Founded in 2008, D2 Consulting is a life sciences advisory firm that has helped launch about half of the specialty drugs currently in the U.S. market, providing services from pre-launch through to commercialization.
D2 advises drug manufactures, payers, and distributors on issues including market access, pricing, and reimbursement, making them particularly interested in today’s discussion over soaring drug costs.
Pharmaceutical Processing spoke with Farhana Naz, VP of strategy at D2 Consulting, about the direction of the pharmaceutical industry in light of the Trump Administration’s proposed crack down on prices, as well as what contributes to the high prices in the United States.
Here are edited excerpts from the recent interview:
Q: Where you see the industry going in light of the Administrations new plan?
Farhana Naz: There are many interesting points that (President Trump) is bringing up as possible changes, and often times adjunct to what The Affordable Care Act (ACA) has, but at the end of the day, until it’s implemented, you won’t really know.
A lot of it is patient-facing, which is an important perspective. But he isn’t really discussing what adds to the drug costs. Drugs are expensive to make, expensive to get into the supply chain, and expensive to get through the FDA. In addition, costs associated with the heavy regulations were never really discussed.
Q: Are you expecting regulatory activity to increase?
Naz: As far as what Trump is proposing, the regulations are going to be more on the front end, on the payment process. What I’m not really seeing is anything about less regulation or updates on the back end, or in manufacturing. He isn’t really addressing that in any way. He talked a lot about pitting one manufacturer against another, but he didn’t really discuss the FDA cost and the regulatory pressure on clinical trials that adds to that cost.
I see a lot more incentive aligning with the ACA on outcomes-based (fee-for-value) payments. That actually is a win-win for pharma, health plans, and the government.
Q: How can drug manufacturers lower prices on the back end before the Administration steps in?
Naz: It can take months to years to put new regulations in place. Since the Administration’s announcement, it has tried to offer ideas to Congress, but no new laws have been released yet. We may see their position on outcomes- and rebate-based payments in the Medicare population one day. These strategies were also in the ACA, but to be implemented after a test trial and delivery of data—a slower process.
Drug manufacturers are already providing large rebates to insurance companies and PBMs (pharmacy benefit management), but the patient never sees these discounts.
Q: Other countries offer lower drug prices. Why this drastic difference in cost/price?
Naz: The current U.S. regulations do not allow for outcomes-based (fee-for-value) payments, which many EU countries have in place already (see explanation below). The U.S. is a fee-for-service model in Medicare and not outcomes-based.
Q: Are there additional cost pressures here in the U.S.?
Naz: The U.S. FDA approval system has the heaviest regulations, highest fee structures, and lengthy and costly clinical trial demands. There are additional costs involved to put the drug into the supply chain and manage the drug in the U.S. These costs are all built into the price of a drug in the U.S. market, which contributes to high costs. Before a drug can be given to the patient, it goes through a complex supply chain with many “middle men” taking a share, adding to the cost of the drug.
Q: What do you think of creating incentives to lower prices? Would something like that work?
Naz: There are already incentive-based programs in place, such as Accountable Care Organizations. (ACOs are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high-quality care to their Medicare patients.)
Health plans are realizing savings and expanding such programs, but the patient may not realize they are in treatment with an ACO provider.
Outcomes-based (Fee-for-Value) Payments
The EU’s value-based pricing system aims to provide drug prices that reflect the benefits they provide in terms of life longevity and quality. European regulators have developed procedures formally referred to as health technology assessments to determine the value of new drugs and other medical tools and devices. These assessments are then used to inform the prices of a drug or device.
However, determining a medication’s value is a process riddled with challenges, due to the variety of assumptions that are involved when making these assessments, such as size of the treated population, treatment duration, and so on.
The fee-for-service model that the U.S. has is one concerned more with quantity rather than quality of medication and care. Services are unbundled and providers are paid for each service performed or drug administered. The risk here, of course, is that providers have an incentive to administer more care or medication than truly necessary.
Both models have pros and cons, and there has been a recent increase in interest in the U.S. regarding value-based payments, but some believe the difference in cost determination is a significant contributing factor to the high price of drugs in the U.S. compared to other countries.
The Buy-and-Bill Market
Naz also told Pharmaceutical Processing that the Administration did not clearly address the provider buy-and-bill drug market, which she states is about 38 percent to 40 percent of U.S. drug sales.
In the buy-and-bill system, a healthcare provider purchases, stores, and administers the product to the patient. Then, the provider submits a claim for reimbursement to a third-party payer. The claim is not submitted until after the purchase and administration of the drug. The chart below illustrates the buy-and-bill process.
Cries to lower the cost of prescription drugs in the U.S. have been heard in Washington and across the 50 states for many years.
Some states even have publicly pushed for measures to allow patients to import pharmaceutical products from less expensive sources, like Canada—a move that would seem to present a whole different set of regulatory and other challenges.
As Farhana Naz spells out in the interview, the complicated dynamics behind the cost of pharmaceuticals in the U.S. is highly complex and not one that likely can be solved only on the front end, the back end, or from the middle.
The answer to lowering drug prices likely will require a significant collaborative effort on all sides–the Administration, legislators, the FDA, manufacturers, payers, distributors, pharmacy benefit managers, and others—surely a major headache for all involved.
But, not doing so in today’s political and economic environment may be an especially bitter pill to swallow for the masses across the country that actually need to pay for the meds.