I’ll read through the Center for American Progress Medicare Extra proposal tonight but I actually have things I need to do today. Instead, I want to highlight a brief by Ari Friedman and Janet Weiner, both at Penn when it was written, that tells five different stories on high drug prices. I come back to this brief as an anchor to clarify my thinking and reactions to news stories.
Story 1: High cost-high value. This is the Hep-C cure story. The drug costs an arm and a leg but it really provides a lot of value despite being a cash flow problem. The payer side response is warehouse as many eligible patients until “me-too” drugs emerge and competition drives down the post-rebate prices. There may be cash flow policy problems for Medicare and Medicaid but not a formulary problem per se that requires a policy response.
Story 2: High cost -low value. A new drug may be released that clinically does very little better than other therapies on the market. Here the payer side response is lots of utilization management, tiered formularies and pre-authorization. If it is a drug that is effective for a small population it will be used but off-label uses will be strongly controlled.
Story 3: Cheap generics get expensive fast — the Martin Shkreli story and the Epi-Pen story. Here the exploit is a lack generic manufacturers that can quickly shift to produce near substitutes. The time and cost of other manufacturers to set up a production line to make a cheap competitor won’t ever return a profit as the original manufacturer/distributor will drop prices to or below marginal cost as soon as they see a threat.
The recent agreement by a number of large hospitals to set up a non-profit generic manufacturer is a response to this story. The new entity would be willing to lose money to set up a production line for a generic drug that just saw its charged price increase by 1,000%. I think the entity’s leadership would be totally happy to certify the capability to get a few simple drugs and one complex generic approved as a demonstration of capability and then just use their capability as a looming threat to tamp down on these pump and dump schemes. That would be a stunning success even if the entity never ships a single pill for anything other than demonstration purposes.
Story 4: Short term price spikes for some generic drugs during shortages — this is a distinct story from number 3. There may be other manufacturers that are in the process of responding to a price signal to enter or expand production for a drug but it will take a while. The new entity could serve as a policy response here as a source of production reserves. Larger stockpiles and diversifying supply chains so that most of a particular drug is not made on a single hurricane prone island is another possible response.
Story 5: Lag between patent expiration and generic introduction — Here some brand manufacturers will pay generic manufacturers to not introduce a generic version as soon as possible. The solution is lots of billable hours for lots of lawyers or Congressional action.
I am paraphrasing a great brief so that I can grok it.
What do you think about these stories that they are telling?