless, unless it pursues experiments with the explicit goal of creating a win-win for payers and patients as well, the drug industry can expect controls on prices and utilization to be applied with indiscriminate force in markets worldwide.

Biopharma's brightest minds are hard at work discovering and developing breakthrough medicines. It will be a pitiful shame if patients are denied access because the industry's brightest marketing minds are not creative enough to devise models that will enable healthcare systems to pay for these transformations in healthcare.

What industry needs are brave individual first-movers to get to work on new pricing models that will preempt a cost-plus system and preserve incentives for innovation.

Back to School has described three places where drug companies can blaze the trail.

First, they should pioneer value-based approaches that wed drug prices to the patient- and payer-defined value of outcomes, rather than to the volume of drugs consumed or, in the emerging worst case scenario, the costs to develop and produce them.

Second, drug companies should take the lead on making risk-sharing a reality, not just a catch-phrase for discounts and rebates, and make investments in the kinds of enabling systems that can support appropriate use and reimbursement of medicines, as well as inform development of tomorrow's innovative drugs.

Third, drug companies should spearhead the development of payment models that enable health systems to absorb the cost of cures by enabling payment over the period in which benefits accrue, as long as the drugs continue to work.

As has been the case with Back to School's recommendations in years past, these experiments will require robust collaboration with unfamiliar and even hostile partners. Many will fail.

But the reward for taking those risks will be a menu of pricing and reimbursement options that ensure companies are compensated for the value of both incremental and breakthrough innovations, and that drive revenue and profit by extending access to a bigger pool of patients.

The entire article (and it is definitely worth a read) can be found here.


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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