From The Editor | March 13, 2019

Non-Solutions For Drug Prices: CDMOs Complicit Or Exemplar?


By Louis Garguilo, Chief Editor, Outsourced Pharma

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When are “solutions” not solutions? When they don’t solve the problems for which they are intended.

How could we continue to be assuaged by non-solutions? One way is through subterfuge and complexity. Unfortunately, such is the case with efforts to reduce the cost of drugs.

Start with this incongruous idea that raising prices will help lower prices.

Such “solutions” are dissected in “Drugs, Money, And Secret Handshakes,” on sale April 11th, which I had the opportunity to review pre-publication. You can read part one of the review here. I also had the opportunity to speak with author Robin Feldman, the Arthur J. Goldberg Distinguished Professor of Law at the University of California Hastings.

Here we’ll finish up the review, and again include context on how drug development and manufacturing outsourcing is – or isn’t – a part of any drug-pricing “solution.”

Belief In The Incredulous

Robin Feldman
The subtitle of Feldman’s book is: “The Unstoppable Growth Of Prescription Drug Prices.”

Unstoppable, if we accept red herrings such as the “10-percent pledge.” Referenced above, this refers to the recent pledge by some Big Pharma executives – made public and in front of U.S. Congress – they will control or help lower drug prices by “limiting list price increases to below ten percent.”

I guess ten-percent increases are better than twenty-percent ones.

But in practice, this actually “provides cover for increasing prices to that level and discourages anything below it,” writes Feldman. “With a pledge like that,” she continues, “biopharma could get hammered by shareholders and capital markets for going much lower than 10 percent. Thus 10 percent helps to set a floor for price increases, rather than a simple ceiling.”

Moreover, she points out: “Companies also can dodge the pledge by raising the price by nine percent multiple times in a year. And, of course, the pledge is nothing more than a promise, which the company could choose to abrogate, if it so wished.”

As unconvincing as that all sounds, it’s worse if the answer to either of these questions has become “yes”:

  • Are U.S. patients/consumers so duped we accept the premise that 9.5 percent price increases are a good control for or actually reduce drug prices?
  • Do we accept these now near-guaranteed price increases have been institutionalized as a solution?

Fear is the answers are indeed affirmative, placing us in a precarious place.

What’s Our Role, Then?

Outsourced Pharma is a proponent of the biopharmaceutical industry. We actively support the development and manufacturing outsourcing networks built around it.

Likewise, I’m strongly supportive of open and free-market capitalism, including for our healthcare system.

In part one of this editorial, I postulated that CDMOs are the component of the drug creation chain that operates within fair-market economic competition, and outsourcing is predicated on lowering the cost of commercial drugs (as a way to maximize their own profitability). For years, including in this 2014 editorial, I’ve advocated that the admirable work done for biopharma at global CDMOs be revealed.

But today, the entire healthcare “system of incentives” manipulating the market, as pithily described by Feldman, is “deeply hidden.”

And even that which is revealed is not what it appears. Just go back to the price reduction pledge mentioned above. The “list price” those biopharma executives refer to is only one of many “prices” associated with a prescription drug. Suffice to say here (and then read the book soon), the list price itself serves as a subtle subterfuge.

And subterfuge and complexity are the fog of non-solutions.  

Therefore, as a proponent of the biopharma industry, Outsourced Pharma will always play our role to disperse the fog. We are looking for it to be replaced with the beacon of a free-market system, one with the transparent pricing U.S. patients deserve.

We start that search by pointing to the exemplar role of the drug development and manufacturing organizations, and the members of biopharma who work with external partners. 

CDMO “Involvement”

Unfortunately, even the best components of a convoluted system can add to the negative aspects of that system.

Feldman doesn’t mention nor deal with outsourcing in her book, but she unintentionally uncovers an area where CDMO ingenuity assists in keeping drug prices (artificially) high.  

“New formulations for drugs whose patents are running out help extend those patents for years,” says Feldman. Her research demonstrates that “78 percent of the drugs associated with new patents are not new drugs, but existing ones. Thus society is not getting the full innovation return on its patent investment, but only a recycling and repurposing of what already exists.”

We know CDMOs have become particularly adept at new and re-formulations; by doing their job well, these service providers end up helping to maintain “monopoly pricing” via extended patents.

Feldman has a book full of other eye-opening statistics. One of her more salient points is that generics are not helping reduce drug prices as expected. Here are a few more non-solutions in “Drugs, Money, And Secret Handshakes.”

Not What They Seem

According to Feldman, these (and other) newer ideas also turn out to be non-solutions for the objective of lowering prices:

  • Values-based pricing / Outcomes-based pricing
  • Orphan or Specialty Drug Designations

And perhaps the biggest surprise on the list,

  • Patient advocacy groups

For details you’ll have to read the book, but here’s a brief example of the first of the three.

Feldman is clear in her reasoning that “outcomes-based pricing could present serious moral hazards.” In effect, this “solution” would have biopharma companies say to pharmacy benefits managers (PBMs):

“I will give you my expensive drug. If the patient dies, you either get a rebate or don’t pay in the first place.”

Feldman writes: “This could create an uncomfortable incentive structure, in which insurers, PBMs, hospitals, and doctors get paid more if the patient dies. Why would one want a system in which the provider does better financially if the patient dies?”

Which brings us back to the PBMs, where we’ll conclude this review.

In part one I challenged Feldman to stick to her convictions: For me, read cover to cover, and although as we all agree there’s plenty of blame to go around, the U.S. healthcare system needs a major shock.

The best place to apply that is to the system’s middle bloat. Eliminate the PBMs. They’ve  shimmied themselves into a position of excessive power, exercised as anti-free-market decision-making for drug pricing and choice, clothed in the disguise of “price control.”

And when we do look to create a freer economic and market system, look to the biopharma-CDMO relationship as an example.