Can We Afford to Cure Disease?
Context of Discussion: Media mentions of prescription drug prices surged five-fold in 2015, driven by the launch of high-cost new therapies for hepatitis C, cancer, and chemotherapy in 2014–2016.
Spending Trends: While prescription drugs historically represented a stable portion of healthcare spending, a sharp spike in price growth occurred in 2014–2015; the government projects this will normalize pending the innovation pipeline.
Cost Distribution: Retail prescription drugs constitute approximately 10% of total healthcare spending, rising to roughly 13% when including all prescription settings, whereas hospital care and physician services account for ~60%.
Categorization of Therapies: The panel identified three distinct drug categories requiring different financing models:
- Chronic medications: Treated lifelong (e.g., diabetes), accumulating lifetime costs.
- Curative therapies: Require upfront investment to generate long-term savings (e.g., hepatitis C cures).
- Orphan therapies: Treat rare diseases with small patient volumes, necessitating higher per-unit costs.
Optimism and Innovation: Panelists cited optimism regarding the success of hepatitis C cures, with the VA projecting to be hepatitis C-free by 2020 after curing 25% of its population; private plans and Medicare have achieved unrestricted access.
Market Mechanism Concerns: Dr. Peter Bock noted the drug market is "intentionally broken" by monopoly rights (patents) and government mandates, necessitating "value frameworks" to substitute market price discovery, which currently fails to account for benefits.
Price Efficacy Disparity: Inflation-adjusted data indicates the cost of a life-year gained in cancer treatment rose from $50,000 to $250,000 over 20 years; conversely, the price of the cancer drug Gleevec tripled while iPhone prices fell by 15%.
Hepatitis C Cost Dynamics: The cost per cure for hepatitis C has decreased significantly due to competition, with US prices now averaging below the UK's NICE threshold, though upfront budget strains remain for Medicaid.
Distribution Chain Complexity: The $400 billion US drug market involves intermediaries paid based on list prices, creating a "ratchet effect" where rebates and discounts do not reach patients, leaving them responsible for coinsurance on inflated list prices.
Budgetary Impact: Humana reports that 1.3% of its drug budget is consumed by specialty drugs affecting 50% of the pharmacy spend in the next 18–24 months, while 98.7% of the population uses affordable generic drugs for chronic conditions.
Formulary and Access Risks: Tony Beretta warned that rising prices are forcing plans to shift from flat co-pays to deductibles and higher cost-sharing, threatening comprehensive coverage in exchange-based "metal tier" plans.
Policy Proposals: A recent Health Affairs article suggests the government exercise patent "march-in" rights for hepatitis C drugs to permit generic production with lower royalties, a move Gilead's Greg Alton noted requires clarification on government vs. private development contributions.
Valuation Frameworks: Various organizations (ASCO, ESMO, NCCN) utilize different "value frameworks" to price drugs based on clinical efficacy and patient benefit; Dr. Bock's "Drug Abacus" aims to mathematically determine prices based on societal value rather than list price.
Patient-Centricity Gap: Current value frameworks largely exclude patient input; the organization "Faster Cures" plans to launch a collaborative patient-centered framework in the summer.
Long-Term Investment Reality: Industry R&D investment stands at $80 billion annually in the US (totaling $4–6 billion per approved drug), a level of risk the industry argues justifies high launch prices to recoup costs before patent expiration.
Future Outlooks and Recommendations:
- Roy Beveridge (Humana): Predicts value-based payment models and Accountable Care Organizations (ACOs) will resolve affordability by shifting focus to patient outcomes.
- Tony Beretta (Kaiser Permanente): Calls for the pharmaceutical industry to align with the broader healthcare sector to curb the unsustainable trajectory of drug pricing, which contributes to 18% of US GDP on healthcare.
- Dr. Peter Bock (Memorial Sloan Kettering): Argues against creating new financing models for cures, stating existing fee-for-service systems should not justify prices that transfer wealth to shareholders; emphasizes the need for rational pricing based on societal benefit.
- Greg Alton (Gilead): Advocates for a clear definition of "value" as the primary step to improve the system, noting that while the system is imperfect, innovation and access require a balance between affordability and industry risk.