Addressing Prescription Drug Pricing: Fixing an Unsustainable Situation

Join us for part two of a conversation about soaring US prescription drug prices, the need for Medicare price negotiation, and proposed structural changes with Stephen Crystal, PhD, Director of the Rutgers Center for Health Services Research and Distinguished Research Board of Governors Professor at the School of Social Work.

For Part 1 of this conversation, click here.

Read the full transcript:

Welcome back to PopHealth Perspectives, a conversation with the Population Health Learning Network where we combine expert commentary and exclusive insight into key issues in population health management and more. In this episode, Dr Stephen Crystal shares his insights on the soaring prices of prescription drugs in the US and the need for price negotiation within the Medicare system.

Could you elaborate on why adjusting to prices that were seen in other places in the world could or could not prevent innovation?

A lot of reasons. One reason is that when you just have a blank check—when, essentially, Medicare gets forced into paying whatever price a company sets, then that applies equally to a medication that is truly revolutionary in its value to the public and to a medication that's just a slight variation of something else that's out there. So, when you have an active buyer out there who's looking at value, that will help move the investments in the development to the truly innovative and new classes of drugs. So, in a way, it becomes the reverse. If you have a pay a blank check kind of purchaser, then they're not going to exercise that pressure as to where your investment goes, and does it go to the medications that are truly needed.

And, you know, we have huge problems here. In some areas, the industry is investing a lot, like cancer, but take an area like mental health. They're not investing nearly enough because they can make more money in other areas. So, if the buyers have more clout, when the buyers can say, “We're going to pay more for a medication that has better impact on quality, justice survival,” then we're going incentivize you to do that. So, that's why if you have a better balance between the purchasers—and, I mean, this is economics 101. I'm not making an anti-economics argument; I'm making a pro-economics argument. You allow the economic system to work the way it's supposed to, where you have a smart buyer and a smart seller. And as a result, the smart buyer will encourage the smart seller to produce a product that's of real value to them.

When you create these kinds of systems where you essentially have to pay whatever we charge, then you don't have that influence. And the CMS, in particular, Center for Medicaid & Medicare Services, has the ability to make these judgments of what's the value of a particular medication, and the same with health plans. The health plans should be compensating more for drugs that make a big difference. And if you put all of your resources into developing the latest tweak on an existing class of drugs, then you won't make as much profit out of it.

What do you think that the future of drug pricing for US health care will look like going forward? What are the next stages here?

You know, it's funny because it's really your classic political science kind of situation where the special interest has a great deal of power. We've had to redraw new rules with the industry on some other areas that are really making a difference. For example, they can't pay physicians to prescribe their drugs in the way that they used to be able to. All these payments to physicians that were supposedly for education, and you pay a doctor a whole lot of money to read from your company slides at a steak dinner. And in part you do that because that doctor himself is one of your big prescribers, and they know exactly which doctor is prescribing which drug, and you incentivize them to prescribe the expensive drugs. So, we've had to redraw that line a little bit. And at places like Rutgers and the health systems, we don't have the drug company. We won't have Miss Florida coming in and telling the doctors about how wonderful this new drug is. They get that information from more independent sources.

When you look at the public opinion, it's overwhelming. The public is persuaded. The public knows that something has to be done. This is in poll after poll, and it's bipartisan. So, it's sort of the difference between what congresspeople do in the backrooms with industries that are some of their biggest contributors vs what their constituents are telling them. It's really a classic special interest kind of situation at the moment. So, that's why the public interest in these things is so important, and you have to watch what Congress does and see, does Congress really come out with anything that really changes the balance, that really allows Medicare and other payers to be more rational purchasers. They'll do it if the public is watching to an extent.

And I think we're going to move in that direction because we have to, because what we have is unsustainable. I mean, if you look at what's happening to the prices, when is the end? You know, first cancer drugs, they start costing $100,000 of treatment, then they start costing $200,000, $300,000. Now you have some that are $500,000. At what point does it stop? At some point, it has to stop because unsustainable things are unsustainable, and trees don't grow to the sky. And you don't have a sustainable business that way. You don't have a sustainable relationship between an industry that has to be a public partnership because they operate under monopolies, regulated monopolies. It's a very special kind of industry. It's a very profitable industry, and it needs to be, but what happens in that industry is that too often, the big companies concentrate on marketing drugs, and they leave it to these small companies to develop new drugs. And then if the small company has a promising drug, they'll buy them up. They'll buy up the company and their drug, and they'll start introducing it.

Which is fine; I mean, these small companies are a source of innovation, but the big companies are often withdrawing. So, if you look at where their actual investment goes, their investment doesn't go nearly as much to actual drug development as they want us to think. So, that's what has to change. That's why I think, and I haven't heard this said too much in this debate, that not only would changing the rules not stifle innovation—it could improve innovation, because the buyers need to be able to send the signal: These are the new kinds of drugs, the new truly effective drugs that we need. And they might take a little bit more investment in basic science. Fine. We give you enough support, by the way—that's another part of the social contract here, that the really new classes of drugs, they're built on a foundation of NIH-funded research. So, where does the public get that investment back? They should get it back in fairly priced medications.

Is there anything else that you think is important or that you would like to add?

I'm watching all of this with great interest. My prediction is, there's this concept, which is called the Pyrrhic victory. And way back in the in the age of the Greeks, there was a general called Pyrrhus who led his troops into a battle, and he said, “Yeah, I won the battle, but at what cost? 70% of my troops are dead.” And the leaders back at home said, “Another such victory, and we will be completely undone.” And that was a Pyrrhic victory. So, if the pharmaceutical industry wins this suit, they win a Pyrrhic victory, and if they stop this particular legislation, then something else will have to be done because they're just sort of demanding this unsustainable situation.

Now if you think about it, how can you have a situation where Medicare has to pay whatever price the drug company decides to set? That’s not a sustainable situation. No other government in the world, pretty much, is willing to make that kind of deal. And it was the deal that Bush made with the industry in order to get this legislation through. So, in that sense, there were people in his party who opposed it, who said, look, you know, this was bad legislation. You've given away the store. It wasn't bad legislation. It was needed legislation, but the giving away the store part has to be changed.

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