That Medication Costs How Much? Ethical and Practice Implications of High Drug Costs

Event introducer

Our last session this morning is titled, That Medication Costs How Much? Ethical and Practice Implications of High Drug Costs, and will be presented by Dr. John Lantos. Dr. Lantos is professor of pediatrics at University of Missouri, Kansas City. He directs the world's only post-doctoral training program in pediatric bioethics. He's published hundreds of peer-reviewed papers and eight books, including a case book in pediatric bioethics based on the popular series that he edits for the journal Pediatrics. Please welcome Dr. John Lantos.

Dr. John Lantos

Hi, and thanks for staying. I know I'm the only thing between you and lunch, so I will try to stick to my timeline and just warn you that if you thought the last talk was sort of a bummer, Fasten your seat belts because this is about parents who are angry and they're bringing the ashes of their dead children to drug companies to protest prices like this for a vial of insulin, $285. It's about parents who have a child with SMA and a new miracle drug becomes available, but it costs a million dollars a year. It's also about something, puzzlingly, for which there's rare bipartisan agreement in the United States today. What do I mean by that? Everybody from the president to many of the Democratic candidates agree that high drug prices are a major problem. Mitch McConnell's putting it on the agenda. Senators are announcing bipartisan plans. And the question is, if the public is angry, and if everybody in government seems to recognize that this is a problem, why can't we solve it?

Event introducer

What I'm going to try to do

Dr. John Lantos

today then is go through some of the history to explain why this has been an intractable problem, show that it's nothing new, that government has been trying to lower drug prices for decades, go through some of the arguments that people have given for why policies don't work, talk a little bit about some of the policies that have been tried, partially succeeded, but had unintended consequences, and then finish up by suggesting some things that pediatricians can do. So the Senate has been working on this at least since the 50s. The first inquiry into this was in 1958, the Kefauver hearings. And they led to a stalemate similar to the one that we have today. The majority at that time, the Democrats, said big pharma's at fault. We need to break up monopolies. We need to regulate prices. The minority, then the Republicans, said this is a high risk, high benefit industry. We need to make sure drug companies are incentivized to develop new drugs. and profits are the way to do that.

Dr. John Lantos

These hearings led to some of the first FDA regulations to require proof of efficacy for drugs, but that had some unintended consequences. It lengthened the time for drug approval, it raised the cost of bringing drugs to market, and it led indirectly to sort of a backlash against regulation. Lorenzo's Oil was a movie with Nick Nolte and Susan Sarandon. in which the dad made his own drug for his son with, I think, adrenoleukodystrophy. The tagline was, some people make their own miracles. Or Dallas Buyers Club, where Matthew McConaughey said to

Dr. John Lantos

Jennifer Garner, his doctor, screw the FDA, I'm going to be DOA. Both of these gave the sense that the FDA was getting in the way of getting good drugs to market. Another legislative initiative designed to lower drug prices was the Hatch-Waxman Act, 1982, which really focused on encouraging the development of the generic drug industry, and it was highly successful at doing that. Before Hatch-Waxman, only 35% of drugs had generics, and now most popular drugs have generic equivalents, and most prescriptions in the United States are for generic drugs. This really gave rise to the generic drug industry, and one of the most successful generic drug manufacturers in the United States is Mylan Pharmaceuticals. It's really a huge success story. It was started in a garage in White Sulphur Springs, West Virginia, 1961. Fifteen years later, it was big enough to move to the NASDAQ. In 2007, they bought the generic arm of Merck, and by 2015, had revenues of $11 billion, had 30,000 employees in 145 countries around the world. How did they do it? Well, one of their success stories is a drug you may have heard of. It's called the EpiPen.

Dr. John Lantos

In 2007, as I said, Mylan bought Merck Generics. Merck had the EpiPen. EpiPen sales were about $200 million a year. Mylan advocated for anaphylaxis awareness and preparedness. They got the FDA to change the recommendation for parents to have two EpiPens instead of one at home. After a seven-year-old died in Virginia, they advocated for all schools to stock EpiPens, and these were good things that probably saved lives. They also created markets, and Mylan raised the price of EpiPens from $100 each to $600 each.

Dr. John Lantos

Revenues went from $200 million to over a billion. So here's my question. Is this an all-American business success story, starting a company in a garage, growing it to a multinational, and raising revenues on a key product by fivefold? Or is this despicable, unethical behavior? And which choice you take might show what reforms you think are most likely. Here's a multiple choice question. What do you think is a fair price for an EpiPen? Any of you who said A, B, C, or D are un-American because the solution in this country is whatever the market will bear. Our philosophy comes from Adam Smith and the wealth of nations who thinks that the invisible hand by which markets Bring buyers and sellers together is the most efficient way to get the most good for most people in society, and regulation just interferes with that.

Event introducer

That works pretty

Dr. John Lantos

well,

Event introducer

I think, for

Dr. John Lantos

sofas and televisions and cars and houses, but the invisible hand moves slowly, and with drugs, it leads to two problems. On the one hand, sometimes there's not enough manufacturers. And we get drug shortages. Just this week in the New York Times, there was a story about vincristin, which is a shortage worldwide. Or this was a study looking at vaccine and immune globulin shortages. There's a nationwide shortage of IVIG right now. The market doesn't seem to be meeting the needs of people. And the slow invisible hand also leads to price gouging when companies can corner the market for a drug and then raise the price to whatever level they think the market will bear. Price gouging is very different in the United States than in most other countries. And the next portion of this talk is gonna be about some of the solutions that other countries have developed that get their prices for a vial of insulin down to about 10% or 20% of what we pay in the United States.

Dr. John Lantos

One of the things that's unique though about the United States is unlike most other countries, our list price is not what most people pay for drugs. So the list price for a viable insulin might be $285. This partially reflects the actual cost to the manufacturers, but then there's rebates negotiated by pharmacy benefit managers. There's wholesale prices to pharmacies. There's discounts negotiated by insurance companies. There's pharma programs to provide drugs to low income people. And then that effect is that we don't know what the actual cost is to each patient and family. In fact, everybody pays a different price when they go to pick up that drug. Nobody knows what anybody else is paying. Most people don't pay directly. Those who pay usually use other people's money. conflicts of interest are rampant, and in a situation like this, I would argue markets simply cannot work the way Adam Smith or many free marketers imagine that they would work.

Dr. John Lantos

So, if other countries pay much less for drugs, how do they do it? The answer is fairly simple. They regulate their markets. Here's how it works in most countries. A drug is developed. It's shown to be safe and effective. And then a government commission decides if it's worthwhile. Is it a drug that we need to have in the formulary? If they decide it's worthwhile, then in most countries, there's a single payer that goes to the drug companies and bargains for a price. And once they agree, a single price is set for that drug. And that's the price that everybody pays. And then the drug is brought to market. In the United States, we skip those worthwhile and negotiating price steps. It's shown to be safe and effective. It's brought to market. This leads to the system where drugs are much more expensive, again, at least for list price.

Dr. John Lantos

So why do we favor this expensive way of doing drug policy? And I think this reflects what many people have called the central dogma of drug pricing. It is that rising prices encourage investment, which leads to innovation, which then leads to the creation of new drugs, and therefore high drug prices, high drug company profits, lead to a net benefit to society. And this is the sort of data that many people cite when they make this argument. This is a graph that shows the price of new drugs going up the y-axis the last 50 years along the x-axis, and the dots are both the price of drugs and then the number of approvals. As prices go up, there are more new drugs. Hence, the argument goes high prices lead to better medical care. Oddly though, other countries also have many new drug approvals. Switzerland is home to two of the largest drug companies in the world. They spend $940 per person per year on drugs. We spend about $1,500. And if we could just bring our prices down to Switzerland's, we'd save about $500 per person per year, about $160 billion annually. And of course, this central dogma does not justify the high price of generic drugs.

Dr. John Lantos

Some people have started to talk about something called value-based pricing. It's very similar to what most European countries do. It says, six or five or seven variables should go into setting the price for a drug. How much benefit? What are the side effects? How new is it? What did it cost to develop the drug? Does it treat a severe disease? Does it treat a rare disease? And if you can assign a value for each of these to a drug, you might come up with something called the value-based price of that drug. And then, as in most other countries, There would be a single regulated price for each drug for each indication. Everybody would know the cost. Everybody would understood how we arrived at a calculation of value and everybody would pay the same price.

Event introducer

Let me switch now

Dr. John Lantos

for the last half of this talk or the last few minutes of this talk away from generics, away from things like EpiPen or insulin to a problem that I think is gonna challenge every country not just the United States, and that's the problem of pricing new, effective, and very expensive drugs. So let me use as examples the two new drugs that have been developed for the treatment of spinal muscular atrophy. I'll call the one OA, because I can't pronounce the name, and the other one Nusinersen. And here's the question. For a devastating rare disease, if you have a drug that's effective, What's a fair price? What should those drugs cost? Both have been shown to be effective in small studies. They lead to improved motor function, less use of mechanical ventilation, higher survival rate, few side effects, and tremendous parent and patient satisfaction. So if you look at the value-based pricing algorithm, they get four pluses for each of the variables. But the value-based pricing algorithm only allows relative comparisons. It doesn't say what the absolute price should be. What's a fair price? Here's what the list price for these two drugs are. Nusinersen is listed, it's dosed by body weight, so somewhere between half a million and a million dollars a year for life.

Dr. John Lantos

OA is just a single dose and is now the most expensive drug ever brought to market with a price tag of $2.1 million per dose. Are those fair prices? I think it's hard to say what should go into that calculation when people look at dollars per quality adjusted life year or the usual cost effective analyses measures. they don't pan out as being worth that price. But if they ask parents and doctors who are taking care of kids with SMA, they say, we'd pay anything. These are just the tip of the iceberg. There's lots of talks at this meeting this week about CAR T therapy. That's a treatment that has a price tag of about $500,000 as the base price and just goes up from there. Some people have suggested that it will lead to the rise of a whole new industry that a conference at the University of Pennsylvania recently dubbed Silicon Valley. The question is, how do you put a price on this? You have a kid with cancer who's relapsed. Nothing else has worked. You give her a new therapy, and two years later, she's disease-free. It tugs at your heartstrings, and you say, we should pay anything for those sorts of outcomes. But pretty soon, similar treatments may be available for diseases that are much more common, and the price will be simply unaffordable.

Dr. John Lantos

So in summary, I've tried to talk about two domains of health policy here, the ordinary generic drugs, which are ones that come up in every doctor's day-to-day practice and probably more relevant for most of you today, and then these extraordinary new and innovative drugs that I think for now at least, are more in the domain of debates among policy makers. I think there are some things that doctors can do today living in this unjust world about the prices of ordinary drugs. I think the most important thing to do is when you're talking to patients and writing a prescription, you don't know how much that patient's paying out of pocket. You need to ask. Don't assume that families can afford their drugs. Ask about out-of-pocket costs they may not know, but tell them if they go and the out-of-pocket costs are too high to get back to you. And then counsel families about choices and trade-offs. That would show that you understand what they're facing and help them get what they need. The central ethical concerns here I think are clear. One is it may lead you to recommend a treatment that you consider second best. suboptimal but a second best treatment I believe is better than no treatment it will also raise questions about rampant inequalities since our current system everybody pays a different price so you may end up having to treat patients with the same disease in different ways for no other reason than that their out-of-pocket expenses are too high this is not a familiar role for pediatricians But I think it's an absolutely necessary one. And I think patients appreciate it to know that you know what they're facing when they go to the drugstore to buy the drug that you recommended. Keep in mind that the deductibles and the co-pays that patients are facing have risen astronomically in just the last 10 years. This graph shows 2009 to 2016.

Dr. John Lantos

The percentage of people who pay more than $1,000 out of pocket has gone from about 20% to about 50%. These are people with high-quality employer-sponsored healthcare.

Event introducer

There is also

Dr. John Lantos

another role, which is to advocate for system change. Representative Schreier talked a little bit about this. There's a bill introduced in Congress to fix some of these things. to look at value-based pricing, importation of drugs from countries where it's cheaper, allowing the federal government to negotiate for prices. I think these should be relatively non-partisan, non-radical policies that people on either side of the aisle can endorse. You may say that I'm a dreamer when I imagine bipartisan solutions to this, but things do change. Some of you may remember This young actor who in 1964 did a record, an LP for the AMA in which he said, if Medicare is passed, it will bring about a socialized dictatorship in America. But just a few years later, when he was president of the United States, he signed the largest expansion of Medicare in history. So don't give up hope, advocate for change, talk to your patients about prices. and will get kids the treatments that they need. Thank you very much.