Senate hearing shines light on some of Big Pharma’s best kept secrets
The December 2015 issue of the medical magazine Stat featured an article about the intricacies and mysteries of prescription drug prices. “[It’s] frustrating for those who track the issue that it’s hard to know exactly how a drugmaker goes about setting a list price,” said the article.
“Right now, it’s a black box,” Dan Ollendorf, chief review officer at the Institute for Clinical and Economic Review, told the magazine. “There’s really no inkling to the general public about what the ingredients of that soup that make up the price that’s set.”
The exact equation is unknown, but some of the variables are obvious, a pharma consulting executive told Stat.
“The big one: competition,” he said. “Drug makers consider other drugs that are already on the market or coming soon. Then they look at the market control of the various payers they’re working with. Medicaid is a not-for-profit venture; health insurance plans are. They require different approaches.
Lastly, what are the long-term projections for the drug?” A medicine usually starts with a limited number of uses, but over time, its so-called “off-label” indications expand. “So, down the road, the price might go down, but if the drug is going to be prescribed to more people for more purposes, that is another factor a drugmaker may take into account,” Stat noted.
According to the magazine, it took a recent investigation by the Senate Finance Committee into the pricing of Gilead’s hepatitis C drug, Solvaldi, to bring to light a current drug company’s reasoning behind a list price in detail.
“Gilead executives weighed whether the expanding Medicaid population under the Affordable Care Act and more baby boomers joining Medicare should factor into its pricing strategy because the required discounts for the government programs tend to drive actual prices paid down,” Stat said.
The documents presented to the Committee also show that Gilead looked at the discounts previously given to private payers for prior hepatitis C treatments and considered what the Solvaldi price would mean for future medicines. A second-wave drug, Harvoni, was in the works, and Gilead knew that the Solvadi price would determine what the company could charge for its follow-up, according to the article.
“Gilead also considered whether to contract with health plans, and a big part of that equation was the plans’ market share. Plans with large control of their markets were the ones who could block Solvaldi because of its high price. In its final round of pricing discussions, the report said, the company sought the maximum price it could set without risking that a substantial number of payers or physicians would not take to the drug,” Stat reported.
“This presentation shows that Gilead set a price as high as it thought acceptable before significant access restrictions would be imposed,” the report said.
The final price? $84,000. Some would say that a five-figure price tag on a lifesaving drug treatment is not only a sign of a dysfunctional healthcare system, but also an outlandishly unconscionable decision on Big Pharma’s part. What can be said, though, of those who don’t see it that way?