Costs of Prescription Drugs, Not as Simple as You Think

On Friday, February 24th, I attended the Columbia Business School's 13th Annual Healthcare Conference, "Shaping Healthcare's Future: Delivering Value Along the Continuum of Care." The conference featured some of the industry's top healthcare professionals from pharmaceuticals, managed care, consulting, government, technology and hospitals. The conference theme focused on delivering value, ultimately to the consumer. 

The keynote speaker was Joaquin Duato, Executive Vice President & Worldwide Chairman, Pharmaceuticals, Johnson & Johnson. He spoke extensively on the benefits of medicine, how transformative medicine has been compared to any other industry and the role of the pharmaceutical industry in lowering costs and delivering value to the consumer. However, there is a tension between innovation and affordability when it costs between $3 - $7B to develop an approved drug and there is a level of uncertainty as it pertains to the administration's next steps.
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Mr. Duato's 5 Prescriptions for Controlling Healthcare Costs: 

1. Government Intervention - Negotiation is already occurring in the US healthcare system with private insurers and pharmacy benefit managers (PBMs). Pharma gives away nearly 37% in discounts and rebates to pharmacies and hospitals but these discounts are not being passed to the consumer. In addition the 340B drug program already receives deeply discounted drug pricing. 
2. Reduce Burdensome FDA Regulations to Increase Competition - Increase the number of  biosimilars and generics in the marketplace to encourage competition and lower prices. Market based competition has been increasing. Today, generic brands usually launch drugs within 2 years as compared do 10.2 years in 1970.
3. Enable Value Based Contracting - In the healthcare system, there was $765B in waste in 2013. These expenditures can be cut in half by rewarding value instead of fee for service.
   1. The pharmaceutical industry can work with insurers to create clinical pathways to ensure the right patients receive the right medication, rebates are paid for patients unsuccessful on therapy, ensure medicines are used more appropriately and improve access by moving from volume to value. 
   2. Address the regulatory barriers by modernizing Medicaid and Medicare pricing calculations, develop guidelines for sharing scientifically sound information with health plans to enable payers to have more certainty and predictability. 
4. Improve Support for Patients - The copay burden for drugs is 4 times higher than any other medical service. Drugs should be excluded from deductibles, require plans to pass rebates to patients, create value based insurance design and move away from coinsurance. Allow copay assistance in Medicare and improve patient awareness of patient assistance programs by improving communication perhaps through advertising or other tools. 
5. Transparency of Costs - The 2016 Janssen US Pharmaceutical Transparency Report will be available later in Q1 2017. Costs should be transparent for all stakeholders. 

For the remainder of the day, I attended the following panels: Pharma's Next Act: Succeeding in a Value Based System; Sellers & Buyers: The Value Proposition of Digital Health; Fireside Chat: The Future of Healthcare Reform; and The $1 Trillion Idea: A Practicing Doctor & Healthcare Entrepreneur Tells US How to Really Fix Healthcare. These panels from the pharmaceutical industry gave me a new lens to view healthcare.  

Tsahia's Ten Takeaways: 

1. Supply chain is very expensive in the healthcare industry and prevents consumers from receiving high levels of savings. 
2. Drugs are no longer simple pills; rather, more complex specialty medicines which are costlier to produce.
3. Patient compliance and education can help drive costs down. 
4. Personalized medicine is the future and will help patients access the right drugs, improve and cure their health issues.
5. Reduce regulatory restrictions to bring new drugs, especially complex generics, to market faster. 
6. "Payviders" a term coined by Natasha Deckmann, MD combining providers and payers. 
7. Drug spending accounts for nearly 14% of healthcare costs and in 2025 total healthcare spending is expected to be 20% of GDP. 
8. We have more data than ever and need to leverage that data to create actionable insights. 
9. Patients should demand use of clinical pathways and evidence based medicine to reduce variability and improve outcomes. 
10. Successful tech companies can teach us how to build better experiences around the patient experience. 

When we move toward value, who wins?