Is pharma gaming the system?

With drug prices continuing to rise, there’s a whole lotta finger pointing going on, but there’s reason for hope, too.

From the pages of In Business magazine.

When Frederick Banting invented insulin in 1923, he was so thrilled to be saving lives that he never put his name on the patent. In fact, his colleagues ended up selling it to the University of Toronto for just $1, believing that patients should be able to afford their life-or-death medication.

In a 2017 report, the Centers for Disease Control (CDC) claimed that in 2015, more than 100 million Americans were living with either diabetes or prediabetes. In Wisconsin, an estimated 517,000 people, or 10.6 percent of the adult population, have diabetes but 142,000 don’t know it. Many more adults, 1,550,000 have prediabetes, or slightly elevated glucose levels, which if left untreated can lead to a type 2 diagnosis.

The CDC lists diabetes as the seventh leading cause of death, but a more recent study from Boston University suggests it could rank as high as third when other factors often found in diabetics — obesity, high blood pressure, or heart disease — are taken into account.

Eli Lilly produces and owns the patent for two common insulin brands, Humalog and Humalin, and prices have been shooting up, from $21 a vial in 1996 to $275 in 2019. That means someone with a type 1 diagnosis will pay $600 per month on average for their insulin, depending upon how much their body requires.

Insulin, a 96-year-old drug, still has no lower priced generic alternative on the market, but hope is on the horizon.

In the 1950s, Jonas Salk discovered the polio vaccine, all but curing a disease that had been paralyzing between 13,000 and 20,000 children each year. Salk’s vaccine proved 90 percent effective and led to a nationwide inoculation program paid for entirely by the U.S. government.

On April 12, 1955, Salk was a guest on See It Now, a national radio program hosted by CBS journalist Edgar R. Murrow. Murrow asked Salk who owned the patent for the vaccine. “The people, I would say,” Falk answered, and then added, “There is no patent. Could you patent the sun?”

Fast forward to 2019. Humira, a medication used to treat rheumatoid arthritis and other conditions, is manufactured by AbbVie and can cost RA patients tens of thousands of dollars a year. Josh Bindl, CEO of Madison-based National Cooperative Rx, estimates Humira accounts for 60 percent of AbbVie’s annual sales. That is, $16 billion annually from one drug, and AbbVie produces dozens.

Sovaldi, a life-saving and curative drug for people diagnosed with Hepatitis C, can cost $1,000 a pill. Multiply that by a 12- or 24-week treatment and the total cost could run between $84,000 to $170,000 or more.

These are just a few examples of scientific innovations done well, but in terms of affordability for those who need these drugs to survive and lead productive lives, one can’t help but wonder how we got to this point. Greed? Research and development costs? Or the U.S. patent system itself? In fact, it could be all of the above.

What happened?

“Pharma figured out years ago that they could make money developing treatments for conditions with very small patient populations as long as they charged us [a lot of] money for those treatments,” Bindl answers. He deals with this subject on a daily basis at NCRx, and he admits it’s incredibly complicated.

NCRx is a member-owned cooperative and not-for-profit comprised of employers, government entities, unions, and coalitions. The organization leverages their collective purchasing power to access the best discounts and cutting-edge clinical programs from a pharmacy benefit manager (PBM) chosen via a competitive-bid process. Currently, the organization has 325,000 members covered “live” and just over 220 employer groups, health trusts, and third-party administrators across 20 U.S. states.

One of the biggest drivers of rising drug costs, Bindl says, is that an overwhelming majority of research and development goes toward “specialty medications,” or those that are highly complex, not easily replicated, and come with very high price tags.

That’s not good news for people with type 1 diabetes — an autoimmune disease affecting about 1.25 million Americans who have no other options. Without any alternative drugs right now, they have to pay the price or risk their lives.

Between 2012 and 2016, the cost of insulin for a type 1 diabetic nearly doubled, from $2,864 per year to $5,705 per year, according to the Health Care Cost Institute.

First, a few helpful definitions: The generic versions of branded medications are considered “generic alternatives,” while the generic equivalent of specialty medications that treat just a small percentage of the population are called biosimilars.

A biologic, such as insulin, is a medication created from living cells — sugars, blood, proteins, or DNA. Biologics can also come from living sources like mammals, birds, insects, plants, and bacteria, according to GoodRx, a website/app that tracks drug prices across the nation.

A biosimilar is a biological product that is very similar to its original but has no clinically meaningful differences in terms of safety, purity, or potency, according to

While biosimilars are not considered a “generic” in the same way, they can result in significant cost savings. In fact, the RAND Corp. believes biosimilars could save the U.S. health system close to $44 billion in the next 10 years.

Bindl concurs. “If we can get more of those to market, we can provide cheaper alternatives to the specialty medications and can help drive prices down.” Instead, he says specialty medications are treating 1 percent of the population but driving upward of 50 percent of prescription costs.

Another issue with pricing, he explains, is patenting. The aforementioned Humira, a so-called designer drug serving just 1.3 million Americans diagnosed with rheumatoid arthritis, was first approved by the
Federal Drug Administration (FDA) in
2002 and hit the market in 2003.

“Generally, a drug has 12 years of exclusivity,” Bindl explains. When the patent expires, other companies are free to produce less expensive generic alternatives.

But every time a change is made to a drug, a new patent is filed, extending the length of the company’s exclusivity period. According to Bindl, AbbVie has secured as many as 130 different patents on Humira, making it “incredibly difficult” for a cheaper alternative to come to market.

Critics of the current patent system — and they are numerous — doubt that some of these changes represent actual improvement in the drug therapy.

To further complicate matters, there are “authorized generics” that are identical to brand-name products, made by the same manufacturer — often in the same facility — then relabeled and sold at two different prices, and not all brands have an authorized generic.

None currently exists for Humira thanks to a deal Bindl says was struck between AbbVie and the manufacturer producing the alternative drug. “The deal keeps the alternative off the market until 2023,” he says, “which essentially gives AbbVie 20 years of exclusivity.” Until then, it can set its own prices and does.

“Pharma has learned to game a system and laws that were originally intended to provide a company an exclusivity period after discovery so that it could replace the R&D dollars spent,” he says. They’re doing it legally, without transparency, taking advantage of America’s lax regulations.

Employers have noticed, too.

“From our perspective, self-insured companies really get hit,” Bindl adds. “We actually have some members/employers excluding specialty medications from coverage because of the costs.

“It’s not something we recommend because there could be some legal ramifications, but some employers are looking at it and saying, ‘We can’t afford it! One drug could cripple our company, so we can’t allow it on our plan,’ and that’s too bad because a lot of these drugs are very important treatments for certain individuals.”

He continues: “Honestly, I think drug prices are based on what a [drug manufacturer] thinks the market can bear.”

Pharmaceutical companies often set a high price out of the gate, and if the product doesn’t move quickly enough, they may cut the price in half. “They’ll still make money at half the price,” Bindl says, “or they wouldn’t do it! Pharmaceutical reps visiting a doctor’s office are not coming in because they have the lowest cost, most effective treatment on the market. They’re coming in armed with a marketing budget and flyers because they need to get people to use their drugs.”

Statins, for instance, are commonly prescribed to treat high cholesterol. Historically, they’re effective and comparatively inexpensive, but now there are “super statins,” Bindl explains, that can cost consumers thousands of dollars compared to the original price of $100 or so.

Super statins, he explains, are designed for a small population of patients, “but if people automatically switch to super statins because they may have seen an ad on TV and believe they’ll work better, it adds thousands upon thousands of dollars of cost to the system.”

Which brings us back to insulin.

If insulin still was identical to the formulation Banting first invented in 1923, lower-cost generics may have existed years ago, but with changes made through the years, the manufacturer’s exclusivity has been extended multiple times.

According to a report, the U.S. represents just 15 percent of the global market for insulin, but “generates almost half of the pharmaceutical industry’s insulin revenue.” In fact, three U.S.-based insulin manufacturers — Eli Lilly, Sanofi, and Novo Nordisk — control 99 percent of the insulin industry, and all have been jacking up their prices for insulin, citing the cost of innovation. The question is, what constitutes innovation?

In a 2017 report titled “Insulin Price Hikes Tell Us A Lot About What’s Wrong With Drug Pricing in America,” Yale endocrinologist Kasia Lipska argued that the changes have been incremental, benefiting some but not all patients, yet insulin prices have increased “hugely.”

How hugely? Between 2001 and 2015, Humalog prices increased 585 percent.

Patients are beginning to file legal protests, with some alleging price fixing. A class-action lawsuit filed in 2017 against the three insulin manufacturers is pending.

Bindl says the U.S. patent system must be reformed because currently, it takes very little — perhaps a minor improvement, a change in how a drug is administered, or even tying a competitor up in court — for a drug manufacturer’s exclusivity period to be extended beyond the 12-year period allowed by law.

“I’m all for rewarding companies that are discovering these very innovative products and curing horrible conditions,” he acknowledges, “but at some point, how much is too much?”



Is anyone listening?

In January, Sen. Chuck Grassley, R-Iowa, announced that he would be “getting to the bottom of the insulin price increase,” and followed up on his promise less than a month later.

When the issue was first brought to the U.S. Senate Finance Committee on Jan. 29, the three insulin manufacturers still hadn’t agreed to testify, but that didn’t stop Sen. Ron Wyden, D-Oregon, from noting in his opening remarks that Humalog’s per-vial cost increased 13-fold since 1996.

“Humalog isn’t 13 times as effective as it used to be. A vial doesn’t last 13 times longer than it did in 1996,” he argued.

In March, Eli Lilly announced a generic for Humalog that is expected to reach the market in 2020 at roughly half the cost, or $137.35 per vial. The lower-priced version, Insulin Lispro, will finally be available in both a vial and pen version.

This news can’t come soon enough, according to Tim Newman, executive director at JDRF of Western Wisconsin, but it’s only a first step, he cautions. “JDRF wants to give people a choice to help them manage their type 1 and find a cure.”

People also need affordable devices like sensors and pumps to administer insulin, and device manufacturers can be as numerous as the devices they make.

Newman says device innovations have been substantial, including an artificial pancreas system that not only measures blood sugar, it injects insulin directly into a patient’s body. “An algorithm learns your body so you have no highs and lows. Unfortunately it’s only made by one company, Medtronic.” Cha-ching!

Newman credits high-deductible insurance plans for bringing drug and device costs to light, sparking grassroots conversations and action. “If a low-income individual reaches their high-deductible-plan deductible after three months just to stay alive, that’s terrible.”

JDRF has long argued that the price of insulin, a life-or-death treatment, should be reduced to low, fixed, out-of-pocket costs. Sometimes people ration their insulin because they simply can’t afford it.

“You can’t do that,” Newman states. “If you do, you may die.”

PBM clawbacks

PBMs, or pharmacy benefit managers, were first developed as a response to rising drug prices and to serve as “middlemen” to process prescription medication claims for insurance companies and plan sponsors such as private employers.

The largest three PBMs — OptumRx, CVS Caremark, and Express Scripts — now manage drug benefits for almost 95 percent of the U.S. population and in 2017 reported annual revenues in excess of $15 billion each. That’s more than the drug manufacturers, according to a 2017 Pharmacy Times report titled “The Role of Pharmacy Benefit Managers in American Health Care: Pharmacy Concerns and Perspectives, Part 1.”

In 2015, Applied Policy LLC, a health policy and reimbursement consulting firm in Washington, D.C., blamed the expanding role of PBMs in health care on a “confluence of factors: coverage expansions under both the Medicare Part D prescription drug benefit and the Affordable Care Act, combined with an increase in prescription drug spending that has motivated commercial health plans and self-insured employers to outsource the management of their spending on outpatient prescription drugs.

“PBMs are making billions of dollars a year with little to no federal regulation or oversight,” it continues. “The lack of transparency and regulation is alarming given they manage numerous prescription plans that are funded by American tax dollars with the intended goal of reducing costs.”

PBMs are compensated through drug rebates, administration fees, and a controversial practice known as drug “clawbacks.” Clawbacks force patients with insurance to pay as much as 300 percent more than what they’d pay without insurance.

A Bloomberg report in March 2018 titled “Prescription Drug Clawbacks Under Fire From Lawmakers, Lawyers,” explained the practice: “In a prescription drug clawback, insured patients pay their full copayment for a drug that, unbeknownst to them, costs less than the copayment amount. Insurers and pharmacy benefit managers (PBMs) then pocket the extra money.”

Since clawbacks have been blamed for increasing the cost of prescription drugs, an anti-clawback movement is underfoot that could bring relief and force companies like Cigna, UnitedHealth, and Humana to disclose information and become more transparent in their pricing methods.

In March 2018, a class-action lawsuit was allowed to proceed against Cigna after a similar suit against UnitedHealth had been denied. “If Cigna is forced to turn over pricing and policy information, it could chip away at the information gap and lack of transparency that’s allowed these practices to continue,” states Eric Schillinger, a benefits attorney with Portland, Ore.-based Miller Nash Graham & Dunn, in the Bloomberg report.

Bindl advises employers to make sure that any contract they sign with a pharmacy benefit manager is “very aggressive,” and includes a clear plan to ensure lowest cost yet clinically effective medications.

Taking the lead

In January 2018, four health systems, together with the U.S. Department of Veterans Affairs, announced a plan to develop a new, not-for-profit generic drug company, since named Civica Rx, to make generic medications more available and affordable. Led by Intermountain Healthcare, the group includes St. Louis-based SSM Health, which has a huge presence in Madison and beyond. The initiative has since expanded to a dozen health systems and 800 hospitals.

At the time, Laura Kaiser, SSM Health’s president and CEO explained the commitment: “The best way to control the rising cost of health care in the U.S. is for payers, providers, and pharmaceutical companies to work together and share responsibility in making care affordable. Until that time, initiatives such as this will foster our ability to protect patients from drug shortages and price increases that limit their ability to access the care they need.”

Generic drug shortages can directly impact patients because they can lead to delayed or suboptimal treatments. In fact, more than 200 drugs have been on the FDAs drug shortage list over the past several years, according to Civica Rx CEO Martin VanTrieste. “When a drug’s patent expires, the initial competition among generics can yield a stable supply and lower prices,” he states. “As more generic manufacturers enter the market, however, prices can be driven unsustainably low, which leads some manufacturers to exit the market to use their resources for other endeavors.”

Civica Rx will be an FDA-approved manufacturer that will either directly manufacture generic drugs or subcontract manufacturing to reputable contract manufacturing organizations, explains Carter Dredge, chief transformation officer at SSM Health. It will target 14 medications first, based on demand and supply inconsistencies.

For competitive reasons, the company was not ready to disclose which drugs it will initially target, but it has enlisted the help of a drug selection advisory committee, including health system pharmacy experts, to prioritize the medicines the company will make and in which order they will be manufactured.

VanTrieste promises they will be “mostly sterile injectibles such as anesthesia medications, antibiotics, and pain medications,” adding that he expects to deliver these products this year.

“Civica Rx will result in lower costs and more predictable supplies of essential generic medicines,” adds Dredge. “That’s important because in many instances, prices for generic drugs used in hospitals can be reduced to a fraction of their current costs.”

The company’s focus is on transparency, VanTrieste insists, “a one-price-for-all model regardless of hospital size, and a membership structure that is open to all.”

Potentially positive?

Last year, President Donald Trump an-nounced a set of proposals that could completely upend a system that’s been in place for decades.

Among them:

  1. Having Medicare base its cost for very expensive drugs on the average prices charged in other industrialized nations;
  2. Requiring drug companies to include prices in their television commercials;
  3. Change how doctors are paid for very expensive drug treatments under Medicare Part B; and
  4. Eliminate rebates, which are the highly criticized after-purchase discounts negotiated behind the scenes between PBMs and the drug companies.

Trump’s administration has already eliminated so-called “gag” clauses, which prevented pharmacists from discussing lower-priced drug alternatives with patients.

Not surprisingly, the ideas have been thrashed about and Democrats have introduced their own proposals, as well.

Success in either case will depend on how the industry — particularly PBMs and pharmaceutical companies — reacts.

Congress’ continual disagreements don’t bode well for any significant changes by 2020, but finally, these bipartisan issues are on the table and Washington, D.C. appears to be paying attention.

Meanwhile, the federal government is under constant pressure to get drugs to market for classes of treatment, according to Bindl, who says the Obama and Trump administrations have had success moving drugs — mostly generics — through the approval process at a record pace.

“Unfortunately, the public only hears about a few advertised names that we all know.” In fact, close to 1,000 generic drugs are getting approved each year with the hope of driving prices lower, he maintains.

Unfortunately, they’re not all making it to market. Even after the FDA approves a drug, it takes time to move it through. As a result, Bindl explains, the U.S. has approved only 18 biosimilars and has just seven on the market, while Europe has roughly 50 approved biosimilars and about 25 on the market.

Which begs the question, is it better to bend to public pressure to release more drugs more quickly, or release fewer drugs to allow for more studies to determine long-term side effects, for example?

“I imagine the answer lies somewhere in the middle,” Bindl says.



A DPC doc’s view

Nicole Hemkes, M.D., is a direct primary care family physician featured in our February report on Direct Primary Care [“A Kinder, Gentler Health Care Model?”]. She opened her Middleton primary care clinic, Advocate MD LLC, in January.

“DPC physicians almost always order medications at wholesale costs and dispense them out of their offices with no additional markup as a benefit of being a member in the practice,” Hemkes explains.

“People have been deceived into thinking they cannot afford their prescription medications without insurance or without some sort of prescription drug plan,” she says. “The truth is, 95 percent of medications would be much more affordable if patients had access to wholesale medication prices.”

Paying cash at the pharmacy counter can also reduce prescription costs, yet only about 8 percent of people do so.

The DPC model requires an age-based monthly membership fee, but the costs of drugs are substantially reduced.

Hemkes shared some wholesale prices at right.

Neither insulin nor rheumatoid arthritis medications qualify, unfortunately. “But even in those cases,” she says, “we help patients navigate other ways to save money on medications, such as coupons or the GoodRx website.”

Drug Retail price (GoodRx) Wholesale price
Azithromycin (Zpack] $30/pack $1.75/pack
Lipitor 10mg $95/mo $1.08/mo
Warfarin 5 mg $20/mo $2.94/mo
Diflucan 150 mg $13/dose $1.28/dose
Flonase nasal spray $46/bottle $5.94/bottle


Disrupting pharma

Could a group of entrepreneurs manufacture a patent-free insulin? Why not?

Acknowledging historical problems and costs involved with getting biologic drugs like insulin to market, an entrepreneurial movement is underway to find a way to crack the insulin code.

The Open Insulin Project, established in 2015, might one day allow people to produce their own diabetic treatment. A group of “Bay-area biology nerds” believe insulin should be freely available to anybody that needs it, and they’re committed to finding a patent-free way to produce it. If they are successful, they’d share their findings with competitors who could produce “generic” insulin.

U.S. laws regulate commercially produced drugs, but no such structure exists for “home brewing,” per se. The entrepreneurs blame U.S. regulations (rather than patents) for requiring expensive ($20+ million) clinical trials that also delay drugs from going to market.

The Open Insulin Project is exploring small-batch manufacturing of insulin and other biologics to bypass expensive clinical trials. Using pharmacy compounding, where drugs are specifically mixed for very small groups of patients, they believe production would be safer and the manufacturing process simpler and much less expensive.

Source: The Conversation, Sept. 2018 (“After a Century, Insulin is Still Expensive — Could DIYers Change That?”)

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