Change is in the air, and people can sense it; the recent midterm elections saw one of the biggest turnouts ever, and as always, the rising cost of health care was a major issue for voters. But unlike in the past, there is a chance that legislators may finally make some headway, with numerous proposals being floated – and already approved, especially when it comes to reducing prescription drug costs.
Medicare price negotiations – a major opportunity
One of the biggest industry changes surrounds the recently-passed Inflation Reduction Act, which, among other things, aims to lower the cost of drugs for Medicare recipients. The law rescinds a ban against Medicare negotiating with drug manufacturers for lower prices. Although limited in scope – both in terms of those affected and the number of drugs included – the law could be a harbinger for things to come. Although the government can only legislate negotiations for government-sponsored programs, a successful initial effort could prompt legislators to expand negotiation to many more drugs, and provide incentive for regulation in the private market as well.
And although these changes are not likely to occur immediately, it would make sense for drug makers to address the problems that led to mandated price negotiation, and thus avoid efforts to thwart the process, such as suing the government or reformulating drugs. That won’t sit well with legislators, and drug firms could end up finding themselves with pricing solutions provided – and mandated – by the government. In addition, payers, including Medicare, who participate in negotiations should consider patient outcomes, rather than just the traditional elements that are part of negotiations, including the volume of drugs purchased from each company.
Gene therapies will continue to challenge insurance companies
The number of new advanced gene-based therapies will continue to grow and to break records for the highest-priced drugs. The FDA recently approved hemophilia B drug Hemgenix, with a price tag of $3.5 million. Drugs that treat such conditions have the potential to save lives – but also to drain the resources of the insurance companies paying for them, especially as they treat more common but serious conditions. For example, with promising transformative drugs on the horizon for sickle cell disease, many insurers and state Medicaid systems are worried about how they will afford them, even as they could be vital for people’s survival.
The industry is struggling to figure out how to pay for these treatments – and how to deal with losses that could be incurred when they do pay, such as when a patient leaves an insurance company’s plan after they receive their treatment, and the insurer loses out on payments and premiums that could have help them recoup the costs of covering the drug. Industry officials say that no one has yet figured out how to deal with these challenges, but insurance companies will need to eventually come up with better ways to pay for such drugs.
Insurance companies will continue to adjust
In order to prepare for the future, insurance companies are likely to begin experimenting with pricing models now. Among the solutions insurers are considering are risk-pooling, where several payers get together and spread the risk amongst each other; annuity payments, where patients commit to remaining with an insurer for the long-term; and a treatment bond, where the payer provides full payment to a drug company only after a treatment proves itself, in a sort of loan arrangement. One solution that has seen success in several places is value-based pricing, where a drug is priced based on its effectiveness in reducing care costs or advancing the health of those taking it. Italy, for example, has reduced the cost of some of the most expensive drugs used by patients there by as much as 32% using a value-based pricing scheme.
Drug middlemen targeted
Fairly or not, pharmacy benefit managers are under fire as being at least partially responsible for high drug prices – with no less than the Federal Trade Commission investigating them, and possibly taking action against some of their practices. According to the FTC, PBMs “are the middlemen who are hired to negotiate rebates and fees with drug manufacturers. In these roles, pharmacy benefit managers often have enormous influence on which drugs are prescribed to patients, which pharmacies patients can use, and how much patients ultimately pay at the pharmacy counter.” States have already taken action, prompting at least one PBM firm to exit the business.
The federal and state actions have exacerbated the debate over the role of PBMs in drug pricing, pitting advocates and critics against each other. But with the government now involved and legislators calling for wider and deeper investigations, it’s likely that the PBM industry will find itself under even greater scrutiny.
2023 is shaping up to be a crucial year for everyone involved – and affected – by the pharmaceutical industry. It’s likely to be a year of experimentation for payers – and defensiveness for drug makers. The Inflation Reduction Act will continue to reverberate through the industry; more potentially transformative but ultra-expensive gene therapies will be approved; insurance companies will likely experiment with new pricing and risk models; and PBMs will find themselves under increased scrutiny. Clearly, change is indeed in the air – and the sooner all involved realize that, the easier the inevitable transitions they will face will be for them.