The specialty drug pricing conundrum: Caps may raise costs, not lower them

It used to require hundreds of thousands of patients taking a drug to make it blockbuster. But over the last decade drug companies have figured out that they can get to $1 billion in product sales with much smaller populations. The key: sky-high prices.The math is simple. A drug that goes for $1000 per year needs 1 million patients to get to the billion dollar mark, but if the price is $100,000 it takes just 10,000 patients. At $200,000 it's 5000. Anyway, you get the idea.You don't see these dynamics in other fields, but healthcare is different. The two big drivers: third-party payment that shelters patients from the real costs of treatments and an aversion to talking about anything that could be construed as "rationing."In fact, as Kaiser Health News reports (States Limiting Patient Costs For High-Priced Drugs) public policy is moving even further away from using cost-sharing to constrain demand by limiting out-of-pocket payment amounts to as low as $100 per month. These policies will backfire as cost containment mechanisms because they will just end up boosting premiums.Some other states are considering bills to require manufacturers to report their costs for high-priced drugs. That strikes me as pretty useless as well. If it's a first step toward capping prices, that may discourage companies from moving forward with risky development programs for orphan diseases.So what can be done, if anything? Well, a few things:

• Use step therapy and similar programs to try less expensive treatments before defaulting toward the priciest. These programs are used today, but too often patients jump right to the high-priced specialty drug without seeing if something else would work
• Shift the site of service for infused drugs away from hospital outpatient settings toward the home or physician's office, which is much less costly
• Encourage comparative effectiveness research and the adoption of quantitative measures such as Quality Adjusted Life Years (QALYs) to compare the efficacy of different treatments
• Demand real-world, patient outcomes data from marketed products
• Once a specialty (biologic) product has been on the market for several years and its patents have expired, regulate its price. This is a safer, more cost effective approach than encouraging so-called biosimilars

Image courtesy of Salvatore Vuono at FreeDigitalPhotos.net

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By healthcare business consultant David E. Williams, president of Health Business Group.