Contributed Commentary by Jim Davis

September 29, 2015 | This month’s controversy surrounding Turing Pharmaceutical’s CEO Martin Shkreli’s attempt to raise the price of Daraprim by more than 5,000% was met with such outrage from payers, patients and pundits Shrkeli was forced to back off the increase.

The Daraprim episode is the latest and most striking in the new “war on drugs.” The war is no longer defined as an offensive against illegal narcotics, but one against pharmaceutical companies and the increasing costs of specialty drugs. With the donkeys, elephants, and other political animals gearing up for the 2016 electoral stampede, it seems each news cycle brings another criticism of drug pricing practices.

This is not just political posturing. The acquisition cost of life saving medications is a real problem that if not addressed now has the potential to bankrupt Medicare, tear into potential ACA savings, and be detrimental to patient outcomes. To demonstrate this new economic insanity, a study published in the April 24, 2015 issue of Neurology, covered by Bloomberg News, revealed that the costs of Multiple Sclerosis medications have accelerated at rates well beyond inflation, and substantially above rates observed for drugs in a similar biologic class.

These numbers are astonishing. In a fair market, more competition would lead to lower pricing. However, in the pharmaceutical world over the past 20 years, as more competition has come to market, with increasingly higher introductory pricing, older, established drugs have managed to defend their market positions by also increasing their pricing. This increase not only offset any incremental market share losses, but actually exponentially increased their profits.

It’s an amazingly well executed business strategy based on the monolithic control the pharmaceutical industry has on the health system.

Pharma will argue that even though list prices have risen, the drugs’ prices are actually much lower because they are negotiated down by health plans. This is only true up to a point. For one, discounts don’t account for 400% pricing increases. More important, given the asynchronous flow of information that exists in this buyer/seller relationship, health plans historically have not had the data necessary to properly negotiate. This data includes drug safety profiles that demonstrate the comparable safety of drugs. Second, Medicare is forbidden by current law to negotiate prices with drug manufacturers. The significance of this is shown by the report filed by the National Multiple Sclerosis Society which estimates that approximately 25-30% of people with MS are enrolled in Medicare.

How does this translate to the real world? Here’s the basic math: 1) 70% of the MS patient population is covered by payers that lack real, accurate and powerful negotiating data. Simply, the payers have to believe whatever the manufacturers are telling them. 2) The remaining 30% is covered by a payer that doesn’t have the legal authority to negotiate. Clearly the reason for the rise in pricing is obvious: there has been no deterrent to a monopoly.

While there is no magic panacea, recent advances in transparency and big data analytics by companies like Advera Health Analytics are providing unprecedented access to comparative safety research. Analysis that allows payers to quantify post approval data that was previously assessed based solely on anecdotal perception, and often through the biased lens of the manufacturers. This powerful insight when taken into account during the negotiation process will help tip the scales in favor of the buyer, and ultimately will improve patient outcomes.

A real world example from Advera’s data shows an estimated $195 million is being incurred in downstream medical costs from adverse MS drug events by the healthcare system on an annual basis. Rebif, one of the most costly drugs to acquire per the Neurology study, also has the highest downstream medical costs per patient among the older MS drugs – $1,304. Compare this to Copaxone’s $105, which has comparable efficacy but a substantially lower overall cost to the system.

As health plans and health systems sprint to discover new ways to reign in their costs, there has been a marketed shift in acceptance of this new comparative safety data. As a result the application of analytics has quickly become standard practice. The sharp change has taken place because health systems and plans, armed with usable and measurable data when entering negotiations, have generated hard and fast ROI.

In the past several months we have seen the shift in power first-hand. Pharmaceutical companies themselves, who have historically shunned our mission, now want to use our data, analytics and insight to help support, and defend against new drug launches. 

Clearly, the acquisition cost of life saving medications is one of the most significant problems facing the health industry today. If not addressed quickly the potential downsides are enormous. With the advent of data technology such as ours, it is clear that the utilization of actionable, transparent safety and total cost data will be a key component in ensuring fair and mutually beneficial negotiations. It can serve as a sharp arrow in the payers’ quiver to push back against unreasonable pricing, as well as a smart vehicle for pharma to prove the value of their products. 

Jim Davis is Executive Vice President, Advera Health Analytics. This post originally ran on the Advera blog. Jim can be reached at jim@adverahealth.com