Stephen W. SchondelmeyerProfessor and Director

PRIME InstituteUniversity of Minnesota

Prescription Prices:Markets, Monopolies & Mysteries

UM Mini Bioethics AcademyCenter for Bioethics

University of Minnesota

October 21, 2016Minneapolis, MN

Overview

• Demand for Health & Pharmaceuticals• Health & Drugs in the Economy• Global Market for Health & Drugs• The ACA & Value-Based Health Care• The ACA Gets ‘Trumped’• Health Care Challenges Ahead

What will we cover today?

Overview

• Most People Have Coverage• It’s Insured So Don’t Worry About Cost• Price Spikes Are Rogue Companies• Coupons Will Save You Money• Patient Assistance Programs Always Help Patients• Patents Reward Innovation• Spending More on Drugs Is a Good Thing• Drugs Are a Public Good

New Myths About Drugs and Cost !

Is there anyone who has not needed (or used) a prescription drug?

Is there anyone who has never been sick a day in their life?

Virtually everyone needs, has used, or will use drugs in their lifetime.

Hospital Care, 31.4%

Physician Services, 20.0%

DentalServices

4.0%Home Health Care

2.8%

NursingHomes5.5%

Prescription Drugs, 9.6%

Durable Med Equip, 1.4%

Govt. Admin., 1.2%

Health Insur. Admin., 6.6%

Public Health, 2.6%Capital Costs 5%

Research, 1.4% Other, 10.0%

The Nation’s Health Dollar: 2015Where Did It Go?

*

*

**

*

** *

*Other sectors that include Rx drugs.

(Outpatient Rxs Only)

* 17.5% to 20%Rx Drugs in All Settings

Are Drugs Used in Other Sectors?

YES!

(FY 2015, $ 3.21 trillion)

*

What Role Did Drugs Play?

All Settings includes:* Hospitals, hospices, other inpatient care* Physician dispensing* Clinics (specialty meds)* Military, VHA, Tricare* Federal Qualified Health Clinics, PHS, IHS* Patient Assistance Programs, samples* Other (prisons, schools, state facilities, etc)

Avg Cost per Drug Claim in UPlan: Jan 2004 - April 2016

$0

$50

$100

$150

$200

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Based on data from Univ. of Minnesota self-insured drug benefit (UPlan) 2004 to 2016 & compiled by PRIME Institute, University of Minnesota.

$ / Claim

Average Drug Claim

Patented Brand Rxs

OTC Claims

Generic Rxs

$ 37

$154

$ 42

$ 532

Specialty Claims ($/Rx) in UPlan: January 2004 – April 2016

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000Ja

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Based on data from Univ. of Minnesota self-insured drug benefit (UPlan) 2004 to 2016 & compiled by PRIME Institute, University of Minnesota.

$ / ClaimSpecialty Brand Rxs

Patented Brand Rxs

Generic Rxs $ 40

Brand to Generic 13 : 1

Specialty to Brand 9 : 1

Specialty to Generic 120 : 1

$4,813

$532

Assumption:Price Spikes Are From a

Few Rogue Companies?

Not Really !

$/EpiPen (2-pak) for Self-Insured Health Plan: 2005-2016

$101 $119

$180

$289

$730

$0

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$200

$300

$400

$500

$600

$700

$800Ja

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Based on data from self-insured drug benefit 2004 to 2016 & compiled by PRIME Institute, University of Minnesota.

$ / Month

* 700% Increase In 2005-2016

* 400% Increase In 2011-2016

* 2011-2016: ↑ Spending $1,000,000

NEWS FLASH: • Competitor Auvi-Q will re-enter market• Price: $4,500 (2-pak)

Top Drugs Are in the RadarPhysician Pharmacist

Wholesaler

Insurer

PBM

Employer

Flying Under the Radar

Acthar Gel

HIV Drugs

Colchicine

Orphan DrugsLow volume

Generic Drugs Daraprim

Isuprel

captopril

Nitropress

The Promise of Specialty Drugs

Every Drug Wants to be a Specialty Drug

Daraprim (pyrimethamine) HIV Drugs Old Drugs (Insulins, Acthar Gel, EpiPen) Orphan Drug FDA’s Unapproved Drug Initiative

(e.g., Colchicine, Isuprel, Syprine) Single Source Generics (Functional monopoly)

Very Low Volume Generics (Budget Dust)Budget Dust (Low volume Items) Need to be Monitored

Specialty (High Cost Drug) Drug

Verapamil Injection (Hospira )Shortage: April 2013 to January 2015

$0.31

$2.20

$8.00$8.73

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10A

pr-0

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Oct

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pr-0

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Based on data found in Truven’s MarketScan® Commercial Claims and Encounter, Medicare Supplemental Data (2005-2016 ),and other sources and compiled by PRIME Institute, University of Minnesota.

$ / Unit

* 420% Increase After Shortage

Humulin U-500: Average $/Monthfor Commercial Insurance: 2005-2013

$187

$247

$431

$864

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$100

$200

$300

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Based on data from self-insured drug benefit 2004 to 2014 & compiled by PRIME Institute, University of Minnesota.

$ / Month

$ 5,172/Year

* 461% Increase In 8 Years

$ 2,248/Year

$ 10,375/Year

$ 2,954/Year

• 13% Increase• In 4 Years: • 2006 to 2010

• 75% Increase• In 2 Years: • 2010 to 2012

• 200% Increase• In 2 Years: • 2012 to 2014

When insulin has a200% increase in price

does the patient’s

NO ! ! !Are We Getting Our Money’s Worth

When Drug Prices Go Up 200%?

diabetes get 200% better?

When a Drug Price Goes Up 200% What Happens to the Cost-Effectiveness?

Proton Pump Inhibitors $ Cost/Unit forSelf-Insured Employer*: 2016

$8.3

2

$1.0

6

$0.5

6

$0.0

9

$0.0

9

$0.1

5

$13.

62

$13.

54

$0.3

7

$8.1

3

$10.

64

$0.1

1

$17.

01

$0.6

6

$-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$18.00

$20.00

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* Compiled by the PRIME Institute, University of Minnesota from actual claims data for total amount paid by a self-insured employer for calendar year 2016.

omeprazole & esomeprazole lansoprazole &dexlansoprazole

pantoprazole rabeprazole

Brands: 3% of Rxs vs. 38% of Total $ Paid

The “Purple” Pill

Generics: 97% of Rxs vs. 62% of Total $ Paid

Brand:Generic$/Unit Ratio

= 92:1

Brand:Generic$/Unit Ratio

= 37:1

Brand:Generic$/Unit Ratio

= 97:1

Brand:Generic$/Unit Ratio

= 26:1

Brand

OTC Generic

New Combination Product:Zegerid

(Omeprazole & sodium bicarbonate)$94.65 / tab Unit Ratio

= 1,000 : 1

Annual Cost of Multiple Sclerosis Therapies in the U.S. from 1993 to 2013

Source:The cost of multiple sclerosis drugs in the US and the pharmaceutical industry: Too big to fail?

Daniel M. Hartung, PharmD, MPHDennis N. Bourdette, MDSharia M. Ahmed, MPHRuth H. Whitham, MD

Neurology, 84 May 26, 2015, pp.1-8

Would you expect pricesto go up or down as more competitors enter the market?

What happened with MS drugs as more competitors entered the market?

$8,292(1997)

$84,132(2016)

COPAXONE

$11,532(1993)

$61,848(2016)

BETASERON

↑ 536%

↑1,015%

MS Therapy Prices Have Increased 500% to 1,000%In 10 Years

Specialty Drugs: Utilization

Annual Plan Cost

$2.08 million

Cost of Drug Therapy

$52,000Per Person

40 with MSWill Seek

Treatment (67%)

60 personsWith

Multiple Sclerosis(0.18%)

Covered Population

of

40,093

Multiple Sclerosis & Plan Cost: 2013

Annual Plan Cost of

Drug Therapy$51.88 PMPY

5.4% ofTotal PMPY

Specialty Drugs: Utilization

Annual Plan Cost

$1.53 million

Cost of Drug Therapy

$102,000Per Person

15 with Hep CWill Seek

Treatment (1.5%)

1,000 personsWith

Hepatitis C(2.5%)

Covered Population

of

40,093

Hepatitis C (Sovaldi & Olysio) & Plan Cost: 2013

Annual Plan Cost of

Drug Therapy $38.16 PMPY

4.0% ofTotal PMPY

Source: Compiled by the PRIME Institute, Univ. of Minnesota and AARP from data found in MediSpan (Wolters Kluwer Health Inc., May 1, 2016).

-2%0%2%4%6%8%

10%12%14%16%18%

Top 200 Drugs Most Used by ElderlyBrand Price Inflation & CPI-All:

1998 to 2015Annual %Change

Top 200 Brand Index

CPI All Items

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

37%37%39%42%

358%

290%

148%

66% 48% 46%

0%50%

100%150%200%250%300%350%400%

Glumetza1000 mgTab ER

Zegerid 40-1100 mg

Cap

Carac 1%Cream

Vimovo500-20 mg

Tab DR

Patanol0.1%

OphthalmicSoln

HumalogMix 75/25

Azopt 1%Ophthalmic

Soln

Renvela800 mg

Tab

EstraceVaginalCream

Vagifem 10mcg Tab

Brand Drug Price Inflation:Dec. 31, 2014 vs Dec. 31, 2015

(Annual % Change in Price)

Source: Compiled by the PRIME Institute, University of Minnesota from data found in Truven’s MarketScan® Commercial Claims and Encounter and Medicare Supplemental Data , 2014-2015.

% Change in Price

Valeant

Valeant

Valeant

HorizonAlcon Lilly Alcon

Genzyme Actavis NovoNordisk

Diabetes GI Drug

Topical

PPI DiabetesEye Drops Eye Drops GI Drug VaginalCream

Vaginal Cream

Most People Have Health Coverage

We Need to Re-set How We View Cost of Health:

Health Care is Not a Free Benefit*

Out-of-Pocket Cost (copays, co-insurance)

Insurance Premiums (employer, self-insured)

Employer Paid Insurance v. Lower Wages

Tax Supported Govt. Programs (Medicare, Medicaid, VA, IHS, NIH, other)

We all pay for health care directly or indirectly. Insurance does not reduce the cost of

health care it merely redistributes it.

Changing Coverage Shifts Where

Affordability Is Measured

But Not Necessarily the Degree of Affordability

Assumption:

Coupons Will Save The Patient Money

Not Really !

Assumption:Patient Assistance

Programs Will Always

Help the PatientNot Really !

U.S. Annual Income: 2014$65,910

$24,150$28,889

$20,402

$53,657

$25,061

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

FamilyIncome

FamilyIncome per

Person

HouseholdIncome

HouseholdIncome per

Person

Real Incomeper Person

MedicareBeneficiary

income

U.S. Bureau of the Census, 2015; AARP Report, 2015

$ / YearIncome per Family / Household

Specialty $53,364

Brand $ 2,960

Generic $ 283

Income per Person

Are Specialty Drugs Affordable---Even at the Societal Level?

Some New Drugs Enter the Market at the Cost of:

A Week’s Vacation ($1k to $5k)

(copaxone for Multiple Sclerosis)

A New Economy Car ($10k to $25k)

(Insulin, PCSK9s for cholesterol)

A New Luxury Car ($30k to $100k)

(Harvoni & Hep C drugs, Gilenya & MS drugs)

A New House ($200k to $500k)

(Yervoy, Cancer & orphan drugs)

How Much is Your Life Worth?How Much Do You Have

in the Bank?Can You Afford Yourself ?

Our Expectations & Choices May Not Be Sustainable!

What Happens When Our Expectations Exceed Our Resources

We Must Make Realistic Choices

About How to Pay for &How to Deliver

Needed Health Care to Everyone in Society.

Donald Trump won the election!

What will happen with Health Care Reform?The Affordable Care Act will get ‘Trumped’.

Health Policy ‘Trumped’ ObamaCare (the ACA) will be:

* Repealed, replaced, repaired, reformed

BUT, will keep key provisions:* Coverage up to 26 years old on parents’ plan* Guaranteed issue* Medicaid Expansion in states

May negotiate drug prices for Medicare May streamline FDA regulation May emphasize biomedical research

Raise Revenue or Cut Spending or Both

Options for Policymakers

• Raise Taxes, Premiums or Deductibles• Cut # of Beneficiaries• Cut Benefit Package• Cut Payments to Providers• Cut Fraud, Waste & Abuse• Change Incentives & Increase Efficiency

(more outcomes for limited resources spent)

What options do policymakers have?

Policy Assumptions Society Values Health & Health Care Society Has Limited Resources NHE Has Impact on Health Outcomes Appropriate Drug Therapy Improves

Health Outcomes

More Efficient Resource Use ---->More People Can Be Treated

What’s In The Future for Drug Pricing?

Forbes, PHARMA & HEALTHCARE, 10/23/2014 @ 9:51AM 12,602 views

Market has seen:> More combinations> More new dosage forms> More new strengths

Not as many new drugs

We Need to Re-set How We View Cost of Health:

Health Care is Not a Free Benefit*

Out-of-Pocket Cost (copays, co-insurance)

Insurance Premiums (employer, self-insured)

Employer Paid Insurance v. Lower Wages

Tax Supported Govt. Programs (Medicare, Medicaid, VA, IHS, NIH, other)

We all pay for health care directly or indirectly. Insurance does not reduce the cost of

health care it merely redistributes it.

Health Reform is About:

Getting the Most Health Outcome for theLimited Dollars Spent onon Health Care.

Efficient Resource Use

The Drug Market is Broken !

FDA Approves Drugs That Are Better Than Placebo Medicare & Medicaid Must Cover FDA Approved Drugs Drug Firms Set Any Price They Want (a blank check) Coverage Has Been Broadened to Include Most

(> 90% of U.S. Residents) Increased Cost-Sharing for Rx Coverage The Cost is on Individuals, Employers, or Govt. Cost-Sharing Does Not Increase Resources Cost Shifting Income Re-Distribution

Drugs as a Public Good

• Monopoly Position (Natural or Legislated)

• Universal Demand (Good or Service)

• Essential to Life & Existence

• Common Benefit to Society

What is a public good?

State Strategies to Assure Access

• State as Regulator [MA, VT]

• Utility Model: Drugs as Public Good, Ban coupon & marketing

• State as Wholesaler [Europe, VT considered, untested in US]• Controlled Distribution: State Liquor Stores

• State as Prudent Purchaser [CA Medicaid rebates,PBMs]

• Market-based Competition: Formulary & Competitive Bidding

• Payment-Limits Model: Set Maximum Payment Rate

• State as Subsidizer [CA, NY, NJ, MN, SD, ACA exchanges]

• Welfare Program Model: Medicaid or Food Stamps

• State as Importer [VT, ME, SD, border states]

• Importation from Canada: Free Trade Approach

PRIME Institute

PRIME

PRIME Institute

PRIME

harmaceuticalesearchn

anagement &conomics

harmaceuticalesearch

nanagement &

conomics University of MinnesotaUniversity of Minnesota

PRIME Institute Phone: 612-624-9931University of Minnesota FAX: 612-625-9931308 Harvard Street, SEWeaver-Densford Hall 7-159Minneapolis, MN 55455