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Why Specialty Drugs Cost So Much, And What To Do About It

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On Tuesday night, I joined a Pittsburgh Post-Gazette-sponsored panel of cancer doctors, researchers, and a pharmaceutical industry representative in...

On Tuesday night, I joined a Pittsburgh Post-Gazette-sponsored panel of cancer doctors, researchers, and a pharmaceutical industry representative in Pittsburgh to talk specialty drug costs. I shared some of what I've learned reporting on the high cost - and huge benefits - of new hepatitis C treatments. But I learned much more about what drives the high cost of pharmaceuticals, and what health care providers, insurers, government, patients, and drug companies can do to rein in those costs.

Here are some highlights, and a link to the forum video. The forum was part of the Post-Gazette's ongoing series "Vital Signs," delving into health care issues like patient responsibility and health care disparities.

- Drugs are priced to make money, but that retail price has nothing to do with what patients actually pay for them (because of health insurance/co-pays, insurance company discounts and rebates), a good reminder from panelist Walid Gellad, MD, internal medicine physician at the Pittsburgh VA and director of the University of Pittsburgh Center for Pharmaceutical Policy and Prescribing.

- Not every new specialty drug is a big improvement on older drugs, but they tend to command higher prices. It's important to know the evidence on how well the drug works, said panelist Vinay Prasad, MD, a cancer doctor and researcher at Oregon Health and Sciences University. 

- Yours truly brought up the importance of getting the most bang for your buck when it comes to new drugs. If we ask, 'is this cost effective," we're really asking, is this good value for the money, or, put another way, will this drug deliver enough benefit, with the least amount of side effects? 

- Randy Burkholder, VP of policy and research at PhRMA, an industry association, stressed that drugs are heavily regulated, safe, and effective. But most panelists challenged him on his assertion that drugs are always as effective as pharmaceutical companies say they are, in ads and when presenting to physicians. Burkholder countered that physicians have a responsibility to choose the right treatment for their patients, and circled back to the regulatory steps drug makers must take to get a drug to market.

- Lots of discussion centered on the extent to which research and development costs contribute to high drug prices. Pharmaceutical companies claim this is the major driver, but cancer doctor and researcher Vinay Prasad pointed out that government often plays a huge role in funding investigations into promising compounds, getting the research to the point that it's ready for a private company to take it to the next level. 

- Most other developed nations in the world regulate drug prices (Switzerland, for example, evalutes treatments and then sets a price cap). And only two countries, including the U.S., allow direct-to-consumer drug advertising. Medicare, the federal health care program for seniors, is prohibited by law from negotiating drug prices. When pharmacy drug benefit management companies, and health insurers, etc. negotiate drug prices, those discounts are kept secret.

- Panelist Matthew Davids, MD, a cancer physician and researcher at the Dana-Farber Cancer Institute, said he welcomed collaboration with pharmaceutical companies and worries that regulating prices might stifle innovation. Davids pointed out that drug makers don't command the same kinds of prices in Europe as they do in the U.S., but more innovation is coming from the U.S.

- If a drug's price has nothing to do with how much a patient actually spends on that drug, out of pocket, in co-pays, for example, why does it matter? It matters because drug prices are a big driver of overall health care costs, and as health care costs rise, so too do our monthly health insurance premiums, government spending, and, so on. 

- Specialty drugs represent a growing chunk of this spending. Specialty drugs are generally drugs used to treat rare or complex conditions, generally used in a very small subset of the population, and sometimes require specialized formulations or routes of delivery. Health insurers often place them in a higher-cost tier. There are some specialty drugs that have made huge differences in the lives of patients; they can be lifesaving, and life-prolonging. But for a price: among Medicaid recipients, for example, specialty drugs account for nearly a quarter of all pharmaceutical spending but that spending is for about 2 percent of all recipients. This isn't to say patients should not be able to access these medications because they're so expensive. But the question is, if they're so expensive, do the people who need them really have the kind of access to them that they should? And can we afford them, or sustain this kind of spending? Those are health care policy questions, to be addressed perhaps by government, by health care systems, health insurers, researchers, and more.

Panelists discuss specialty drugs at the Heinz History Center, downtown Pittsburgh, PA.
Panelists discuss specialty drugs at the Heinz History Center, downtown Pittsburgh, PA.