Change is in the air and people can feel it; the recent one by-elections I saw one of the the largest turnout everand as always, the rising cost of healthcare was a major issue for voters. But unlike in the past, there’s a chance lawmakers will finally make some progress, with multiple proposals being proposed — and already approved — especially when it comes to lowering prescription drug costs.
Medicare price negotiations – a big opportunity
One of the biggest changes in the industry is around the recently passed Inflation Reduction Act, which, among other things, aims to lower the cost of drugs for Medicare recipients. The law cancel ban against Medicare negotiating with drug makers for lower prices. While limited in scope—both in terms of those affected and the number of drugs involved—the law could be a harbinger of things to come. Although the government can only legislate negotiations for government-sponsored programs, a successful initial effort could prompt lawmakers to expand negotiations to many more drugs and provide an incentive to regulate the private market as well.
And while these changes are unlikely to happen immediately, it would make sense for drugmakers to address the issues that led to the mandatory price negotiations and thus avoid effort to frustrate the process, such as suing the government or reformulating drugs. That won’t sit well with lawmakers, and drug companies may find themselves with pricing decisions handed down—and mandated—by the government. Additionally, payers, including Medicare, who are involved in negotiations must consider patient outcomes, not just the traditional elements that are part of negotiations, including the volume of drugs purchased by each company.
Gene therapies will continue to challenge insurance companies
The number of new advanced gene-based therapies will continue to grow and break records for the most expensive drugs. The FDA recently approved the drug Hemgenix for hemophilia B with a price of 3.5 million dollars. Medicines that treat such conditions have the potential to save lives – but also yes resource drain to the insurance companies that pay for them, especially when they treat more common but serious conditions. For example, with promising transformative drugs on the horizon for sickle cell disease, many insurers and state Medicaid systems are worried about how they will afford themalthough they may be vital to human survival.
The industry is struggling to figure out how to pay for those treatments—and how to deal with losses that could occur when they pay, such as when a patient leaves an insurance company’s plan after receiving their treatment, and the insurer loses out on payments and premiums that could to help they reimburse to cover the drug. Industry representatives say this nobody has yet to figure out how to address these challenges, but insurance companies will eventually have to come up with better ways to pay for such drugs.
Insurance companies will continue to adjust
To prepare for the future, insurance companies are likely to start experimenting with pricing models now. Among the solutions that insurers consider are risk poolingwhere several payers come together and share the risk among themselves; annuity payments, when patients commit to staying with an insurer for the long term; and a treatment bond, where the payer provides full payment to a drug company only after the treatment is proven, in a sort of loan agreement. One solution that has seen success in several places is value-based pricing, where a drug is priced based on its effectiveness in reducing the cost of care or improving the health of the people who take it. Italy, for example, reduced the price of some of the most expensive drugs used by patients there by as much 32% using a value-based pricing scheme.
Drug dealers targeted
Fairly or not, pharmacy benefit managers have come under fire as at least partially responsible for high drug prices—with no less than Federal Trade Commission investigating them and possibly taking action against some of their practices. According to the Federal Trade Commission, PBMs “are middlemen who are hired to negotiate rebates and fees with drug manufacturers. In these roles, pharmacy managers often have enormous influence over which drugs are prescribed to patients, which pharmacies patients can use, and how much patients ultimately pay at the pharmacy counter. States already are actions takenprompting at least one PBM firm to go out of business.
The federal and state actions have heightened the debate over the role of PBMs in drug pricing, advocates and critics against each other. But with the participation of the government now and legislators calls for broader and deeper researchthe PBM industry is likely to find itself under even greater scrutiny.
2023 is shaping up to be a crucial year for everyone involved and affected by the pharmaceutical industry. It’s likely to be a year of experimentation for payers — and defense for drugmakers. The deflationary bill will continue to reverberate through the industry; more potentially transformative but prohibitively expensive gene therapies will be approved; insurance companies are likely to experiment with new pricing and risk models; and PBMs will come under increased scrutiny. It is clear that change is indeed in the air – and the sooner all involved realize this, the easier it will be for them to make the inevitable transitions they will face.