Mark Charbonneau responds to Abbey Meller and Hauwa Ahmed’s article, “How Big Pharma Reaps Profits While Hurting Everyday Americans” (American Progress).
Mark Charbonneau, Ph.D., is the Head of Quantitative Biology at Synlogic, Inc., a clinical-stage biopharmaceutical company focused on developing engineered live bacterial therapeutics designed to treat metabolic and inflammatory diseases and cancer. Mark received his Ph.D. in Computational and Systems Biology from Washington University in St. Louis in the laboratory of Jeffrey I. Gordon, MD.
For the past several years, I’ve recognized a divide between my professional and personal lives. Professionally, I work as a scientist for a biotechnology company that develops new therapies for patients with rare metabolic diseases, like phenylketonuria (PKU). People with PKU must adhere to extremely low-protein diets to prevent permanent intellectual disability, and these patients desperately need more effective treatments with fewer side effects. I’ve observed firsthand how challenging, expensive, and time-consuming it is for teams of highly trained and creative professionals to develop a new drug.
On the other hand, I have personally experienced the high cost of prescription drugs in the United States. For instance, I once had to decide whether to make a copayment for an asthma inhaler or to walk away and risk having an attack so that I could afford to repair a car I needed for work (spoiler: I fixed the car). I’m far from alone in this experience, and public dissatisfaction with prescription drug prices borders on rage, as made clear by the frequent media coverage on this topic. An extreme example is the passionate but misleading, article by Abbey Meller and Hauwa Ahmed, “How Big Pharma Reaps Profits While Hurting Everyday Americans”. These authors fail to appreciate that a majority of biopharmaceutical professionals are genuinely dedicated to meeting the needs of patients and that doing so will require both patients and drug developers to resist superficial explanations and understand the source of this disconnect.
Meller and Ahmed argue that patients are suffering because drug makers unreasonably hike prices on prescription drugs whose development was made possible by federally sponsored basic research. Further, the authors write that the government officials have not taken sufficient action to control drug prices, accusing lawmakers of corrupt relationships with pharmaceutical companies and their lobbies. They are correct that prescription drugs are unaffordable for many patients in the US who need them, and it is unconscionable that patients are forced to ration doses of life-saving medications. However, the article’s call to enact strict controls on prescription drug list prices is misguided. This approach sounds intuitive, but it would do little to address the out-of-pocket copayments that make prescription drugs unaffordable for many patients. Suppose, for example, that a patient prescribed a branded cancer drug must pay $5,000 per year out of pocket in insurance copayments. Imposing a 20% price cut would certainly reduce the drug manufacturer’s profit, but she would still face a hefty $4,000 bill. The more likely scenario, however, is that this $5,000 comes out of her health insurance deductible, and so her out-of-pocket cost would be unaffected by the reduced list price. Clearly, simple cuts to branded drug list prices won’t resolve this patient’s problem, and we must more critically evaluate the complexities of drug pricing in the US.
The authors write that “[a] vial of insulin, which is the only life-sustaining option for Type 1 diabetics, retails at around $300.” This statement is true, but misleading, since this and many other startling numbers throughout the article refer to the list prices of medications. In practice, insurance companies in the US use Pharmacy Benefit Managers (PBMs) to negotiate lower drug prices via rebates from manufacturers. There is limited transparency in this process, so the actual prices of prescription drugs paid by insurers are not always evident. The distinction between retail drug list prices and prices net of rebates from manufacturers is not a mere technicality, since patients are charged copayments based on high list prices. PBMs in turn make a profit by taking a fraction of manufacturer rebates as payment, and this is big business. One of the largest PBMs in the US, Caremark (owned by CVS), generated over $130 billion of revenue in 2017 alone. These practices serve to artificially increase the cost of drugs to patients and society and to stoke the fire of public outrage at pharmaceutical companies. Rather than directly controlling drug prices, as Meller and Ahmed recommend, society would be better served by prohibiting PBMs from taking a percentage of the rebates they negotiate on behalf of insurance providers, as this would remove the incentive to inflate drug list prices and their associated rebates.
As counterproductive as PBMs have been for controlling drug costs, however, the core issue impacting the lives of patients is an inability to afford copayments on prescribed medications. Patients with chronic myeloid leukemia, for example, are more likely to discontinue treatment with effective chemotherapy drugs if they have higher out of pocket costs. This represents a shocking failure of the health insurance system. The purpose of health insurance is to spread risk across a group of people (i.e., you pay a small monthly premium, and if you are unlucky and fall ill, the insurance pays for your treatment). That’s how the system is intended to work, and yet cancer patients with health insurance still choose to stop taking lifesaving medications due to high copayments. Meller and Ahmed point out that Americans spent $65.8 billion out of pocket in 2016 for prescription drugs but fail to make the connection that this outrageous figure is due to inadequate health insurance, either because too few patients are insured or because their insurance imposes unreasonable copayments. It is appalling that patients with Type 1 Diabetes are forced to ration doses of insulin, but this is due to the out-of-pocket costs that patients endure, not to the price of insulin itself. One could cut all drug prices by 50% and decimate the drug industry yet still leave patients with high deductibles or who have no insurance at all unable to afford healthcare (not only drugs but all the other costs of their care). The most direct route to improving the care and outcomes for these patients is for US lawmakers to require that insurance plans cover the costs of prescribed medications without placing financial burdens on patients and extend that proper form of insurance to all Americans.
The authors might argue that even if out-of-pocket costs for patients were controlled, the US healthcare system should not have to bear the high cost of prescription drugs whose development was supported by federally-funded basic research. What the authors fail to appreciate is that basic research is not sufficient to develop a drug, and that the costs of developing new drugs go well beyond what federal tax dollars provide. An analysis published in 2016 estimated that the total pre-approval cost of developing a new drug was approximately $2.6 billion! These astronomical development costs make the retail prices of newly approved drugs necessary to create the incentive for scientists, entrepreneurs, and investors to risk the significant time and money required to develop a safe and effective drug. Strict price controls on prescription drugs would certainly contain costs in the near term, but reasonable investors will not sink billions of dollars into drug development without the ability to recover that investment with an attractive financial return if and when the drug goes to market. Moreover, we already have price controls on most drugs in that most drugs go generic and drop steeply in price after the patents covering them have expired [1]. For those that don’t go generic, we do indeed need reforms, such as the concept of contractual genericization, recently suggested in The Great American Drug Deal by Peter Kolchinsky.
Carefully examining the issues of drug pricing and patient access reveals a great deal of complexity that Meller and Ahmed’s caricature of robber baron pharma companies and corrupt politicians does not capture. Still, this doesn’t resolve the cognitive dissonance I’ve experienced between the perseverance it takes to develop a drug and the fact that medicines are often inaccessible to the very patients that drug developers are aiming to help. How can America bridge the divide between these two realities? We should start by recognizing the US healthcare system as it is: byzantine, fragmented, and flawed. It’s only then that we can pursue policies that ensure patients get access to the medicines they need today, and that innovators and entrepreneurs are incentivized to create the medicines of tomorrow.
—
[1] Meller and Ahmed give the example that insulin has been available since the 1920s but remains highly priced. This is similar to saying that automobiles have been available since the 1900s and still cost tens of thousands of dollars. It’s true, but just like no one produces the Ford Model T today, we also no longer source insulin from the pancreases of livestock.