Frederick Banting discovered insulin in 1921 and didn’t want to profit off of such a life-saving drug. Fast forward to 2019, and the price of insulin continues to increase year over year. Why is that?
Frederick Banting discovered insulin in 1921 and didn’t want to profit off of such a life-saving drug. Fast forward to 2019, and the price of insulin continues to increase year over year. Why is that?
Health system executives and policymakers alike are looking for ways to get drug prices under control.
The consortium of major health systems aims to tackle cost and shortage challenges by producing its own generics.
The number of participating hospitals has grown to about 750 in the U.S., with more expected to join.
A nonprofit alliance of health systems seeking to rein in drug costs and alleviate shortages has grown significantly in the four months since its launch.
Civica Rx announced Monday that 12 additional health systems, representing about 250 hospitals, have joined the venture as founding members, bringing the total number of participating U.S. hospitals to about 750.
The organization described its growth as momentum, with future growth expected, as policymakers and health system executives nationwide look for ways to wrangle escalating drug costs.
Three philanthropic organizations and seven major health systems—including Trinity Health, Catholic Health Initiatives, HCA Healthcare, Intermountain Healthcare, Mayo Clinic, Providence St. Joseph Health, and SSM Health—founded Civica Rx last September, with a plan to produce generic drugs to stabilize supply and challenge manufacturers that have hiked prices sharply.
With its launch, the organization identified 14 hospital-administered generics as its initial focus. The plan is for members to drive the selection of additional drugs.
The 12 new founding members announced Monday are as follows:
In a statement, Civica Rx CEO Martin VanTrieste expressed excitement and gratitude for the additions.
“Drug shortages have become a national crisis where patient treatments and surgeries are canceled, delayed or suboptimal,” VanTrieste. “We thank these organizations for joining us to make essential generic medicines accessible and affordable in hospitals across the country.”
The three philanthropic organizations that helped found Civica Rx are the Gary and Mary West Foundation, Laura & John Arnold Foundation, and the Peterson Center on Healthcare. The organization is collaborating also with the American Hospital Association’s Center for Health Innovation.
Two decades ago, the costs began rising well beyond that of other nations, and in recent years have shot up again. What can explain it?
There was a time when America approximated other wealthy countries in drug spending. But in the late 1990s, U.S. spending took off. It tripled between 1997 and 2007, according to a study in Health Affairs.
Then a slowdown lasted until about 2013, before spending shot up again. What explains these trends?
By 2015, American annual spending on prescription drugs reached about $1,000 per person and 16.7 percent of overall personal health care spending. The Commonwealth Fund compared that level with that of nine other wealthy nations: Australia, Canada, France, Germany, the Netherlands, Norway, Sweden, Switzerland and Britain.
Among those, Switzerland, second to the United States, was only at $783. Sweden was lowest, at $351. (It should be noted that relative to total health spending, American spending on drugs is consistent with that of other countries, reflecting the fact that we spend a lot more on other care, too.)
Several factors could be at play in America’s spending surge. One is the total amount of prescription drugs used. But Americans do not take a lot more drugs than patients in other countries, as studies document.
In fact, when it comes to drugs primary care doctors typically prescribe — including medications for hypertension, high cholesterol, depression, gastrointestinal conditions and pain — a recent study in the journal Health Policy found that Americans use prescription drugs for 12 percent fewer days per year than their counterparts in other wealthy countries.
Another potential explanation is that Americans take more expensive brand-name drugs than cheaper generics relative to their overseas counterparts. This doesn’t hold up either. We use a greater proportion of generic drugs here than most other countries — 84 percent of prescriptions are generic.
Though Americans take a lower proportion of brand-name drugs, the prices of those drugs are a lot higher than in other countries. For many drugs, U.S. prices are twice those found in Canada, for example.
Prices are a lot higher for brand-name drugs in the United States because we lack the widespread policies to limit drug prices that many other countries have.
“Other countries decline to pay for a drug when the price is too high,” said Rachel Sachs, who studies drug pricing and regulation as an associate professor of law at Washington University in St. Louis. “The United States has been unwilling to do this.”
For example, except in rare cases, Britain will pay for new drugs only when their effectiveness is high relative to their prices. German regulators may decline to reimburse a new drug at rates higher than those paid for older therapies, if they find that it offers no additional benefit. Some other nations base their prices on those charged in Britain, Germany or other countries, Ms. Sachs added.
That, by and large, explains why we spend so much more on drugs in the United States than elsewhere. But what drove the change in the 1990s? One part of the explanation is that a record number of new drugs emerged in that decade.
In particular, sales of costly new hypertension and cancer drugs took off in the 1990s. The number of drugs with sales that topped $1 billion increased to 52 in 2006 from six in 1997. The combination of few price controls and rapid growth of brand-name drugs increased American per capita pharmaceutical spending.
“The scientific explosion of the 1970s and 1980s that allowed us to isolate the genetic basis of certain diseases opened a lot of therapeutic areas for new drugs,” said Aaron Kesselheim, an associate professor of medicine at Harvard Medical School.
He pointed to other factors promoting the growth of drug spending in the 1990s, including increased advertising to physicians and consumers. Regulations on drug ads on TV were relaxed, which led to more advertising. More rapid F.D.A. approvals, fueled by new fees collected from pharmaceutical manufactures that began in 1992, also helped push new drugs to market.
In addition, in the 1990s and through the mid-2000s, coverage for drugs (as well as for other health care) expanded through public programs. Expansions of Medicaid and the Children’s Health Insurance Program also coincided with increased drug spending. And Medicare adopted a universal prescription drug benefit in 2006. Studies have found that when the potential market for drugs grows, more drugs enter it.
In 2007, U.S. drug spending growth was the slowest since 1974. The slowdown in the mid-2000s can be explained by fewer F.D.A. approvals of blockbuster drugs. Annual F.D.A. approvals of new drugs fell from about 35 in the late 1990s and early 2000s to about 20 per year in 2005-07.
In addition, the patents of many top-selling drugs (like Lipitor) expired, and as American prescription drug use tipped back toward generics, per capita spending leveled off.
The spike starting in 2014 mirrors that of the 1990s. The arrival of expensive specialty drugs for hepatitis C, cystic fibrosis and other conditions fueled spending growth. Many of the new drugs are based on relatively recent advances in science, like the completion of the human genome project.
“Many of the new agents are biologics,” said Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center. “These drugs have no meaningful competition, and therefore command very high prices.”
A U.S. Department of Health and Human Services issue brief estimated that 30 percent of the rise in drug spending between 2000 and 2014 could be attributed to price increases or greater use of higher-priced drugs. Coverage expansions of the Affordable Care Act also contributed to increased drug spending. In addition, “there has been a lowering of approval standards,” Dr. Bach said. “So more of these new, expensive drugs are making it to market faster.”
“As in the earlier run-up in drug spending, we’re largely uncritical of the price-value trade-off for drugs in the U.S.,” said Michelle Mello, a health law scholar at Stanford. “Though we pay high prices for some drugs of high value, we also pay high prices for drugs of little value. The U.S. stands virtually alone in this.”
If the principal driver of higher American drug spending is higher pricing on new, blockbuster drugs, what does that bode for the future? “I suspect things will get worse before they get better,” Ms. Sachs said. The push for precision medicine — drugs made for smaller populations, including matching to specific genetic characteristics — may make drugs more effective, therefore harder to live without. That’s a recipe for higher prices.
Democratic politicians have tended to be the ones advocating governmental policies to limit drug prices. But recently the Trump administration announced a Medicare drug pricing plan that seems to reflect growing comfort with how drug prices are established overseas, and there’s new optimism the two sides could work together after the results of the midterms. Although the effectiveness of the plan remains unclear, it is clearly a response to public concern about drug prices and spending.
CVS also recently announced it would devise employer drug plans that don’t include drugs with prices out of line with their effectiveness — something more common in other countries but unheard-of in the United States. Even if these efforts don’t take off rapidly, they are early signs that attitudes might be changing.
Several hundred hospitals that plan to form their own generic drug company are eyeing making “about 20” pharmaceutical products whose existing versions either cost too much or are in short supply for no good reason, the CEO of one of those hospitals said Thursday.
Dr. Marc Harrison, chief of Utah-based Intermountain Healthcare, during an interview on CNBC’s “Closing Bell,” would not identify the existing drugs that the new company wants to replicate on its own, or have done on a contract basis.
Harrison said, “We think it will be early ’19 before our first drugs come to market.”
And he said the group also is hoping to possibly get additional financing from “philanthropists who are sick of this activity” by drug companies that is “creating shortages and driving prices in an irrational fashion.”
Intermountain is leading the collaboration with several other large hospital groups, Ascension, SSM Health and Trinity Health, in consultation with the U.S. Department of Veterans Affairs, to form a not-for-profit drug company. The groups together represent more than 450 U.S. hospitals.
Harrison said on “Closing Bell” that the project was spurred by feedback by patients who at times were saying “they can’t get ahold of drugs or they’re way too expensive.”
“We’re experiencing that in the hospital as well, and we’ve been thinking about this for a couple of years now,” Harrison said.
“We worked hard to come up with a plan … now is the time to get to work.”
He said that one of the big problems in the pharmaceuticals market today is that some “individuals and groups have gone ahead and gotten sole control over a given drug.”
“They create shortages and drive the prices up, and our patients can’t get ahold of the drugs we need,” Harrison said.
“We as a team will do the opposite,” he said. “We’ll make sure drugs are available in good quantities and reasonable prices.”
Harrison said the members of the consortium will contribute funds to finance the new drug company.
“Over time, the business plan says we’ll get our money back,” he said.
Harrison also said that he expects the new firm to provide just a small fraction of pharmaceutical products that the hospitals have to purchase.
“We expect that the vast majority of drugs we buy will still come in the same channels we have always gotten them,” he said. “We think most pharmacies are doing a great job and drug manufacturers are doing a great job.”
“We’re only interested in those organizations that are creating shortages and driving drug prices up in an irrational fashion,” Harrison said.
Walmart’s $4 generic prescription drug program ends up being cheaper for some Medicare patients than their own health insurance, according to a new study released Monday.
It’s more evidence that patients cannot always rely on their health insurance to get them the lowest prices for their prescription drugs, said Dr. Joseph Ross of the Yale School of Medicine, who led the study.
“Patients were paying more out of pocket when they were using their insurance than when they went to Walmart,” Ross told NBC News.
The study, published in the Annals of Internal Medicine, documents that Walmart provides a better deal than the government’s health insurance plan for people over 65. And that is bad news for Medicare, because if people don’t take their drugs, whether for cost or for other reasons, they tend to get sicker and then end up costing even more to treat.
“Everyone’s talking about pharmacy costs these days,” Ross said. “We did this study in part because of all the discussion about pharmacy gag rules.”
Pharmacy gag rules prevent pharmacists from telling patients that they could save money on drugs, for instance by not using their health insurance.
Pharmacy benefit managers are the middlemen between drug companies and pharmacies, and some of those companies have agreements forbidding talk of discounts. But some states have also banned pharmacists from giving this information to customers.
According to the National Conference of State Legislatures, at least 22 states have some kind of gag rule legislation.
One way patients can get around this is to ask, but few people think to do so.
Ross and colleagues decided to see what would happen if Medicare patients just took advantage of Walmart’s program offering $4 generic prescription drugs.
They looked at Walmart’s generic list for drugs commonly used to treat heart conditions, including high blood pressure and high cholesterol.
“Next, we used Medicare prescription drug plan data from June 2017 to determine beneficiary out-of-pocket costs for the lowest-priced dose of each drug in each plan,” they wrote. They got data on more than 2,000 Medicare prescription drug plans, including Medicare Advantage plans.
Overall, 21 percent of the plans asked patients to pay more out of pocket for the drugs than they would pay if they just got them for $4 at Walmart, the team reported.
Medicare Advantage plans were the most expensive for patients, Ross said. And the higher-tier programs were the worst, he found.
“Twenty percent of the time, at least, we should go to Walmart,” Ross said.
It doesn’t help that Medicare is very complicated. Patients can choose from dozens of different plans, depending on where they live, and it can take a great deal of research to find out which plan is most likely to cover a particular person’s health conditions for the least amount of money.
“Each Medicare drug plan has its own list of covered drugs (called a formulary),” the Center for Medicare and Medicaid Services says on its website.
“Many Medicare drug plans place drugs into different ‘tiers’ on their formularies. Drugs in each tier have a different cost. A drug in a lower tier will generally cost you less than a drug in a higher tier.”
Ross said it is time-consuming to compare one Medicare plan to another. But understanding one of the many plans tells people very little about what the others might offer.
“If you have read through the details and material for one plan, you have read through the details and materials for one plan. It’s very hard to compare,” he said.
In addition, any given plan may change the drugs that it covers and their prices throughout the year.
Ross said he studied Walmart because its $4 price for a 30-day supply of a generic drug seemed like the least expensive option, but other retailers also have inexpensive drug plans. Some grocery-based pharmacies even offer free drugs, such as antibiotics.
These offers get customers into the store, and the hope is that they’ll buy something else while they are there.
Ross said no patient should decide on a Medicare plan based solely on whether Walmart offers a better deal on prescriptions.
Switching plans might not be the best idea, because different plans provide different levels of coverage for doctor visits, medical procedures and other health needs.
“What we are showing is there may be some ways to save some money on some drugs by going to Walmart,” Ross said.
According to the Kaiser Family Foundation, about 90 percent of prescriptions filled in the U.S. are for generic drugs. Most people get health insurance through an employer, and the typical co-pay for a generic drug for a patient covered by employer-provided health insurance is $11, Kaiser found. For a brand-name drug, the average co-pay is $33.
Walmart is moving aggressively to get a big share of the U.S. health care market. Besides having large pharmacies, stores offer free health screenings and the company has said it intends to expand its locations of retail walk-in health clinics.
Walmart is also negotiating a closer partnership with health insurer Humana, including the possibility of buying it outright, according to CNBC.
The discount retailer’s $4 generic prescriptions beat Medicare’s co-pays 21 percent of the time, a study found.
And just tweaking the system won’t solve the problem.
President Donald Trump has complained that U.S. drug companies are “getting away with murder.” For once the hyperbole is forgivable: It suggests he takes the problem of drug costs seriously and might be willing to do something about it. Unfortunately, his administration’s efforts up to now suggest the opposite.
The White House has proposed tweaks to government health-care programs. Some of these measures are worth trying — they could help at the margin — but tweaks aren’t enough. The underlying problem is drug prices that are indeed murderous: Americans and their insurers often pay many times what people in other developed countries pay for the same medicines. That’s what policy needs to confront.
The administration wants insurers participating in Medicare’s prescription-drug program, for instance, to share more directly with beneficiaries the discounts they arrange with drug companies. Out-of-pocket drug costs for some people on Medicare would be capped, and reimbursement for medicines administered by doctors would be trimmed. In Medicaid, a handful of states would be allowed to decline coverage for certain drugs, increasing their leverage in negotiating discounts.
Such changes could lower drug spending for some Medicare and Medicaid beneficiaries. But they miss the main point by shifting costs within the health-care system rather pressing down on the costs themselves. Unless this changes, the U.S. will continue to be overcharged for its drugs.
The companies often say that high U.S. prices pay for research into new lifesaving products. Leaving aside why U.S. patients should be asked to shoulder that burden for the entire world, the evidence shows that the argument is false: The premium companies collect in the U.S. market is substantially greater than the amount they spend on research and development.
State legislatures have aimed closer to the mark with efforts to expose the math behind price increases. Vermont, Nevada and California have new lawsrequiring that drug companies provide cost breakdowns to justify big price hikes on popular drugs (including, in Nevada’s case, drugs for diabetes). Several other states are considering doing the same.
Even if these laws stand — they’re being challenged in court — transparency gets you only so far. Pushing prices down will take stronger efforts from the federal government to increase competition.
One good way to do that is to speed the uptake of generics. Scott Gottlieb, commissioner of the Food and Drug Administration, has been pressuring drug makers to stop trying to extend the monopolies they’ve been granted (via FDA approval and patents) for brand-name drugs. But only Congress can forbid those practices, and it has yet to act on bipartisan legislation that would do the job. Trump could show he’s serious about lowering drug prices by urging Congress to pass the law.
Another way to boost competition would be to let people and pharmacies import some drugs from other countries with sound pharmaceutical regulation, such as Canada. Almost one in 10 Americans say they already do, despite the official prohibition.
The U.S. should also do what so many other countries do: negotiate. The Centers for Medicare and Medicaid Services ought to use its enormous purchasing power on behalf of the 42 million Americans in the Medicare drug-benefit program, ensuring that prices better reflect the drugs’ actual medical value. Again, for this to happen, Congress would need to change the law. Incredible as this will seem elsewhere in the world, the U.S. government has denied itself permission to apply pharmaceutical cost-benefit analysis and negotiate prices.
Trump is right to deplore the cost of drugs in the U.S. There’s no great mystery about the causes — and no doubt that much bolder measures than the administration has in mind will be needed to bring prices down.