Solutions to the vexing problem of high drug prices continue to elude policymakers. All we’ve heard from Washington is talk.
Trump administration officials and congressional committees make headlines with their tub-thumping pronouncements: Limit pharmacy benefit manager markups. Force foreigners to pay more. Make it easier for generic manufacturers to enter the market.
Nothing on the agenda even begins to put a dent in the core problem—the exorbitant prices of specialty drugs. Citing their value, drug companies are bringing new treatments for cancer, autoimmune diseases, genetic and other rare disorders to market with astronomical price tags, some approaching $1 million a year. Spending on specialty drugs, already 40% of the $450 billion pharmaceutical market in 2016, is expected to grow at double-digit rates for the foreseeable future.
The high prices for specialty drugs are forcing physicians, patients and their families to factor in financial toxicity when choosing an appropriate therapy. Government agencies are adopting restrictive formularies that exclude useful medicines. Insurers are coming up with creative ways to avoid enrolling expensive patients—despite the ban on discrimination against people with pre-existing conditions.
The practical effect of the government’s refusal to limit industry’s pricing power for these critical drugs is rationing by price.
Take Spinraza, the new drug from Biogen and Ionis Pharmaceuticals that treats spinal muscular atrophy in children and young adults. SMA, a rare genetic disorder, is diagnosed in about 400 newborns a year and has a U.S. patient population estimated at somewhere between 6,000 and 9,000. Early onset of the disease is usually fatal before age 2; later onset patients often die by early adulthood.
Spinraza, whose development was based on research funded by the Muscular Dystrophy Association and the National Institutes of Health, reduced first-year mortality from 43% to 23% in the 121 infants enrolled in the clinical trial that led to Food and Drug Administration approval. A second trial in older patients with late onset SMA showed the drug improved motor function and delayed deterioration.
It was the first-ever treatment for this heart-wrenching disease, bringing a ray of sunshine into the kids’ lives and hope for their desperate parents. But It cost $750,000 a year. Despite the small patient population, Biogen recorded $833 million in revenue in 2017, its first year on the market.
Families are struggling to convince insurers and Medicaid agencies to pay for Spinraza. Even when covered, Biogen had to set up a patient assistance program to help families with the co-pays, which exceed some families’ annual income.
There has to be a better way to finance innovation. Adding financial insecurity to the travails of families already struggling with a devastating disease makes no sense.
The good news is we don’t have to force small patient populations and their insurers to pay the entire bill for costly new treatments. We should spread the cost across the entire insured population.
The idea is simple and similar to the reinsurance program that Minnesota has created for high-cost patients in its well-functioning individual insurance market. Every state or the federal government should set up a pool for high-cost specialty drugs.
It would be funded by charging every insurance plan—including Medicare, Medicaid and the Veterans Affairs Department—a flat per capita fee to pay the entire bill for any drugs whose high costs are being entirely borne by the small patient populations suffering from those diseases and their insurers. This would include most new targeted cancer medicines, where the problem is most severe.
This approach could even begin to deal with high prices if states gave pool operators the right to negotiate with drugmakers. But even without that extra step, which will be vehemently opposed by the powerful pharmaceutical industry lobby, specialty drug pools would immediately relieve the financial pain for patients and their families by spreading the costs broadly. It would put an end to financial toxicity.