B

A Minority Perspective

Rena Conti, Stacie Dusetzina, Martha Gaines, Rebekah Gee, Victoria Hale, Peter Sands, and Alan Weil

The charge to this committee was to “address drug price trends, improve patient access to affordable and effective treatments, and encourage innovations that address significant needs in health care.” The recommendations in the report are an important step in this direction. We endorse them. However, they do not go far enough. To fulfill our charge of providing recommendations that will ensure access to affordable drugs, we need more ambitious approaches to transparency, value assessments, and pricing.

The committee’s report shines a powerful spotlight on the myriad ways in which actors within the biopharmaceutical development, production, and distribution system exploit information asymmetries, misaligned incentives, and market power to maximize profits, often to the detriment of individual patients or society as a whole. Even as the biopharmaceutical industry delivers enormous benefits through the development of new drugs with significant clinical value, the shortcomings of our current approach are apparent. Too many patients cannot afford the drugs they need.

The committee’s recommendations take a piecemeal approach to addressing specific flaws in the current system. These changes, if adopted, will remove some market distortions, but will leave many others in place that will continue to be exploited to the detriment of patients. To achieve a more patient-centric system, we need a more comprehensive approach.

MAKING THE BIOPHARMACEUTICAL MARKET WORK FOR PATIENTS

The report claims that “an inherent conflict exists between the desire of patients . . . for affordable drugs and the expectations of . . . biopharmaceutical companies for a competitive return on investment.” Framing the problem this way leads to a false choice between affordable access to patients and reasonable financial rewards to biopharmaceutical companies. We reject this premise.

By contrast, we believe a well-functioning biopharmaceutical market is precisely what is needed to achieve the committee’s charge. The current biopharmaceutical market displays so many market failures and distortions that marginal improvements in market functioning will be insufficient to achieve the goal of affordable drugs. Taking the view that the method for achieving patient access to affordable drugs is to redesign the regulatory framework that defines the market, we identify three specific areas where the committee’s recommendations should be stronger. They are in the areas of transparency, value assessments, and pricing.

TRANSPARENCY

Markets only function effectively when customers have choices: They can switch to another product, or buy nothing. In the biopharmaceutical market, formularies are the mechanism for making these choices. Yet, the current approach to the design and operation of formularies has two significant flaws. First, there is little transparency regarding how formularies are developed. Clinical considerations are paramount, but the methods by which formulary developers make clinical judgments are unknown to the patient. The degree to which financial interests affect choices by pharmacy benefit managers is also unknown. Second, because many formularies, particularly in government-sponsored programs, are legally or effectively precluded from excluding drugs, they rely heavily on tiering: applying different levels of cost sharing to different drugs. Patients cannot exert any force in the market when they are given a price with no relevant information to evaluate their choices.

The committee’s transparency recommendations focus on financial flows among manufacturers, intermediaries in the supply chain, clinicians, hospitals, and payers. But transparency regarding the criteria used to determine coverage, pricing, and formulary decisions is also critical. In a market with high levels of information asymmetry and where patients are heavily affected by decisions made by professionals and systems that are opaque to them, payers and other intermediaries should be required to disclose the

methods they use to design and manage formularies and to reveal where and how their decisions relate to their own financial interests.

VALUE ASSESSMENTS

Purchasers in a marketplace make choices based on the value they place on the products they are buying. In other advanced economies, value-based assessment of drugs is seen as a vital tool in formulary design and drug price negotiations. Decisions around coverage, prices, and formulary inclusion are made on the basis of formal assessments of efficacy, comparative effectiveness, and value relative to cost. In the United States, formal adoption of value-based approaches is hampered by legitimate disagreements regarding how to measure value and further compounded by political concerns regarding anything perceived to be rationing care. Yet, since all purchasers must make their decisions on the basis of something, the result is opaque and obscure practices with implicit value assessments that cannot be subject to scrutiny by patients and their clinicians. So long as the methods purchasing intermediaries, hospitals, and payers use to make coverage, pricing, and formulary decisions are opaque, patients and policy makers cannot know whether current arrangements provide value that outweighs the costs to patients and the health care system.

The committee appropriately recommends further testing and refinement of methods for determining the “value” of drugs and using those methods in formulary design and payment policy. This recommendation understates the maturity of those methods as used around the world today and by American payers, intermediaries, physicians, and hospital systems. Its tentative tone belies the reality that, in the absence of such methods, patients are left at the mercy of coverage and pricing decisions that are completely unknown to them. To make the market more patient-oriented, public and private purchasers should adopt value assessment methods, use them systematically, and make them transparent.

PRICING

Our committee chair points out in his preface that drugs that do not exist are of no value. This view captures the importance of sustaining incentives for innovation. Yet, the committee’s report does not go far enough in considering how the current drug pricing regime distorts both the incentives for investment in research and development and the way the drugs are deployed once launched.

Current mechanisms for setting drug prices can yield prices that are either too high or too low for achieving optimal public health or optimal investments in innovations that promote public health. Many drugs, par-

ticularly for infectious diseases, create significant positive externalities (e.g., improving the health of others) that are not built into the price. Manufacturers set prices in part based on ability to pay, which is highly variable depending on whether the patient has private insurance, public coverage, or no insurance, even though the disease burden is not evenly distributed across these populations.

Our current system can lead to underinvestment in drugs with substantial public health benefits, such as vaccines, and under-deployment of such drugs when they are developed, as we have seen with therapies that cure hepatitis C. By contrast, the current system creates powerful incentives to invest in research and development of drugs for people with good health insurance even when the incremental value relative to existing therapies is limited.

Direct government funding and purchasing can cure some of the distortions in investment and deployment. Yet, public resources are limited and it is more efficient to harness the power of the market to achieve these social goals. A recent National Academies of Sciences, Engineering, and Medicine study explored alternative public purchasing models for hepatitis C drugs with the goals of increased access and affordability.¹

The committee appropriately recommends exploration of alternative payment models. Yet, once again the committee’s general language downplays what is at stake. Robust value assessments, which include consideration of patient-defined outcomes and public health consequences, should be used when establishing or negotiating drug prices. Such an approach would build in market incentives for actions that guide investment in innovation and the deployment of developed drugs toward improving population health.

CONCLUSION

We reiterate our support for the committee’s recommendations. However, we believe the committee could and should have gone further in strengthening and expanding our recommendations to achieve the goals set out in our charge. A more patient-centric biopharmaceutical sector that provides access to affordable drugs is within the nation’s reach.

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¹ NASEM. 2017. A national strategy for the elimination of hepatitis B and C: Phase two report. Washington, DC: The National Academies Press.