Contemplating the Future of List Prices

There’s no doubt: drug costs are skyrocketing-and those rising prices are affecting providers, payers, and patients in a variety of different ways.

According to a recent Kaiser Family Foundation research study, Medicare Part D enrollees without low income subsidies are looking at having to pay thousands of dollars out of pocket for single specialty drug this year. Such costs, especially with baby boomers retiring at an average of 10,000 people per day, are unsustainable-and President Donald Trump and others in government have been clamoring for ways to reduce list prices. 

But as all eyes are on drug manufacturers to see how they respond to increased political and consumer pressure, Nitin Naik, Vice President of Global Life Sciences and Transformational Health at Frost & Sullivan, says there are many factors that are contributing to rising drug prices. He says current research and development efforts are, in fact, one of the main drivers behind the increasing price tags seen on drugs.

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“There are several factors at play but mostly it’s the introduction of innovative molecules and specialty drugs used to treat complex disease pathways like oncology, rare disorders, and infections diseases like Hepatitis C,” he explains. “These all contributed to the overall increase in drug expenditures.”

Perry Cohen, PharmD, chief executive officer of the Pharmacy Group and the TPG family of companies, which provide services to associations, healthcare, and information technology organizations, payers, and pharmaceutical companies, says that the price increases of existing specialty drugs, sales, and marketing activities tailored to providers and patients to drive demand for specialty drugs, the lag in biosimilar adoption, and ineffective programs by health plans and pharmacy benefit managers (PBMs) have also played a role.

“There are many factors driving these costs,” he says. “And each patient population, from commercial to Medicare and Medicaid, will feel these rising drug costs differently.”

In Managed Healthcare Executive’s recent Managed Care Pharmacy Survey, specialty pharmacy stakeholders, including providers, consultants, health plans, and pharmacy benefit managers (PBMs), were asked to offer their predictions about what will transpire at the drug manufacturer level as it relates to drug pricing over the next three years. 

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More than one-third of respondents (37.58%) said they believed they would see a short period of decrease in annual inflation rates, followed by a return to higher rates. That response was followed by the belief that inflation rates on existing products will continue to grow as they have for the past five to ten years (29.7%) and that we will see a prolonged decrease in annual inflation rates due to the increased scrutiny (18.79 %). Only 13.94% thought that a substantially greater number of drug manufacturers will decrease their current list prices.

Naik says that the increased focus on drug pricing is valuable as it helps to bring more pricing transparency to patients-giving them the opportunity to make informed decisions on optimal treatment strategies with their physicians. He says that he believes manufacturers will have to invest in integrated media outreach platforms to help guide patients and physicians to help do that. 

But as for significant changes in pricing in the near future? Naik is more circumspect. He says Frost & Sullivan expects modest rate increases due to collaborative efforts between government and manufacturers over the next three to five years. In addition, he doubts that the industry will see reductions in price across the board.

“Commercial drug plan spending has increased by 1.5% in 2018 compared to 3.8% in 2017,” he says. “In 2019, Frost & Sullivan expects lower pricing on drug categories related to pain, high cholesterol, and neurology due to the availability of generics in those segments. Categories related to diabetes, oncology, and HIV, however, will experience inflation due to the launch of new specialty products.” 

Despite those projections, Naik says it is important to understand that the current debate about drug pricing is not as simple as just decreasing list prices. He argues it’s really about putting out holistic information about the benefits of the drug treatment and pricing in relation to insurance coverage.

“We have a need to generate simple yet meaningful data,” he says. “Healthcare executives should look at adopting new artificial intelligence or machine learning technologies that can assist standardizing and comparing treatment options with the help of calculator tools to estimate the total out-of-pocket costs for each patient by applying plan specific information.”