Prescription Drug Pricing: New Solutions

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GERRY ANDERSON: My
name is Gerry Anderson. I'm a Professor in the
Department of Health Policy and Management, and I will
have the pleasure of moderating this session today. This session is part of a
yearlong centennial celebration of the School of Public Health. As many of you know, we've
been having a whole series of seminars on this. This is the month for the
Department of Health Policy and Management, so
we have five seminars going on this month on a
whole variety of topics.

Bob Brook is over at the other
part of the school right now– one of our alumni, talking
about quality of care. Pharmaceuticals are clearly
a very important part of the health care system. Many of us wouldn't
be here today if it wasn't for
drugs like penicillin because they keep us alive. And we essentially need those. We need the innovation from
the pharmaceutical industry to get the next
generations of drugs. In the past, it was penicillin. Now, it could be the Zika virus. We need the research
that essentially is ongoing on those things. At the same time,
we're very concerned about health care prices. We're very concerned
specifically about drug prices. What we did this
year was we spent a lot of time worrying about
the issues of generic drugs. We had a poster
child that made it very easy for us to talk about
generic drugs, Martin Shkreli. We all remember him very well
with his 5000% price increases. And we essentially
had the opportunity with Melissa Lindamood leading
us on a whole set of activities to talk to Congress.

Jeremy Greene and I
talked to Congress. We then, along with
Josh Sharfstein, wrote a paper in JAMA
talking about it. And I've been working with
the members of Congress on the whole issue
of generic pricing, specifically, on
these drugs that have very high price increases
and those sets of activities. So that's essentially
what we've been doing on the generic space. But what we want
to talk about today is the brand-name drugs space. And that's where I'm
particularly concerned in a number of particular areas. I'm definitely concerned
about high drug prices. I'm definitely concerned about
how much programs like Medicare and Medicaid are spending. But what I'm really concerned
about is access to care. The prices that are set in many
of the pharmaceutical industry are just not sustainable
to allow all of us to have access to the
pharmaceuticals that we need.

One of my assistants who worked
with me for many years, Karen Deaner, had hepatitis C. And
she went through a whole series of clinical trials when the
hepatitis C drugs really didn't work very well and
had really bad side effects. But she wanted to deal
with her hepatitis C. Unfortunately,
she's died recently, but essentially the
legacy of these new drugs that deal with
hepatitis C that are actual cures for the thing
with very few side effects are just miraculous. They are a true blessing for us. At the same time,
only in less than one in 10 people who have hepatitis
C are getting the drug. And in programs like
Medicaid, it's only 2.7% of the people who have
hepatitis C are actually getting the drugs. So I essentially
want to make sure that people who have drugs
like hepatitis C get them. What keeps me awake at night– [? Sean, ?] really
the issue is for you– and that is an Alzheimer's drug.

That's what really
concerns me, not because I don't want
an Alzheimer's drug. I definitely want
an Alzheimer's drug. It's something that we
all really care about. But the concern that I have is
the price for an Alzheimer's drug will be
approximately $100,000, and it won't be a cure. And if we have a $100,000 price
tag for an Alzheimer's drug that's not a cure,
and Medicare pays 80% of the cost
of that drug, that means that Medicare is
effectively paying $80,000 a year for an Alzheimer's drug. And there are 5 million
people with dementia. If you do the math, $80,000
times 5 million people is $400 billion a year. That's how much we currently
spend on pharmaceuticals right now, so clearly
that's not going to happen.

But what is the policy
option that we have that CMS, can do, that Congress
can do, that somebody can do so that the
price tag becomes something that's possible for
CMS to afford in our lifetime? There are just so
many things like that that we essentially want to do. So what essentially
is the challenge of how do we afford these things
for things like the Alzheimer's drug? So with that is sort of,
for me, a very scary story. Essentially, what
we need to have is a dialogue that
will essentially try to figure out how do we
come up with policy options. How do we come up with solutions
to these emerging problems. And that's what we
want to try to do today is take a look at a number
of these options that are out there to try
to figure it out. So how are we going
to proceed on this? Today, what we're
going to start with is a conversation
between Jeremy Greene and Henry Waxman about the past. What have been the policy
issues in the past? How have we tackled them? What has been the
history of drug pricing? Then we will turn
to Caleb Alexander.

And what Caleb's going
to talk about are, what are the policy options
that are on the agenda for today that are in the literature? What do we think of
as the good solutions? Then what we're
going to move on is– not that these are not good
solutions, because they are– but what can Hopkins
do to think of new ways to deal with this
particular issue? And so four of us are
going to be presenting four what we think
are relatively new policy options to try to
deal with the particular issue.

Then what we have is
a very esteemed panel of people who are
from the government, from private foundations, from
industry talking about how they see the issues of
today, how they see the recommendations
that we are making and the other
recommendations on the table. What should we be
thinking about as we deal with these issues of today? And then we return
to Henry Waxman who's been listening very closely
to this conversation and essentially
say, looking forward to the policy agenda for the
next years, the next five years, what essentially
are we doing? So that's essentially
what the agenda is. I can tell you that we did
not put any breaks in for you. It's going to be a
jam-packed conversation. And so what we will try
to do is give you a minute or two in between these
things to stand up. I'm not going to
lead you in yoga or any other type of activity.

But essentially,
we know that you will need to take
stretches and do things, but we haven't set up
any breaks in that. With that, I'm going to turn
it over to Jeremy and to Henry. And let me just introduce both
of them, although both of them don't need that much
of an introduction. Essentially, what we have– Henry Waxman is our
centennial scholar. He's been with us since July. He's had an opportunity to
teach in a lot of courses. He gives a seminar every month
about a different policy issue. Henry has worked on so
many different policy issues in public health
that essentially, we need to have him stay
another six months. So it's the centennial
year that goes for 18 months on those
sets of activities. So that's essentially
what we have. He has worked on every
single policy issue that we deal with
in public health. With that, he's going
to be interviewed by Jeremy Greene, who is a
historian at Johns Hopkins.

He's a practicing physician. He's written a number of books
on the pharmaceutical industry. His most recent one
is entitled Generic. And with that, I
will ask both of you to come up and have
a conversation. [APPLAUSE] JEREMY GREENE: Thank you,
Gerry, for that introduction. Congressman Waxman, thank
you again for joining us. It's really a pleasure for me
as a physician and historian concerned about questions
of pharmaceutical access to be able to begin this
conference with a conversation about the relevance of history
to the present and the future. I'd like to begin with a
question about an act that bears your name. You were a key architect of one
of the most durable solutions to improving the affordability
of prescription drug pricing for Americans, really,
in this country's history. But the problems that we're
faced that led to the passage of the Hatch-Waxman, or
Waxman-Hatch Act on this audience, in 1984– they bear echoes of
similarity with the problems we face today, and yet they
reflect a much different time. Could I ask you to
begin by reflecting on the problems of brand-name
pricing and generic drug availability in
the 1970s and 80s, leading up to this legislation? What was the problem that
the Hatch-Waxman Act solved? HENRY WAXMAN: Prior to that law,
for a generic to be approved, generic had to go into the FDA.

And even though it was the exact
same drug as the pioneer drug, they had to go through all the
tests on safety and efficacy as if it were a brand new drug. That involved a lot of
expense and probably unethical to do some of
those trials again. So we did not have
a way for generics to get approved quickly. At the same time, the brand-name
drugs were looking at the fact that when efficacy was
attached to the requirement for pre-approval of
drugs, the companies had to spend a lot
more money on trials while they were
awaiting FDA approval.

They were complaining
that they were not able to get the full
benefit of their patent because so much time was
being spent at the FDA. Now, that first
argument was the one that was carrying the
day in the Congress because the pharmaceutical
industry asked for a restoration of some of
the time they spent at the FDA. That bill passed the
Senate by a huge margin. It came to the House and it
got out of the committee. Nobody seemed to have any
problems with these bills. And it went to the House
floor late in the session. And it was so late
in the session that the only way it
could be brought up was under a suspension calendar. A suspension
calendar, in effect, meant that the bill was so
popular that no amendment could be offered to it, but it
required 2/3 vote to pass. There was a young
congressman named Al Gore, who was on
the Commerce Committee, and a good friend of mine,
and he and I talked about it.

He said, this is really going
to be unfair to consumers because the longer a
brand-name company can hold onto their monopoly, the
more the consumer was going to have to pay for
the costs of the drug. And when some of the
companies had a monopoly, they charged monopoly prices. So we didn't want that to pass. And we started working
hard to line up the votes for that suspension
calendar bill consideration. All we needed was 1/3 plus one. We worked hard and
we got enough votes to stop the 2/3 from passing it. Then the industry started
going to the Rules Committee. The Rules Committee
would pass a rule to allow the bill
to be brought up, but Al Gore had a
special friendship with the chairman of the
Rules Committee at the time, and we only had a
short period of time. Congress went out and the
bill never was considered. In the next Congress, when
I was chairman of the health and environment
subcommittee, we said, why don't– we didn't have any
jurisdiction over the patent part.

We did over exclusivity,
but not the patent part. And we came up with
the idea of a balance. We'll give the manufacturers,
the innovators, a little bit more time to get the full
benefit of their return on investment, as a
patent would give them, but we would give them,
in addition to that, something that's even
better than a patent– an exclusivity, which meant
that the FDA could not approve a competitor. And we would give an
exclusivity for a longer time to restore some of the
time lost at the FDA. But in exchange, we wanted
an abbreviated new drug application process for
generics so that they could be approved immediately. There had been a case some time
earlier called the Bolar Case. And the Bolar Case said that
the generic manufacturers could get all the information they
needed to prepare the generic, but they couldn't
get it approved, but they could be ready
to get it approved as soon as the patent expired. And we provided for the patent
and the exclusivity to expire, and then we'd get a new
generic approved right away. That was the balance. That was the basis
of the legislation, particularly as
it left the House.

Then, when it went
to the Senate, there were a lot
more refinements. Many companies said they
had drugs in the pipeline. They talked about
other circumstances where they wanted
to be sure that we took care of those concerns. And thus, the law was
passed in the mid-'80s. It's popularly known as
the Hatch-Waxman Act. I don't need anybody to
bestow extra praise upon me as the co-author, but it
was called the Waxman-Hatch Act for a short period of time.

But I even call it the
Hatch-Waxman Act for fear that somebody will rename the
bill the Haxman and Watch Act or something like that. So that's the law, and that
was the balance that we tried to achieve in the mid-'80s
that would give incentive for development of
new breakthroughs, at the same time, give the
consumer the break that the competition would provide
in lowering the price. JEREMY GREENE: So balancing
innovation and access. When President Ronald
Reagan signed the bill, he said very clearly,
everyone wins with this piece of legislation. But what were the
immediate consequences of the bill after it passed
and what were the longer term consequences, looking now,
several decades later, that might not have been
anticipated at that time? And are there any
ways in which you might think the bill
would merit revisiting or revision at this point? HENRY WAXMAN: There are
times when we did revisit the bill over the years.

We had different
periods of time when a competitor would be stopped
and the brand companies look for ways to keep on extending
that monopoly longer and longer and longer, and we did correct
some of those provisions. The first result
was a breakthrough for a lot of generic drugs
that got on the market. It was interesting
how the two sides of the pharmaceutical
industry looked at each other.

Brand-name companies looked
at the generic manufacturers as parasites. They are taking the benefit
of the work that we've done. They don't deserve to do that. They don't know
what they're doing. At the same time, the
generic manufacturers were producing some
of the same drugs that were being sold as brand-name
drugs. they were manufacturing. They had the capability of
manufacturing the drugs. So they're doing the
manufacturing for the brand name drugs, but then
the brand-name drugs were calling them incompetent
to be on their own. But we saw a dramatic increase
in generics being approved, especially as the patent
life of many drugs expired and the exclusivity
period expired, as well, and it saved an
enormous amount of money for the payers for these drugs,
which are sometimes taxpayers, through the Medicare
and Medicaid programs, sometimes through the private
pharmaceutical system. And often individuals would
buy the drugs for themselves. But this is a business. And therefore, people were
looking at how to take the law and interpret it in ways
that would benefit them economically.

And we had to try to
stop evergreening, which was a term used to
continue to develop a little variation of a drug
so they can get another patent and keep going, and trying to
get another patent after that to maintain the monopoly. We tried to chase after
those areas and plug them up. And I think there
are a lot of things we might want to do
in the future, which is why I'm so pleased that
Johns Hopkins is working on this very issue
of high drug prices and what we can do about
it because we really need to think through how to
change things for the future. We never anticipated–
we should have, perhaps– that those who had
the monopoly were going to push it to
the extreme and charge the highest possible prices
for the longest period of time. And we never anticipated that
generic drugs would make deals with the brand-name drugs
to stay off the market– what was called a
pay-for-play, which is an issue that has advanced
all the way to the Supreme Court.

And while there's no
clear-cut answer to it, it seems like the pay-for-play
just for a win-win of the two companies but a loss
for the consumers seems to be on its way out. JEREMY GREENE:
Another major piece of legislation affecting drug
access that you were involved in was the Medicare
Modernization Act of 2003, which many in this
audience will know, provided drug benefits to
the Medicare population.

And this allowed
for private insurers to provide benefits to
Medicare beneficiaries, but it also precluded
the Medicare program from negotiating prices
with drug companies– a very important topic
at the present time. I'd like to ask you,
can you describe some of the
negotiations that led to this law in its
current form being passed? And how would you evaluate
the impact of that legislation and its program today? HENRY WAXMAN: Right now, we're
seeing a lot of public concern about the high cost of drugs. Back then, when Part D
was adopted from Medicare, we saw a lot of enormous
concern, some of it generated by studies that were done for
individual members of Congress to announce in their
districts about the fact that most people
who bought drugs– people; not that their
payers, but individuals– had to pay twice as
much for their drug as those who had insurance
coverage or those who were in Europe or Canada.

We did a series of reports,
and people talked about it at the community level. Oftentimes, you get a president
who wants to do something and then starts to debate–
this debate started much more at the grassroots level– about why were people paying
so much for their drugs and what could we do about it? President Clinton
did, as a result of this enormous
increasing concern, propose coverage under Medicare
for prescription drugs. He proposed it along the lines
of other Medicare services, where Medicare would establish
the rates just as Medicare establishes the
rates for hospitals and physicians and other
health care providers.

That bill did not go anywhere. But somewhere along the
line, the Republicans who were in control of the
Congress and the House, particularly, for the
first time in 40 years, said they had to do something,
especially after they had closed down the
government. [? They ?] were found to be a little
unpopular with the American people that they really didn't
do anything except stop things from functioning. In those days, they wanted
to show an accomplishment. In these days, they take pride
in shutting down the government and stopping things
from happening. And to show an accomplishment,
the Republicans decided they'll take this
issue away from the Democrats.

They'll devise a
Part D for Medicare to pay for prescription
drugs, but they'll do it in a unique way. And the unique way
that they devised was that we would have private
insurance companies making the decision about the
payment for pharmaceuticals, not the Medicare system,
so people would have to buy a private
pharmaceutical plan for Part D, either through a separate
insurance company, or, if they had a
managed care plan, that managed care
plan would provide the pharmaceutical coverage. And they wrote in there that
there can be no negotiation on the prices by the
government, which was a very strange notion
because, suddenly, we're going to have a payer paying
for millions of drugs that were already on the market,
and we were not going to use the leverage
of all those new customers to get a better price. But the Republicans decided
they didn't want to do that. They wanted to protect the
pharmaceutical companies and they wanted to bring
in the insurance companies, and at the same
time, try to show that they were going to
produce for the seniors, not the Democrats.

So we had the unusual
situation where the Republicans had to pass this bill. Democrats, by and
large, were against it. There was some crossover. And part of the crossover
was in the Senate, where the Senate
Finance Committee, which has jurisdiction
over these matters. Senator Grassley
was the chairman. Senator Baucus was
the ranking member. And they had a tradition of
bipartisanship, which generally meant that Senator Baucus went
along with Senator Grassley when he was in power, but
when it came, however, to the Affordable
Care Act, I think Senator Baucus thought
it would be reciprocated, but it wasn't at all. The tradition of the
bipartisanship for the Senate Finance Committee didn't hold,
so the bill passed into law. And now it's the way
seniors, for the most part, under Medicare and
disabled people who are part of the
Medicare program get their pharmaceuticals. Many of us have criticized
it because there is no negotiation. There's no attempt to
get the best price. The defenders of
the program say, the PBMs that run it for the
private insurance companies do negotiate for a
better price and things have worked out well.

The truth of the matter is that
there was a historical event– maybe you can corroborate this
as a historian of this area– that many of the drugs
were coming off patent. And therefore, there were
a lot more generic drugs that were a lot less expensive. So the cost we feared
that would be in Part D weren't realized not because of
the law the way it was drafted, but because of the fact
that more and more drugs were generic drugs.

JEREMY GREENE: It did coincide
with this major patent cliff, which was
one of the words in the pharmaceutical
industry literature– this moment in which
a tremendous amount of blockbuster drugs were
going off the patent. There's a historicity
to this process of how certain waves of drug
innovations are on patent and then go off patent
at the same time. It certainly was not
anticipated within the planning for Part D at the time. HENRY WAXMAN: No, but
they benefited from it just as a lot of
people benefited from the failure of the Clinton
administration's health care bill, where suddenly health
care costs were restrained but no law had been passed. Some speculated that it was in
anticipation of the law being changed, and then
after they realized it hadn't been changed, health
care prices went back up. JEREMY GREENE: Can you talk for
a moment about the donut hole? HENRY WAXMAN: The donut hole– I cannot give you
all the specifics, but it was not a policy choice
to create what was called the donut hole.

It was a budget choice. When the Part D bill was being
enacted, we all in Congress have to abide by the estimates
of the Congressional Budget Office. And so the Congressional
Budget Office looked at the cost
in the out years and realized this
was going to be far more than what the
Republicans had hoped to pay. So they set up a
structure where, when you got to a certain
level of purchase of drugs under Medicare– you would get some
help, but when you got to a certain level, you
were going to be on your own. And that was the hole. And then when you got
to the other side, then the program would
pay 100% of the cost.

But in-between,
people were paying, let's say, 20% of the
costs for the drugs. They're now in the
donut hole and they're paying 100% of the cost
for the drugs, which was quite a shock to people
who were experiencing that. Very unpopular part
of the program. But it was solely to hold down
costs, not because anybody thought it was a good
policy to make people pay 100% of the
cost of their drugs after they had come
up to a certain limit. JEREMY GREENE: In recent years– HENRY WAXMAN: It
was so unpopular, by the way, that that
was one of the objectives in the Affordable Care
Act was to eliminate that donut hole, which we're
in the process of phasing out. JEREMY GREENE: Or filling
with some better filling. There's so many bad puns about
the donut hole out there. But in recent years, certainly
in the past few months, we've become very aware
of pharmaceutical pricing. And it seems as if the prices
for patent-protected brand-name pharmaceuticals continue to
spiral higher and higher, up against some ceiling
that we have not quite hit yet, some ceiling
of where prices just become impossibly high.

And we see less connection
to the cost of manufacturer or to the limitations of
access and public health that high costs of drugs
provide, most egregiously in the case of hepatitis C, as
Gerry was referring to earlier. And I'd like to ask you, from
your perspective– you've been paying attention
to this for a while. You've seen drug increases
over many points in time, but why have we seen such
rampant price escalation in the past 10 years? This recent escalation
seems even more dramatic than in other eras.

What are your thoughts on that? HENRY WAXMAN: The development
of a specialty drug, oftentimes drugs for
small patient populations, has allowed manufacturers to
see a potential for profit that they didn't foresee in
the 1980s, when we adopted the Orphan Drug Act, because
there were people suffering from what were
called rare diseases, small-patient populations, and
the drug companies would say, if I make a drug for
that patient population, I'm not going to get a
real, full profit out of it because there aren't going
to be that many purchasers. So they were looking for more
me-too drugs, big-seller drugs for a large-patient population.

And we passed an Orphan
Drug Act because people who had those diseases would
consider themselves orphans– nobody was paying
attention to them– to give them more
incentives, some tax breaks, but what turned out to
even be more significant, an additional period
of exclusivity. And that additional
period of exclusivity has been the magnet for a
lot of companies who have now come to the
conclusion, if they can develop a drug for
the small population, as long as they have
insurance coverage, they can just charge
as much as they want. And oftentimes,
when the individual didn't have insurance coverage,
they'd give them the drug. But the fact that insurance
is there to pay for it has been a strong incentive
for the pipeline of new drugs to move toward this niche area.

I've read some sources that
say that it's not the specialty drugs, which, of
course, are sometimes for small-patient populations,
but also for hepatitis C, which is for a very large patient
population, that has driven up prices for those
drugs to the point where we don't quite
know what to do since the primary payer for a
lot of people who get hepatitis C is the Medicaid program, and
the states can't imagine how they're going to continue–
nor can Medicare, even, see how they can continue
paying the costs for Sovaldi or other drugs.

But there's another factor, too. A lot of the companies that
already have their drugs out– they're on the market. They're just raising
the rates every year. There seems to be no connection
to the price of the drugs and the actual investment for
the development of the drug since so many of these
drugs we're talking about have already been out. The companies have
already been selling it for a period of time.

They've recouped
their investments. They've recouped
a generous profit. But nobody looks at what is
the proper amount of money they should get. It's just, they're entitled
to whatever they can get. So we hear more about
the specialty drugs and less and less about
just the steady increase that those who have
patent or exclusivity put on drugs that are
already on the market.

JEREMY GREENE: I have one
more question for you. The Hatch-Waxman
Act has been hailed as a remarkable example
of bipartisan legislation and one of the
strongest examples of bipartisan legislation
in living memory. And right now,
really, this week, lawmakers from both
sides of the aisle in both houses of
Congress are actively taking a prescription
drug pricing again as a key action issue,
partly around the question of generic drug prices. I'd like to ask, what lessons
can this Congress take from your experience
about the bipartisan basis of pharmaceutical policymaking
around price and access? And in this election year, with
so much at stake in the fall, what do you think
is the likelihood that this Congress can
take meaningful action on the topic of drug pricing? HENRY WAXMAN: This Congress
this year or the next Congress? JEREMY GREENE: I mean
right now, this year, but I'm also
interested in the next.

But yeah, in the
months or year to come. HENRY WAXMAN: We
had a lot of concern about prices in the
1980s, and the issue was important to people. Whether they're
Democrats or Republicans, they wanted something done. But it wasn't until the
pharmaceutical companies– in those days, it
wasn't called pharma. It was the Pharmaceutical
Manufacturers Association. The PMA decided to enter
into this agreement for the Hatch-Waxman
framework that we were able to move it forward. And that was
tremendously important because, even though a lot
of Republicans and Democrats would talk against
high prices for drugs and show a great
deal of sympathy to their constituents who
had to pay that price, they weren't willing
to buck the PMA. The generic industry
was split at the time.

They weren't much of a factor. There were even two
generic trade associations. They were fighting
with each other. But that's what
made the difference. And just as a side story,
the head of the PMA was a fellow named Lou Engman. And he thought it made sense
to do this win-win deal. And it was part of
the negotiations on the basic framework, and
the rest of the negotiations were with some of
the companies who wanted to come in with what's in
their pipeline, what's leaving their pipeline, tweaking the
law to take in consideration certain individual factors.

And we finally passed
the law, and one of the first things that PMA
did was to fire Lou Engman. And ironically
enough, he then later went to work for the Generic
Pharmaceutical Association. Recently, we had the
situation with the ACA, where my former colleague
Billy Tauzin, representing the pharma, decided to
aggressively help the Obama administration on the
Affordable Care Act and made sure that they
were very protected. Not only would they
get a large number of new people being able to
afford drugs because they'd have a payer for drugs, as
their insurance companies would be required to pay for
some of these drugs– he wrote a lot of
things in there, and some of the biggest things
I objected to in the ACA were things we gave
away to pharma– he did a terrific job
representing pharma. And after that was over,
he went back to pharma and they were angry with him
because they felt very close to the Republicans,
and the Republicans were so angry that the pharma
helped move forward the ACA.

So it's not a secure job to
become the head of pharma and do anything. A lot of people have
been the head of pharma and just protect what they
have, and that seems to be– I don't know. I don't know enough
about the history of it, but that seems to me
a safer job security. But it is tough.

Pharma is a very powerful force. And when we had the issue
of whether the generics for biologics would get 12
years, where small molecules got an extra five years– so from five to 12– that seemed like
a huge giveaway. And even President Obama
said, I can't go for that. He wanted it much lower. But when the political
circumstances put the ACA in the hands of every
Democratic senator having to vote for it in
order to get 60 votes, the president had to give
up and say, well, we'll have to go with 12 years. I've got to get
the bill through, even though he didn't want it. I didn't want it. It was a mistake that we'll have
to correct at some future time. But sometimes the
timing is right and pharma and bio
were able to get an outrageous 12-year
exclusivity on top of their patent for generic
biologics, which, by the way, is the wave of the future.

I know we're running out of
time because I see our hook, but I think 80%, at least,
plus of drugs in this country are generic, and it
has meant a huge break for the payers for those drugs
as a result of the Hatch-Waxman Act, but the high-cost drugs
that we're looking at now are the biologic
drugs and others where the pharmaceutical
industry has been very clever in figuring
out a new direction to take. And whatever is designed, we
can be assured of somebody on all sides of the question
trying to figure out how to take the law
and move it or twist it to serve their
individual interests. JEREMY GREENE: Yeah. Thank you for sharing your
insight and experience with us, Congressman Waxman. Thank you. [APPLAUSE] GERRY ANDERSON: Mr. Waxman,
thank you very much. Jeremy, thank you, as well. This has been a great start. I'm going to now turn it over
to Caleb Alexander, who's an Associate Professor in the
Department of Epidemiology and– I got to get this title right– essentially, the co-director
of the Johns Hopkins Center for Drug Safety
and Effectiveness.

And he, along with a number
of doctoral students, have been essentially
putting together this list of policy issues that
are on the agenda for today. And you need a
little assistance. CALEB ALEXANDER: Yeah,
that would be great. And are we moving
the table or no? GERRY ANDERSON: No. Did you need it? CALEB ALEXANDER: I
have slides, but– GERRY ANDERSON: I
think Susan's got it set up so it'll go
right over the table. CALEB ALEXANDER: Terrific. Great. Thank you. I'm miked, I presume? SPEAKER 1: Yeah.

CALEB ALEXANDER: OK, great. Thank you. I hope all of you can see. And it's a privilege to be
here and be able to present the results of this work. And it has been a team effort. I want to acknowledge
my co-authors on this paper, Jeromie
Ballreich and Mariana Socal and Taruja Karmarkar, who
are all doctoral students in the Department of Health
Policy and Management, Antonio Trujillo, Jeremy Green, Josh
Sharfstein, and Gerry Anderson. So the problem of drug
pricing, as we've already heard a little bit,
is both old and new. And if it wasn't old, I
wouldn't have 48 proposals to share with you today that
we've identified that have already been proposed. But if it wasn't new, we
wouldn't be talking about it and wouldn't be having
a symposium here devoted to these issues. The US consistently spends
more on branded products and pays higher prices
than other countries. As you've heard from
Gerry's opening comments, spending is approaching
$400 billion annually. Rates of growth are now
in the double digits– over 10%. This is a graphic of total
pharmaceutical spending per capita in seven
countries in 2000 and 2010, and the US is the
top set of bars.

So the blue bar is 2000
and the red bar is 2010. And you can see pretty
much any metric you use, spending is higher
per capita, and we pay more per products than any
other country around the world. There are lots of
different products we could be talking about. And Congressman
Waxman's recent comments were a nice setup in
terms of flagging, in particular biologics
or specialty products.

Biologics, as you may
know, are products that are derived from living cells. They account for about
1% of prescription drugs by volume and nearly a third of
all prescription drug spending. And this fraction is going
to increase over time. Here is a select group
of US-branded biologics that are expected to reach
blockbuster status by 2019. And you can see that the
price tags aren't pretty. So Opdivo for melanoma,
the expected price, $150,000 a year. Entresto for congestive
heart failure, $4,600 a year. Orkambi for cystic
fibrosis, $260,000 a year. And the list goes on. Now, we could debate what
these numbers mean and, indeed, part of the message that I'll
give is that we don't know– or that it's difficult to
tell, perhaps, I should say.

And we'll certainly be hearing
more about what a price means and what a price
represents during comments throughout today's symposium. But suffice it to say that these
are the types of products that are capturing the
focus of public payers, private or commercial plans,
and the general public alike. So for public programs, we've
heard a little bit about this already.

Hep C is a nice case study. So here, recall Gerry Anderson's
comments at the outset that you have very safe and
efficacious products that are reaching fewer than 10%
of the eligible population. Among some populations, fewer
than 3% of eligible patients are getting treated
with these drugs. Medicare is spending on
hepatitis C products increased from $300 million in
2013 to $4.5 billion in 2014, so $300
million to $4.5 billion. Consumers aren't happy, either. I'm not going to steal
Patricia Neuman's thunder, so I'm not going to tell you
all the data about consumers, but I promise you, consumers
are really concerned about the magnitude
of drug prices and what it means for
their access to products.

And if you want
another indication in addition to the
fact that we'll see some very nice data that was
generated by the Kaiser Health Tracking Poll, take a look at
the presidential candidates and the fact that pharmaceutical
companies and drug pricing is making it to the
list of debate topics. There are four unresolved or
partially-resolved empirical questions that are really
important because they influence policy debates. And so I'd like to review
each of these in turn. The first is, what's the cost
of developing a new drug? There's no question
that there is tremendous investment in R&D– that it's expensive
to develop products, and that most drugs
in the pipeline fail.

But there is a lot of
debate over the exact cost and variation in cost
of developing a drug. And so we have estimates
as little as $0.8 billion and as high as $5 billion. These estimates are based
on proprietary data, and so there's a lot of
controversy around them and the assumptions
that are made when one derives these estimates. But building consensus
regarding the true cost of drug development is precluded
by a lack of transparency on the part of manufacturers
regarding their R&D costs and on the part of researchers
that are using proprietary data and making their own
assumptions about how to manage different costs
that may be included, such as taxes and write-offs
and the input costs of capital. And so some states are
currently pursuing legislation to gather this information
that is the cost that firms are investing in R&D. And in fact,
the president's 2017 budget requests money to collect
this information as well.

A second important question
is, what's the relationship between revenue and R&D? This is important to
know because proposals to reduce drug prices are
often met with concern about the effect that
those types of reductions will have on declining R&D– that is, in decreasing
the amount of investment that manufacturers are making
in research and development, and thus hurting the prospect
for future drug innovation.

Currently, it's estimated
that large manufacturers spend between 14% and 20%
of their revenues on R&D. There's at least one
estimate in the literature that suggests that a
10% increase in price is associated with a
6% increase in R&D. But the precise association
between revenue and R&D is unclear, as is the
association between greater R&D and greater production
of innovative products. This latter point's
important because policies that argue for more R&D as
the method for increasing competition and
lowering drug prices need to be able to show
the association between R&D spending on the one hand and
innovative drugs on the other. The third empiric
question that is– this one is maybe– at least, I feel a little
bit more comfortable venturing here
than the first two, is what value do drugs provide? And the short answer here, I
would suggest, is it depends.

There's no question that
many pharmaceuticals provide tremendous value. Consider insulins or
vaccine or treatments for cardiovascular therapies. I think there's
also little question that many drugs provide
little-to-no value. And many government
organizations outside the US use cost effectiveness
in deliberations. So for example, you may be
familiar with the UK's National Institute for Health
and Care Excellence, or Germany's Institute
for Quality and Efficiency in Health Care, iQEhc. But Congress has
restricted PCORI, the Patient-Centered
Outcomes Research Institute, from including
cost effectiveness in evaluations of drugs. And thus, in the
United States, we have no uniform
approach to measuring the value of specific drugs. The last unresolved or
contested empiric question is whether the
private market can generate a reasonable price. And I think here, there's
reason to be skeptical– a variety of reasons
to be skeptical.

Patents create
time-limited monopolies, and so firms essentially
become price-setters, but they're also
profit maximizers. And so this means that
pharmaceutical companies set prices that
maximize their profits. And these prices may be too high
for many patients to afford, as we've heard, or they
may not reflect the value that products provide. But there are many
other lines of evidence, as well, that I
think raise concern about how well the
market is functioning. So for example, the
absence of price transparency because of
confidentiality agreements and because of information
asymmetry between prescribers and patients. Prices for drugs also don't
follow usual economic behavior. So economists will refer to
this as inelastic demands, meaning that consumers
are relatively indifferent to price increases. There are also other
ways that prices don't function as one might
expect in a normal market. They don't vary with the dose. When a new competitor
comes onto the market, it's not uncommon for the
price of the existing product to increase rather
than decrease.

There's widespread
discounting, which suggests price discrimination. And prices may shift
quickly for reasons that have very little to do
with changes in the input costs of making a product. And also prices don't
correspond with value or with the amount of R&D
invested in a given product. So these four questions– what's the cost of bringing
a product to market? What's the relationship
between revenue and R&D? What value do drugs provide? And can the market generate
a reasonable price? These four questions
we'll hear again throughout today's symposium.

And the greater the consensus
regarding the answers to these questions, the better
that specific policy proposals can be evaluated. Next, I'd like to shift to
discussing the proposals that we identified. And we have 48, and I have
about 10 minutes left. That would be 12 and 1/2
seconds per proposal, so I'm not going to
try to cover all 48. What I'm going to do
is going to provide a high-level overview
of the 48 proposals that we've identified. And in terms of how
we identify them, suffice it to say
that we combined expert opinion with an
iterative-structured literature review.

And here, again, I want
to give a special thanks and acknowledgment to Jeremy and
Mariana and Taruja, who carried out and led this effort. So the first set
of proposals are focused on the patent system. And the problem
here, or the problem that these proposals
are trying to address, is to strike a better
balance between incentives for innovation on the one hand
and establishing a price– a fair price; a
price that's fair– through either
eliminating patents or changing the patent life. And there are a number of
different examples of solutions that fall into this category. So for example,
empowering the government to purchase patents at
auction and placing them in the public domain,
strengthening the criteria for issuing patents,
reforming or prohibiting payment patent settlements. I think Congressman
Waxman referred to those as pay-to-play or pay-to-delay. The idea here is
that one firm pays another to delay the second
firm's entry into the market.

And last but not least, varying
the patent life or market exclusivity based on
degree of drug innovation. So these are the
types of proposals– these are examples
of proposals that have been forwarded by others
during the past one or two decades in an effort to try
to address the high costs of many prescription drugs. A second set of proposals is
focused on encouraging research to drive drug development. And the problem here is
that the supply of new drugs is a function of investment
in R&D. Currently, we rely on a quasi-public
private funding mechanism, where the NIH funds a large
amount of basic science research and
pharmaceutical companies build on that information
and take products through the clinical
development pathway. And fewer drugs means
less competition.

So the goal here is to
increase competition by increasing drug development. So examples of solutions
here are using prizes to spur the development
of innovative drugs, financing clinical drug
development through competing publicly-supported
research centers, providing public funding
of clinical trials, and establishing
agreement among countries to fund international research
outside of US patent laws. A third set of
proposals is focused on the FDA, which, of course,
regulates pharmaceuticals. The problem here is that
it's expensive for companies to get their drugs approved,
and regulatory thresholds pose a large burden. So these solutions include
establishing reciprocity with overseas authorities. So essentially, companies
could use the drug review of a product in Europe,
say, by the EMA, and then apply that
and gain market access in the United States. Creating an international
agency to oversee orphan drug development. Modifying evidentiary
standards for approval. I do a lot of work
with the FDA, and I find this one
particularly interesting because there are proposals
both to increase the thresholds and decrease the thresholds. Some argue to decrease
the thresholds. This might make it cheaper
to bring a product to market, and therefore, firms
could lower the prices because they'd have less
costs to recover based on the investments of making it
through the regulatory pathway.

Conversely, some have argued to
increase regulatory thresholds. For example, if the FDA
incorporated greater use of the principles of
comparative effectiveness during the course
of drug review, at the time a product
reached the market, we'd have much more knowledge
about the appropriate place of the product in
clinical practice. We'd essentially have
much more information about how to apply
the product in ways that truly deliver value. A last proposal was to allow
for re-importation of products from other countries. A fourth set of
proposals focuses on decreasing market demand. And the problem here is that
physicians write prescriptions, so patient's demand curves
are not always considered.

Most patients have insurance. Patents grant monopolies. And there's a lack of price
transparency in the industry. So solutions that are focused
on decreasing market demand include building
cost information into the clinical workflow,
incorporating value information into clinical guidelines,
eliminating drug coupons, altering insurance coverage
or marketing policies, using risk-sharing contracts or
value-based insurance designs or stricter regulations
regarding direct-to-consumer advertising. And then the last
group of proposals is focused on developing
innovative pricing policies. So here, the problem is
that drug prices are not transparent, and it's
unclear how they're set. Monopolies for branded drugs
interfere with the market, and the challenge is
determining what constitutes a fair price for a drug. So some of the
proposed solutions here are empowering
the federal government to negotiate a single price. We heard a little about this. Using value-based pricing based
on marginal clinical benefit. Determining a fair price based
on disease severity, treatment alternatives, cost to
patient, social value.

And establishing a ceiling
price or regulations that would restrict the
amount of price growth. So we've reviewed five
groups of policies then– revising
the patent system, encouraging research to increase
the development of drugs, altering pharmaceutical
regulation, decreasing market demand, and
developing innovative pricing strategies. These policies have
to be evaluated, and they're not
equal, of course. We've begun considering
ways that one might evaluate the relative
merits of different policies.

Here are some possible
criteria that one might use. These may not be
necessary nor sufficient, but I'll let you just
take a quick look at them for yourselves. One or two comments here. The first is that there's
some subjectivity here. I mean, there's
uncertainty that balance estimates of any of these. If you take something
like allowing Medicare to bargain or to
negotiate a single price, what's the likelihood
that that will have unintended consequences? We could debate that. Or what's the likelihood that
that would incentivize or have a deleterious impact
on incentivizing drug companies to invest in R&D? And another point I'd make
is just that these policies may not be adopted one by one. And evaluating a
group of policies is different than evaluating
any single policy.

And the third point is
that you can't have it all. So I'm going to tell you
that on the next slide, also, but I'll tell it to you twice. There's no policy that you run
through these types of criteria where you see that
it's a win win win win win win win win win. So policymakers have
some real work to do. So in summary, we identified
48 unique proposals to reduce the costs of
US-branded prescription drugs.

The more consensus we achieve on
a few key empirical questions, the easier it will be to compare
different policy solutions. There are several criteria
that can be applied to judge any proposed policy. And once again, no policy
is going to have it all. And policymakers
are going to have to trade off a variety
of competing interests and demands. So thank you for the
opportunity to share this work with all of you. [APPLAUSE] GERRY ANDERSON: I
really didn't believe that he would be able to
pull it off, but he did.

Thank you, Caleb. I'm going to introduce the
next three speakers so they can come up right after each other. First one coming up right
now is Antonio Trujillo. He's an Associate
Professor in the Department of International Health. Works a lot on
consumers and how they deal with chronic conditions. And what we've asked him to do,
along with a number of people, is to come up with a survey
looking at fair pricing and understanding it. And a number of you who
are students in this room participated in the survey,
and thank you for doing so. The next, I will turn to Michael
Hsu, who's a first year– a second-year medical student. I had the opportunity to
work with him this summer, and we talked about a
variety of policy issues. And he decided that
he was most interested in the whole issue
of patents and that, so you're going to hear
from him about patents. And then I'll turn it
over to Josh Sharfstein. And Josh has had a
whole series of jobs. He was the deputy
commissioner for the FDA.

He was the
commissioner of health. He's now professor of the
practice and associate dean at the school here. All of us in this
room know Josh. And what he is
interested in is sort of putting a public health
perspective on the whole issue of drug pricing. So I'll have him explain that. And then Joseph
[? Ratuggi ?] and I have been working on the
whole issue of bundling. So at the end, I will come up
and talk about the whole issue of bundling. With that, I will turn
it over to Antonio.

And we will get the
technology working for you. [APPLAUSE] SPEAKER 2: I'm going
to sneak in here. ANTONIO TRUJILLO: Oh, thank you. If anybody needs to
stand up and [INAUDIBLE] while we're getting
the technology, please feel free to stand up. Just don't [? be rude. ?] ANTONIO TRUJILLO: Thank you,
Gerry, for a nice introduction. Before I start, I wanted
to acknowledge the team. This is not just
my work, but it's a working collaboration
with some students and some of my colleagues. So the challenge for me
was to solve the issue of what means fairness. We already had
two presentations, and people used words
like fair already, reasonable, affordable. So the question for us
was, what means fairness? How can we assess that a
price of a drug is fair? And to answer that subjective
question, what we did was to develop a survey. So you can think about using a
very simple example that Gerry loves, which is, what
if it snows and people increase the price of this snow
shovel right after the snow? Is that fair or not? Some people will say,
and maybe economists will be included in there,
let the price signal lets the market work, lets the
price signal prospectively.

So if you increase
a lot the prices so smart people will come and
compete and reduce the price and create something new. So that is fair and
lets the market work. But some people may
say no, wait a second. It's not fair to
gouge the price. So we use that word,
also– gouge the price, because there is not an
option to buy another. There is not another
place where they can buy, because it was
not my fault, the snow. We try to have this notion of
fairness embedded in our brain, but we need a more
conceptual framework to answer the question.

But there are some people who
will use the word, no, it's not fair. You are gouging the price. You should not do that. So what we tried to do was
to answer that question. And some people already
said, pharmaceutical drugs try to maximize profit, and
they use different techniques. They use techniques to
differentiate price according to consumer willingness to pay. They use pricing according to
the return of the investment of that medicine. They try to price medicine– they higher the value. They use a lot of these. The question was, where is
fairness in that picture? They tried to combine
prices with access and be worried about that,
but what is fairness? In fairness, it's very
common in different sectors.

Typical– housing. It's fair that I'm paying
20% of my income in housing. It's fair to pay the prices
of all of the gasoline, 3.8 per gallon. So we have that concept a lot. So the question is,
how can we formalize it in the prescription drug sector? So in order to answer that
question, what we tried is to use a conceptual
framework developed by a psychology, which
I think it's more an economist [INAUDIBLE]
a long time ago. And then behavioral
economist [? builded ?] up on that notion– the notion of fairness. How can we assess that? And they came out with the basic
theories to dual entitlements. So the question
is how you entitle rights to assess fairness. And in order to entitle
rights to assess fairness, you look at three things. Reference transaction means, is
there any other good available? If there is not available
good, increase in price may not be fair. What is the reference
price of the substitute? If I'm paying $100 per
something and now it's $300, it may not be fair. But if I'm paying $200
and now it's $300 or $250, it may be fair.

So the notion of
your reference– the notion of
availability of reference is used to entitle rights. Outcomes. Outcome of participant. If I said up this price, only
10% of the people will use it. Which people will use it? Those people who have higher
education, those people who can get in the line sooner. It's fair that we leave
some people outside. Those are the questions
that we try to entitle here. The last issue is what
are the circumstances? The snowstorm was
outside everyone. The increases in salary of my
employees that reduce my profit may be something that I
could have controlled. So how do we balance
all these three issues? Let me give you an example,
because the problem is that, if all those scenes
happen at the same time, then you're going to
have an explosion.

And that's what happened
with the Dataprim case a few months ago. Because you have a
drug that was $13. He increased it to $700. Do you even have a competition
or anything that you can substitute because the market
for an outside cannot come in? You don't have any apparent
reason to the increase. So in order to set up
whether or not it was fair, we used this
argument in some way to assess that what this
guy did was an explosion.

On top of that, the guy
is not very pleasant, and he likes rap
and all of that, but I don't care about that. What I care is that
it was an explosion. The [INAUDIBLE] process gives
us a way of thinking about that, and we could have figured
out that it was a bad policy to increase the price
using these issues. So what we did
was to, as I said, develop a survey trying to use
this dual entitlement theory and all of the elements that
are in these three levels, and ask people about it. So we started with graduate
students– and as Gerry said, thank you so much to all
the students who answered our survey– and our plan is to move forward
to ask the general public.

The general public who consumes
medicine, general public who do not consume medicine, general
public who have the disease– to see if they wanted to
balance these entitlements in different ways. So people with diabetes may
have a different perception because their trade-off
may be different. So going over the results. The first result was– we used the word reasonable. And we also have in this
survey the word fair. But 81% said that the prices
are not reasonable or fair. And we use these
questions in order to test how close we are from
the Kaiser Foundation Health Tracking story, and
we are pretty close. So the students here seem
to resemble this opinion that this perception that prices
are not fair, not reasonable. The second question is, what
is driving these prices? What are driving
these prices high, and what are the
[? keeping ?] forces that are pushing them up? And it seems to be that R&D,
as Caleb was suggesting, may be one of the
things to pay attention.

But the other thing is
how we design the system and who is paying for that. Are the public insurance
systems paying for that? Not having a budget constraint
may be a force to high prices. And it's reflected
in the survey. The next issue is the
value proposition. And it seems to me
that a lot of people believe that we can have a
value proposition, a threshold to decide whether or
not to pay for that. But the interesting
thing to us is there is not much agreement
about whether we've stopped paying. $150,250 per value
per drug is what our responder is suggesting. So there is a threshold,
but there's a cut-off, but there is not a specific
value where we should stop, where it should not be
fair to cover because we're going to give up other goods. So getting into the issues of
why people perceive that prices are unfair, it seems
to be that what we are getting from that the
theory of dual entitlement, it's playing a role in here. Access– people cannot afford– low-income people
in a specific group that we care and we
incorporate into our preference are not getting the drugs.

But there is also seen that
the farther companies that are maximizing profits
are also perceived as a reason for the current
level of prices to be unfair. But moving to the question
now to the current level of pricing, but
changes in prices or how do you perceive scenarios
of changes in prices that are fair or not,
it also resembles a little bit of what the
theory of dual entitlement will [? predict. ?] If,
during the flu season, you increase the price
of a very needed drug, people may perceive that
as a really unfair move. If the company raises the price
of a drug where you don't have a lack of another
alternative, people may perceive that of a drug– they may perceive
that as unfair. So the last issue is also
related to the alternative. So it's consistent that the
idea of fairness in this story. For the sake of time, I've
got to go quickly here, but we also surveyed the
opinion of people about policies in order to see how
the policy that we're going to be talking later
are perceived by the public. And as we can see,
there's a consensus about R&D empowering
consumer and designing the incentive of the
insurance payment better.

So in conclusion, I think this
is a very important topic. The topic of how, as a
public, we perceive fairness, and how policymaking
can introduce in the design of policy
the criteria of fairness in a more systematic way. The second issue is that
dual entitlement theory seems to predict how people
will react to fairness. And if we have this explosion
of all these elements, you're going to have
higher levels of unfairness and how higher
levels of happiness. Affordability is a
clear issue in fairness. And again, if we
incorporate fairness in the design of
public policy, we may have policies that are
better received by the public. So with that, I will
show to the next speaker. [APPLAUSE] Are you gonna go? GERRY ANDERSON: Thank you. ANTONIO TRUJILLO: Thank you. MICHAEL HSU: All right. I'd first like to
begin by acknowledging my colleague, Dr. Ali Thaver,
and my mentor, Dr. Anderson. And for the next
10 minutes, I'll be talking about
a new policy idea to address the high
prices of specialty drugs targeting the exclusivity
period for pharmaceuticals.

So I'd like to begin
the conversation first by talking about Sovaldi. And as many of you probably
have heard of this drug, it's a curative treatment for
hepatitis C, a chronic liver disease that affects more
than 3 million Americans. Despite the curative
properties of this drug, many Americans are
not able to get it due to the high
price of the drug. $84,000 for a 12-week
daily course of treatment. And due to the high price,
we see limited access for this drug to many Americans. And this limited access can be
felt across a payer landscape. For example, state
Medicaid programs are often rationing these
drugs so only the patients that have shown the most progressed
liver disease or more severe liver disease. Patients under
Medicare often have to pay thousands of
dollars out of pocket to pay for these drugs, which
oftentimes can be unaffordable. And across the VA or
Department of Defense, many patients are unable to get
on this drug because, again, the high price.

And for the VA, less than
15%, as of last December, of patients that
have hepatitis C were able to get one of the
new anti-viral treatments for hepatitis C. And Sovaldi is not alone. It's not the only
high-priced specialty drug currently in
the market or that will be coming on the market. Currently, there are many
drugs in the oncology field or in the hematology field
that cost more than $100,000 per year per course
of treatment.

We also see new drugs, such
as the PCSK9 treatments for cardiovascular diseases
for familial hyperlipidemia that are projected to cost
around $14,000 to $17,000 a year. And these are not
curative treatments, so these patients
could potentially be on these drugs every year
for the rest of their lives. So you can imagine the
amount of costs that could be into the health care system. And when one is trying to assess
or come up with a new policy solution to address the
high-priced specialty drugs, we need to accommodate
both the idea of trying to increase
patient access, but also continuing to encourage
pharmaceutical innovation at the same time.

And the area that we targeted
for our proposed solution is market exclusivity. And I just wanted to give a
quick overview of the market exclusivity of a drug,
and that is broken down to two components. One is the patent life for the
drug, which is given to a drug by the US Patent and
Trade Office, which is often around 20 years,
plus or minus some. And the other is the
market exclusivity period, which is given by the FDA,
which is the period of time that the drug is given
market exclusivity rights. And this was created, as
Congressman Waxman discussed before, to allow for the
creation of a generic drug market. And we're going to be
focusing on the latter. The FDA-bestowed market
exclusivity period. And something to
remind ourselves of is that the purpose of the
market exclusivity period or the patent life
of the drug is to allow the company enough
time to accrue their R&D investments into a drug.

And with this in mind, the
next question is, is it fair, then, that different drugs
with widely varying R&D costs have the same or similar
market exclusivity periods? And we argue that drugs
that have a lot of R&D or required a lot of
investment to the drug should have a higher
market exclusivity period. And drugs that, for example,
are more profitable earlier on in their market life or
are able to recoup their R&D costs quicker should have a
shortened exclusivity period. And to summarize these points,
essentially, our policy idea is that the market exclusivity
period would allow a company to earn a multiple of its R&D in
profits before it's terminated.

And this multiple would
be determined by Congress. And the R&D that
is mentioned here includes both the R&D
for the successful trials of getting the
drug out on market as well as the R&D
required that went into the failed clinical trials
that the company has invested in. So therefore, companies
have a decision to make when they launch
a drug into the market. Either they set a higher
price and therefore have a shorter market
exclusivity period, or set a lower price and have
a longer exclusivity period. That's sort of the
simplified version of it. Now, there are advantages
and limitations to a policy such as this. One advantage, of course, is
that it will improve access in the sense that drugs will be
on a market exclusivity period until they've recouped
enough profits to make back a multiple of their R&D.
So once they've already done that, the drug will lose
its market exclusivity rights and therefore will enter
the generic market, and this will help improve
access for this drug to many patients.

Another is that it will still
reward game-changing drugs. A simple amendment
to this policy could be that there would
be a minimum exclusivity period that all drugs
would get, and therefore drugs that are more profitable
can easily make a lot of profit in the beginning for the
first, for example, five years before it loses exclusivity. So it'll still reward drugs
that are very profitable. And it will encourage
true innovation. That is, innovation
into drugs that require a lot of R&D investment
that are not necessarily copycat drugs,
though copycat drugs are important to our
pharmaceutical industry.

Some limitations
are that it will require corporate transparency,
which currently is not the case. It'll require companies
to be able to report their drug-specific
R&D costs to the FDA or to the
governing-reporting body. Another limitation is that
it's slightly more complex than the current system. And finally, some may deem
it as being over-regulation. However, one thing
we need to remember is that the current system
is set up with the government intervention already in place
of an exclusivity period and a patent period that
allows for a monopoly to take place in this industry. So then the question is just
whether this exclusivity period is fair or not. And steps are required in
order to effectively implement this policy option. One step that is
needed is that there would need to be
a reporting system for pharmaceutical companies to
report their drug-specific R&D costs.

Again, as I mentioned,
cost transparency is important, as well. And this is already being seen
across several states in the US where state legislators
have pushed– for example, in Massachusetts,
California, and Pennsylvania– for greater cost
transparency and what costs are going into drug innovation. And finally, generic
companies will need to know when a drug
will go off patent or go off exclusivity. So that's something to
keep in mind, as well. Thank you very much. [APPLAUSE] SPEAKER 2: Hi, Josh. Excuse me. GERRY ANDERSON:
[INAUDIBLE] professional. JOSH SHARFSTEIN: Great. Thank you so much. What an interesting
set of ideas. I'm going to maybe take a
little bit of a step back and talk from a public health
perspective about drug pricing. You take a look at what's going
on with prescription drugs and you can see a vicious
circle, particularly for new-branded, potentially
very valuable drugs that come out at a very high price.

And the vicious circle is,
you have a high price which then causes payers to restrict
access, which can sometimes actually stimulate
even higher prices. And you wind up with the
patient coming and going. It's a high price, plus
you don't have access. And if it's an important
public health drug, like hepatitis C treatments are,
because they cure hepatitis C, then it's particularly
bad for the public because you wind up
with significant access restrictions.

Very few of the people who
need the medication get it. And when you're
talking particularly about an infectious
disease, then you're not getting the value
of the treatment. And you wind up with
this weird situation where only a small
percentage of the population is treated at high cost forever
instead of actually dealing with the problem and getting
the benefits of production in infectious
disease transmission.

So you get less
access for patients, and you get potential
harm to public health from the vicious circle. I think it's also true for
noninfectious diseases, particularly those that affect a
lot of people where there would be benefits to
people's prolonged time in the workplace, less
burden on caregivers who have to take time off of work. So if you're thinking
about drug pricing from a public
health perspective, you're not just thinking
about the individual patient. You're saying, what would a
smart policy on access to drugs look like? And I would say that
the key public health question is, what's the right
level of access to promote the health of the population? And instead of having
a vicious circle, where it's higher prices, less access,
think about a virtuous circle, where it's lower
prices and more access, needed access, to get
the health benefits.

And so think about,
in your mind, if we were to just forget
about pricing for a second and say, well, who really
should get the medicine and how would we get the best
value for public health out of the new medication? What would it look like? It might look like a series
of recommendations depending on the situation that
I would say maybe should be put together
by an independent group but could include things
like not just reducing co-pays and tiering, but
providing the testing that may be necessary to figure
out who needs the medicine, supporting training for
clinicians to provide it, even conducting
special outreach. So if a drug is really
necessary and helpful, then an appropriate
role for a payer may be more than
just being passive.

May actually be to support use. In public health, we're
comfortable with that for certain medications
such as vaccines. I will also mention that
recommendations could include concerns of inappropriate use. So you could have
a medication that really works in one population
and could cause public health harm in another. And so as you think about what
the right policy would be, it might be to very much
encourage and promote access in one area, but not in another.

Because again, we're thinking
about the overall health of the population. So this is kind of similar
to some parts of what happens around the world. If you are negotiating on behalf
of an entire country's health care system, you're negotiating
the access for the population, and you're thinking about
how to make it available, under what conditions, and
with what level of promotion.

It's also the case
that this is how the vaccines for
children program works for childhood vaccines. The program that
Congressman Waxman wrote in the early 1990s. And that program, the
federal government does the purchasing for
about 60% of the market. But the federal government does
more than just the purchasing. They promote vaccination. There are grants to
promote vaccination. There are quality measures
to promote vaccination. And from the
company's perspective, they have to bargain with
the federal government, which is no fun for them if they
have to bring down their price.

But on the other hand, they
get a guaranteed market. And they get public
health recommendation. So there's a trade-off,
a virtuous circle– lower prices, more access to the
children who need the vaccines. I'll give you an example
from the Bush administration. When the country needed
Cipro stockpiled because of the fear of anthrax attacks,
the Bush administration negotiated a purchase
that was based on the idea that there would be buying for
an enormous number of people and, as a result, get
lower prices for it. So how do you bring
price and volume together in a way that supports
the public health? I think what that means
for the private sector is that you go beyond just we
won't put it on a high tier if there's a value-based
price offered by the company.

Maybe there are some
additional things that private insurers could do
to support the appropriate use and public health
benefit of medications, and that would make it even
more likely for companies to lower their price. In the public sector,
there are a number of ideas that are out there that
are very politically intense, politically controversial. Allowing Medicare to
negotiate the prices of drugs would be one of them. Using march-in rights
more aggressively under the Bayh-Dole Act
would be another one. Rather than try to resolve
those on their own, you might say, OK, we're going
to give the federal government more negotiating power, more
ability to control prices, but only if they make needed
drugs accessible to the people who need it. In the context of
hepatitis C, that might look like a major
outreach campaign, for example, for individuals
in correctional institutions, where there is an enormous
problem with hepatitis C. I would think that under both
the public and private sector, you might think more about
price quantity agreements in different contexts.

That could look like, we will
be prepared to pay this price but, in some cases,
it may be because we expect this quantity. In other cases,
it may be if there is a adverse public health
harm beyond a certain amount, the companies are going
to accept much less beyond a certain price
quantity agreement. In hepatitis C, I've
talked about a little bit. It would look like giving
greater market power for pricing in exchange for
meaningful access policies, perhaps set by the National
Academy of Medicine or an independent
advisory committee, with the result being
probably some greater expenditures, but lower unit
costs, and a huge benefit to public health. So in conclusion, a
public-health approach to drug pricing asks whether
the population is healthier at the end of the day. Drug pricing itself may be
too narrow a lens to look at some of these issues. Think about price and
access at the same time, and particularly not just
from a policy perspective, but also from a
political perspective. This isn't just about
the sticker price that a company puts on. It's also about
the access policies that both the public
and private payers have in access to medicines.

And if you bring those together,
perhaps you can find a– more likely to find a spot
that would be, in the end, better for the health
of the population. Thank you. [APPLAUSE] GERRY ANDERSON: Nick, your turn. Nick and Susan and a
whole series of people have been instrumental
in putting this together, and so we're just
standing up here, but they've done all the work. So thanks, Nick. Thanks, Susan. [APPLAUSE] I had the opportunity to
work with Joseph, who's been helping me and has actually
done most all of the work here, But I will stand up here
and do the presentation for both of us.

And this is another
policy issue that we think deserves some level of
attention, which is including drugs in bundled payments. So all of you who
are not experts in the whole issue of
what Medicare and Sean Cavanaugh and others
are doing in this area, they essentially
have a whole set of efforts to bring
in bundled payments. And bundled payments
essentially are saying, we're going to provide
a single payment for a whole body of services. And so an example on
here that CMS is doing is total knee replacement. And as you can see,
there's a whole series of things that are required to
be paid for when somebody has a total knee replacement, both
during that hospitalization– getting the doctors, getting
all the rehab physicians– and all the rehab
people involved in it.

But what you don't
see on that thing are the pharmaceuticals that are
part of that bundled payment. So the question is, why not? Why are pharmaceuticals
not in the bundled payment? Essentially, there's
a lot of reasons why we'd want to have them
in the bundled payment. They can offset spending
for other medical services. There can be
overspending when you have two separate categories. You might spend
too much on drugs. You might spend too
little on drugs. You might spend too much on
the other medical services or too little on the
medical services. And finally, just
having them in the thing is going to give you better
clinical outcomes in many cases because the doctor, whoever's
making this decision, is making a decision on a
whole bunch of services. So why have drugs been
outside of the bundle? One of it is, I
had an opportunity to talk to the people at CVS.

Nobody's talking to them
about bundled payments. They hadn't thought about the
issue when we brought it up to them. So it's not on a lot of
people's radar screen. CMS has taken a look at it. And I'll just read you, or
you can read, the comment. But basically, what
they're saying is, it's very difficult for us
to do some pricing for this because not everybody
is in part D. And MedPAC, the advisory
group for Congress, essentially said the same thing. It's really hard to do it. I know it's hard. But essentially, this
is a solvable problem. We have risk adjusters out there
that CMS uses all the time. You know what the
characteristics of the people that are in Part
D, the people that are not in Part D. You can make
adjustments for that. And then, even if
you can't do that, you have these actuaries
that [? are a ?] part of CMS, and just they just have magic. They have fairy dust, and
they can sprinkle it over and they can come up with a
reasonable price in many cases to do it.

So that, for me, is
a solvable problem. So we want to look at
some other problems, as we thought about what
CMS would have troubles. And there are two areas. One is sort of
administrative challenges that they would
have in doing this, or the private
sector doing this. And the second thing is
getting the provider community to accept risk for
pharmaceuticals. So the administrative
thing is how Medicare and the private sector operate. They typically have carved
out the pharmaceuticals and put them in a totally
different bundle of services. We heard from Henry Waxman
earlier about Part D and how it's a
separately-operated, separately organized, or whatever. And that's true also in the
private sector with these PBMs, or Pharmaceutical
Benefit Managers. They are a separate entity from
what the rest of the insurance is about.

Sometimes we'll have
them for other things like for issues of behavioral
health and whatever. But essentially, these
are different things. And this makes the bundles
much more challenging to do because they
are a separate entity. And the first thing you could
do– you probably won't do, certainly in the public sector,
but maybe in the private sector– is eliminate the PDPs or the
PBMs and have a single entity. I could go over the history
of PBMs if you wanted to, but essentially,
they were created because we didn't
know how to do what the drug pricing and the
managed-care plans did. Managed-care plans can do
that now, so it's not as much of a challenge. So the rationale for some of
these things are possible. More likely, you'd carve out
the payment from the PBMs or the PDPS for the average
amount that a drug would cost, and that would be part
of the bundled payment. And the PBM or PDP would
just get a little less money, and it's a reflection of that.

The second challenge is
drug regimens change easily. CMS has done this for
end-stage renal disease, was told to do it to this, and
they ran into some challenges. There's price increases
for existing drugs. There are drug shortages. Drugs go off patent. New drugs enter the market. All sorts of things happen,
quite different from what happens often in taking
care of post-acute care or physician-care practice
doesn't change as much, and so this affects
the bundling. And when they did this for
end-stage renal disease, they learned something
they could do, but I think these are
solvable problems. Hospitals have been dealing
with this issue for years.

When we created the Medicare
Prospective Payment System back in 1983, drugs were always
part of the Medicare payment. The hospitals have to deal with
these new drugs all the time. And so Medicare has been
quite creative in coming up with new ideas. They have a new medical service
or technology add-on payment for some new drugs. They have outlier payments. They have a whole series
of scenarios for hospitals, and those scenarios
could be easily adapted for bundled payments. The next thing is the concerns
about quality of care. Specifically, the term
that we use is stinting, where if the bundled payment was
for a certain period of time– say, 60 days– maybe you wouldn't get the
drug till the 61st day. And so there would be
a set of incentives to not provide the drugs
in the period of time. This has also been a
concern about hospitals doing the same thing
with prospective payment. And we saw a little
bit in the first years, but we don't see very
much of it anymore.

You've got to
maintain the quality. You've got to do
those kinds of things. And if you really were
concerned about this, you could provide some
practice guidelines for the bundled payment
systems in order to do this to see if they were,
in fact, following practice guidelines. Next is the side of
providers accepting risk. And essentially, here,
the issue is the providers know how to deal
with other doctors, with home health agencies,
and those behaviors are pretty predictable. The prices don't
change very quickly. Not really new markets
and new products come on. Products don't go off
the market and whatever. And the other thing is people
respond differently to drugs and not always in
predictable ways. So there's just
greater financial risk for providers in this scenario. So what can we do about that? There's a number of
things we can do. Medicare and others have
these outlier payments. They have add-on payments. They have a whole
series of things so the provider
community would be able to accept this risk
of these new technologies.

There's the whole
issue of reinsurance and a whole variety of
other things, as well. So there's just a lot of ways
that we could essentially do it. For me, it's not surprising that
the drugs are the last things to happen in these bundles. There are a lot of
technical issues. There's a lot of
challenges to overcome.

But for me, the
economic rationale and the clinical rationale
for including drug in the bundled payments
are so strong that I think this should be the next
step in the bundled process. With that, the Johns Hopkins
section has completed. We've given you four
ideas to think about. And now what we'd like
to do is turn it over to our discussions. The first person I'm
going to turn it over is to Sean Cavanagh. Sean is the Deputy Administrator
and Director of the Centers for Medicare at CMS. Given that that sense
of responsibility, he's responsible for part A,
part B, Part C, and part D in the Medicare program. The most important
thing about Sean is that he's a graduate
of Johns Hopkins. [APPLAUSE] SEAN CAVANAUGH: Thank you all. And thank you, Gerry,
for the introduction. First of all, I'm going
to apologize in advance. As soon as my
remarks are over, I have to run back to the office. I wish I could stay because
I thought of the solution to this problem and I wanted
to implement it immediately.

The fact is, today
and every day, we'll spend about $330
million on prescription drugs at Medicare, so it's something
we think a lot about. I also want to thank you
for inviting me here today. It's a pleasure and
somewhat of a luxury for me to be able to sit
through presentations that are very thoughtful
and put the work we do into some context. Having said that, and
in the limited time, I'm really going to direct
my remarks to just several of the presentations,
including Gerry's. Really about the demand-side
innovative pricing and bundled prices. But first, I want
to set the context. People focus on prescription
drugs at Medicare as Part D, but we really pay for
prescription drugs in a number of different ways. One, we pay for them
in Part D. This year, Part D will spend about $100
billion on Part D drugs, which will be about– actually, last year,
that grew by about 12%.

So you hear a lot of people talk
about, well, prescription drugs aren't a large part
of the total spend. Inflation is not that great. In Medicare, it's a
growing part of the spend. And in Part D, we had
about 12% growth last year. The second way we spend
money on prescription drugs is in Part B. And this is
where I'll disagree modestly with what Gerry said
because the Part B drugs are in most of those models. The difference between
part D and Part B, Part D are the self-administer
drugs– the ones you and I would get at the
counter from our pharmacy. Part B drugs are typically
those that you can only get if a physician or a
physician in a hospital outpatient department
administers it.

This is a smaller component. It's only $22 billion. But it's not often you
say smaller, $22 billion. But also, in 2007,
it was $11 billion. So it's doubled since 2007. So there's clearly a need
to focus there, as well. The third part that Gerry
did touch on and is actually somewhat of a
success story is we pay for prescription drugs
not separately, but implicitly in our hospital payments. And it is the ultimate bundle. And it is the area
where you don't hear a lot of people complaining
about prescription drug costs. They exist there,
and it is something that needs to be
focused on, but I think it shows when you
look at hospital bundles. And we also bundle it in ESRD,
as several panelists mentioned. A lot of the problems
go away because you have strong incentives
for providers who are really close
to clinical care to be able to make
informed decisions and choose drugs wisely. So quickly, to talk about
those two separately. Part B drugs– that's over
50 million beneficiaries. The way we pay for Part B drugs
is defined in statute, which is essentially when a
physician administers the drug, the physician will be paid.

The average sales price
for that drug– so what does the manufacturer
report that they get paid for that drug
on average– plus 6%. The statute doesn't say
what that plus 6% is for. There's a lot of hypotheses. There's a number of
problems with that approach. One, MedPAC has
pointed out that, as a physician orders
a more expensive drug, that percentage add-on goes up. So if a physician
administers $1,000 drug, they get a $60 payment. They administer a $10 drug, they
get a $0.60 additional payment. So there's not a
huge body of evidence here, but there's
a lot of belief that that skews the choice
of drugs by physicians. This is unlike Part D, that
I'll talk about in a minute. The $22 billion is not an
administered benefit at all. There's no one overseeing
whether physicians are choosing the
right drug, choosing the most efficient drug, whether
patients have gone through step therapy, meaning trying
lower-cost alternatives before they get to another drug.

So it's pure, unadulterated
fee-for-service with all the problems
that go along with that. So what can we do about that? Gerry referenced a
number of things. I think in Part B, we have a
better approach to it, which is, in most of the
bundled payment models that we're doing, which
include ACOs, bundled payments like the joint
replacement, but also we have a cancer-specific model
called the oncology care model. All of those include
the Part B drugs. So there is an
incentive for physicians who are in those models to
choose drugs wisely and try to save money and focus
on outcomes as opposed to reimbursement. The success of that policy
will be limited, though, for a number of reasons. One is sometimes Part B drugs
have analogs in the Part D world, meaning, for example,
rheumatoid arthritis.

Some of the rheumatoid
arthritis drugs are in Part D because they're
self-administered. Some are in Part B. And if you
only have financial incentives to constrain the costs on one
side, it can create leakage. In addition, inherently,
we don't really care about prescription
drug costs. We care about the
total cost of care that goes into caring for a patient. And as long as
you're carving out pharmaceutical drugs
on the Part D side, it's still a significant
flaw in the model. And as I said,
there's no benefit for the physician or the
patient to choose drugs wisely. From the beneficiary
standpoint, they're not rewarded if they choose
a highly effective drug. They're not rewarded if
they adhere to their drug, though some of the
bundled payment models do create incentives
for the physicians to focus on adherence. So switching to
the part D drugs. This is, as Gerry pointed
out, 40 million Medicare beneficiaries, $100
billion in spending.

The interesting
thing is, it's not a Medicare-administered benefit. We contract with Part D plans. And presumably, they
are doing the management that we all want to see,
which is making sure they build a formulary
that focuses on value and it incentivizes
and rewards patients that choose the right drugs. One of the things I wanted to
mention about the bundling– Gerry identified, I
think very appropriately, a number of the reasons why
we don't bundle in the Part D because it's complex to do so. What he didn't touch on is
the financial relationship we have with the Part D plans,
which is in the Medicare statute, is very complex,
meaning we're not simply paying them a capitation rate. The plans are actually bidding
on only part of the benefit that the beneficiaries get. The federal government picks up
a significant and growing part of it directly
through reinsurance through the catastrophic
phase and so forth. Drug manufacturers are
financing part of the coverage through the donut hole. So when it comes to setting
up a bundled payment model, if we were to
say all your Part D costs for the
people in this room are included in the
bundled payment, it's really hard to find
out what we actually paid on behalf of any one person
through the Part D program.

There's also a
year-end risk-sharing. So if the plans,
even though they're bidding on a limited
part of the benefit, if they lose money or gain
money, we share that risk. So again, finding a financial
settlement where we actually attribute the right amount of
cost for a prescription drug to a single beneficiary
is very difficult. So what can we do about this? A number of things. And two of these ideas were
embedded in the president's budget proposal for this year. One is, if we're going
to stay with this model, where Part D plans
are our agents and they're supposed to
be managing the benefit, can we give them more tools so
they can more actively manage the benefit? They come and meet
with CMS frequently, saying we're hindering
their ability to generate savings for us.

Some of what they
propose is often around restricting access. But there are other areas– for example, in
anti-psychotic drugs, we essentially require them to
cover all anti-psychotic drugs. So you can imagine
how much leverage they have with the manufacturers
of anti-psychotics. They can exclude them
from the formulary. They can't do a lot of
the things they usually do to drive down costs. So there's a number of things we
could do to give the plans more authority. The other thing we could do– so
the question is, if the Part D plans are only at risk
for part of the benefit, and part of the benefit
they're not at risk for, which is the very
high cost drugs, is the area where
it's growing, maybe they would be
better agents for us if we put them at risk
for those high cost drugs.

So one proposal in
the president's budget is to systematically start
increasing the amount of risk we attribute to the plans
so that they would be paid something closer to
capitation, and they would have a stronger incentive
to get Medicare the best deal. The other one– and this
has been very controversial, but the president's
budget proposed for some very high
cost drugs, maybe this isn't the right model. Maybe the model should be
that the agency negotiates these prices. And the president's budget
said, just for the highest cost specialty drugs, with
the notion being, negotiating on behalf of 40
million Medicare beneficiaries might generate better
prices and better terms than breaking those 40 million
beneficiaries up into much smaller groups and having
private plans do this. And the last thing
I wanted to touch on is, with bundled
payments and ACOs, everything Medicare
has been doing in the last couple
of years is trying to improve the value of
the care we purchase.

So not paying
providers unless we're incentivizing them to
improve the quality of care beneficiaries receive and
become more efficient. So the question is,
how do you fit that into the Part D context? We have had drug
manufacturers come to us and say, we want to do a
deal with the Part D plans, where we promise
certain outcomes. And so we give them one price,
and if we hit these outcomes, we stay with that price. But if we don't produce the
outcomes that these prices were tied to, we give a larger
rebate back to the plan, back to CMS, perhaps
to beneficiaries. The problem with
pursuing this currently is, a lot of these outcomes
are things that happened over three, five, six years, when you
see whether the beneficiary has really benefited clinically.

Our current arrangement
with the Part D plans is an annual settlement around
what happened in that year. So we're exploring. And we've had a number of
proposals that have come in, where is there a
way to integrate value-based purchasing that
might have a longer time horizon and different terms? So currently, the terms the
plans usually negotiate is, we'll give you a good spot on
the formulary for a low price, or bad spot on the formulary
or off the formulary. And can it focus more on what is
the benefit to the beneficiary? What is the cost
to the beneficiary? Can you play around with the
beneficiary's co-payments for their willingness
to adhere to the drug? So that is the
universe of things. It's very much trying to be part
of our value focus in Medicare. Again, I want to
thank everybody.

I didn't touch on a number
of the patent issues and so forth because they're not
directly in my purview in CMS, but they are things that
we follow very closely and we work closely with our
colleagues in the FDA on. So thank you very much. Thanks for inviting me and
thanks for the presentation. [APPLAUSE] GERRY ANDERSON: Sean,
another A. You get another A. SEAN CAVANAUGH: Actually,
that would be my first. GERRY ANDERSON: Now, John,
if you want to come up. John Coster is the Director
of Pharmacy for Medicare and the Children's
Health Services. As you probably know, he has 50
bosses in terms of 50 states. So he's got a lot
going on his plate. And trying to keep
track of all 50 states has got to be [INAUDIBLE]. Plus, he's got the
responsibility for about 60% of the expenditures
that the Medicaid programs are done by CMS
and the federal government. So he's got 50 and 1 masters
in this set of activities. And I'm glad you got the job. JOHN COSTER: Thank you.

Thank you very much. Good afternoon. I actually have
56 if you include the District and
the territories, since they all have
Medicaid programs, as well. Sean's gone, right? OK. Now I can give you the
real story about Medicare now that he's gone. Thank you, again, very much. As Gerry said, I am the director
of the division of pharmacy for CMCS, the Center for
Medicaid and CHIP Services, which is essentially
the Medicaid program. And if you've seen
one Medicaid program, you've seen one
Medicaid program, because every Medicaid program
is essentially different.

Medicaid and Medicare
Part D, for that matter– we don't buy drugs. We pay for drugs. So it's a little
bit harder for us to do the volume purchasing,
buy-in-bulk type approach. In Medicaid right now, actually,
in terms of number of people, is larger than Medicare,
even though Medicare actually spends more on outpatient
prescription drugs. But there are certain
government payers that do actually buy
drugs, like the VA buys drugs for their facilities. The DOD buys drugs. Certain 340B entities,
they buy drugs. We don't actually buy drugs. We pay for drugs. So we reimburse for drugs. And making it even
more interesting for Medicaid is that we
have a fee-for-service part to Medicaid, and we have
an MCO part to Medicaid. So as you know, Medicaid
delivery models right now– the primary mechanism delivery
are managed-care organizations, kind of like Medicare
Part D.

And then we have the fee-for-service
side to Medicaid. It's very fortuitous
that you have in the room Congressman Waxman
because I actually worked for a member of
the United States Senate many years ago when
Congressman Waxman was chairman of the Health Subcommittee
of the Energy and Commerce Committee. He worked along with my boss
to create what, back then, was a really important
program for Medicaid– the Medicaid Drug
Rebate Program.

Because, back in
the '70s and '80s, the Medicaid programs, because
they had little negotiating leverage and because they
were payers for drugs, they were paying the
highest prices for drugs in the country, which
seemed to be truly unfair that a poverty
program for the poor was paying the highest
prices for drugs. So after a series of hearings
and legislative maneuvers and things like
that, back in 1990, Congress created the
Medicaid Drug Rebate Program. And what that program
essentially does is it requires drug
manufacturers to pay a rebate back to the states for
drugs that are dispensed to Medicaid patients. So example, at the end
of a quarter, a state– the state of Maryland– will total up how much Lipitor
did we pay for in this quarter through pharmacies? And of course,
they get the claims from the retail pharmacies. They total up the drugs
that they dispense and that they paid
for, and then they bill the manufacturer
for a rebate. So in this case,
Pfizer would get a bill from the state of Maryland
and every other state, if Lipitor was dispensed. And that happens
for all drugs that want to be covered by Medicaid.

The manufacturer has to
sign a rebate agreement. And that program has
brought in billions and billions and billions
of dollars for the states. In fact, just last year,
$26 billion in rebates came in to Medicaid. Of course, Congressman
Waxman didn't negotiate a cut of that
when he was in Congress. He would have been
a multibillionaire. But good public policy,
as usual, and Medicaid has had and continues to have
the ability to save money through the rebate program. In 2010, those
rebates were extended to manage care claims so that
now states are also collecting rebates on drugs dispensed
to individuals in Medicaid who are in managed
care organizations. So in return, however– as we've talked about,
everyone has to win– manufacturers were able to
get access to the Medicaid population because drugs were so
expensive to Medicaid programs.

Back in the late
'80s, early '90s, states were restricting access. And they were using
that restriction as a way of trying to get
some price concessions. In return for manufacturers
paying rebates, states have to cover the
drugs of all the manufacturers that signed rebate agreements. States can use
various mechanisms to help manage utilization. For example, they can
use preferred drug lists. They can use prior
authorization. They can use drug
utilization review. But essentially, if a
manufacturer signs a rebate agreement with the
secretary, the state has to cover the drug on
their preferred drug list. Although, as I said, they can
use utilization management mechanisms. So for Medicaid, as a payer
and not as a direct purchaser, the rebate program
has really, really, really helped them to
manage their costs. So much so that last year, the
amount of spending on Medicaid drugs was matched
almost dollar for dollar by the amount of rebates
that were coming in. The problem that states
have, as do other payers, is what do we do about the
launch prices of new drugs? A new drug comes to the market.

How do we manage that? And I think HCV drugs has
been mentioned prominently here this afternoon. When the first new HCV, the
direct-acting antiretrovirals came to the market
back in late 2013, the states had shell
shock because they were used to paying for
hepatitis C treatments. And of course, these hepatitis
C treatments, many of them were not curative and
they had side effects. But the first one
that came to market was priced for a course of
therapy at about $92,000, give or take a little bit,
and the states are like, look. They were telling us,
if we treated everybody we had to treat that
had HCV in our state, we couldn't treat anybody
else for any other condition.

So while the drug
was priced, perhaps, at a range that was very
difficult for states to pay for, others argued,
yeah, but it's a cure. It's going to help avert
long-term consequences from hepatitis C
liver transplants, other types of
medical conditions. But the states, of course,
having to cover that drug, and they had to cover
that drug as they've had to cover every other drug
that's come out since then, started to limit access. They started to restrict access. Some of them had really
onerous restrictions. You had to be at F4
in your METAVIR score before we would even cover it,
which is the next step pretty much next to death. Other states had more
reasonable restrictions. Some states had restrictions
on fee-for-service. And other MCOs within
their same states had different restrictions. So the HCV drug issue, I think,
became a symptom, for us, of the fact that states
were struggling and continue to struggle with what to do
with the price of launch drugs.

And we think HCV is
the first of many drugs that will come
along in the future where the states
will say, what are we supposed to do with this? A lot of the managed-care
organizations that contract with
the states, they're paying the capitated rate. Some of those
rates are set based on spending patterns
from several years ago, and they couldn't anticipate
the HCV drug launches. So what has happened since then? We at the agency
were very concerned about some of the restrictions. And if you were following this
issue, you'll know in November, we put out a guidance to states
that basically said, we get it. These drugs are expensive. We get it. Manufacturers may have
overplayed their hand in pricing some of these drugs. But there are certain
rules the states have to follow with respect to
access to these medications. And we put the guidance out. We laid out some
of the concerns we had in terms of METAVIR
score or in terms of states not providing access
to individuals who had certain
substance use disorders or limiting prescribers or
the disparity between MCO and fee-for-service. We put the guidance
out, and we're currently looking at how
and whether states have responded to that in
terms of opening access.

But at the same time, what
happened is other competitors came to market. So you had Sovaldi
come to market. You had Harvoni come to market. You had Viekira
Pak come to market. And now you have the new Merck
drug that's on the market. And the other thing
that states do in order to manage drug costs is they
negotiate supplemental rebate agreements. So the states have banded
together– the state Medicaid programs– in three
different large purchasing pools. And what they do is they try
to leverage formulary placement with manufacturers to get a
better supplemental rebate for these drugs. So on top of the rebate
they would get anyway under the rebate
program, they would get a supplemental rebate
that would help offset some of the expenditures. So what we're hearing that's
happening now in the market is, with Merck's launch,
Merck has indicated where they're coming in
terms of their launch price.

They're going in
and they're working with the supplemental
rebate agreement contractors that the states have to try
to get on their formula– on the state's
preferred drug list. They're trying to
knock off Harvoni. And Harvoni has
most of the market right now with respect to
state Medicaid programs. And what's Gilead going to do? Well, they're going to try
to match the price, perhaps. So I want to say
that, in this respect, competition may be helping
states improve access to these drugs. But the states have
limited ability, as does Medicare Part D, with
the launch prices of the drugs. So we are currently
looking at what states are doing with respect to access. How many states have changed
access criteria for their HCV drugs since the launch? But this is the first,
we think, of many. We don't put out memorandum
like this to the states a lot. We let the states run
their programs, basically. The last time we put out
something on a drug coverage decision to a state
was back in 1996, when states were limiting
access to HIV drugs.

It's something about
the HIV/HCV drugs. And that was the last
time we did something like this because we let the
states run their programs. But where we see issues relating
to states sharply reducing access or whether
there's a disparity between medical criteria
between fee-for-service and managed-care, then
we feel like we have to take an additional
step, at least at this point. Some of the things
that were mentioned. The president's budget, with
respect to pool purchasing, has a proposal in it for
2017 to allow a greater pool of purchasing in Medicaid. We have three good purchasing
pools going on right now. We don't run them. The supplemental
rebate contractors do. But we feel like, if you
combine the MCO Medicaid lives with the fee-for-service
Medicaid lives, that would create a huge purchasing pool. So this proposal in
the president's budget, which has been scored to
save billions of dollars over the next five years, could
help states better leverage prices with manufacturers by
creating larger negotiating units. Value-based purchasing
that Sean mentioned.

There's very little
of this going on, as we can tell, right
now in the market in general and particularly
with Medicaid programs. Medicaid programs have
certain challenges to implementing value-based
purchasing programs, as some manufacturers
have told us. Sometimes the costs of
implementing these programs far outweigh the savings. But I think, as we
move forward, we're looking for
manufacturers who want to volunteer with
programs with states on value-based purchasing. For example, the HCV drugs. The SVR rate reductions are
pretty good with these drugs, as we've been told. We don't know what
the future is going to hold in terms of relapse. But if, for example,
a state paid for 100 patients, $90,000– it's not that price now. It's much lower– but say
a state paid a lot of money to treat a cohort, a
Medicaid patient, for HCV, and 20 of those failed. Well, should the
manufacturer bear some of the risk in the failure? It may not be because their
drug didn't work well.

It may because
the patient wasn't compliant or other factors. But when does the
industry have some skin in the game with
respect to pricing? When do they
actually take on some of the risk of the
pricing of these drugs? There's certain structural
impediments to doing that. Beyond the state's
infrastructure and collecting data, there's
something in Medicaid that was created with the rebate
program called "best price." Manufacturers have to give
their best price to Medicaid.

And many manufacturers have told
us that, because of best price, it limits their ability to
do value-based purchasing. Specialty drugs. We don't, again,
get too involved in the weeds with how the
states pay for specialty drugs. And everyone in this room might
have a different definition of what a specialty drug is. But we have several states
that contract with PBMs or have limited
competitively-bid contracts for the specialty-type
infusion, injection, and inhalation drugs. And then the other
things that states do is they closely monitor
through their drug utilization review activities what's
going on in their states with respect to the prescribing
and dispensing of drugs. And they try to work with their
prescribers and dispensers. It's challenging every day. I hear from Medicaid
pharmacy directors every day about the challenges
they face in providing a quality drug benefit. The cost of drugs, not only
new drugs but existing drugs, keep going up.

But unlike Medicare, we have
a statutory rebate in place. And there are some who have
suggested that that rebate also be extended to Medicare
because a lot of those people in Medicare Part D were
dual eligibles in Medicaid, and they were getting,
in theory, better prices for their drugs than they're
getting now in Medicare. And there are several GIO
reports that point that out. But the bottom line
is this in Medicaid. We face the same challenges
as Medicare Part D. We're a payer, not a purchaser. We have to find new
and innovative ways to help states pay for drugs. We have to get more
manufacturer skin in the game. We have to build on the
success the states have had with the rebate program
and the supplemental rebates. And we have to find a way
to expand value-based type purchasing in Medicaid. So I'll stop on that note. Again, I'll thank you. I'm not a graduate of Hopkins. I did go to Maryland
across the– I don't know what the
rivalry is, if there is any.

But I did go to Maryland
for graduate school. I've never been up
this far in the city. I've never worked my way all the
way up to this Hopkins campus. I appreciate the
invitation and opportunity, and I'll turn it back to you. [APPLAUSE] GERRY ANDERSON: Maryland
graduates can do well, too. Good. Jamey, if you want to come up. I started the
presentation talking about the value of the
pharmaceutical industry and the fact that most
of us wouldn't be here without them with all of
the illnesses we've had. So with that, we
wanted to hear from the pharmaceutical industry. Most the time in academia,
we don't talk to them, and I wanted Jamey and the
whole team to talk about it. And Tanisha, one
of our graduates, and is at GlaxoSmithKline,
and I reached out to her and she said, you ought
to have Jamey talk. So with that, Jamey,
it's your turn. JAMEY MILLAR: Thank
you, Dr. Anderson. Everyone was establishing
their links to the university.

Now you've done it for me. My link is our head of public
policy, Dr. Tanisha Carino. Happy to be with you here today. Thanks so much for
the invitation. I think you said it right. It would have been easy to
leave the manufacturer out of the conversation, but
I appreciate the fact that you've invited me here. My father– I just
had to say this– now deceased, but
was a PhD historian from Cornell University. So the opening session, Dr.
Greene and Congressman Waxman, he would've loved the whole
notion of looking back to possibly inform the future. So right from the
opening session, this has been very,
very positive. What I'd like to do over
the next few minutes is share my view on the topic
and, as Dr. Anderson requested of us, to share some quick
comments on some of the policy proposals, like Sean Cavanagh,
maybe staking a little closer to my [INAUDIBLE] things that I
know a little more than others. As I think about it, the
conversation on price, value, access, and affordability,
over the last 12, 18 months, it's really been
forged by extremes.

On the one hand, the
extreme pricing behavior of companies like
Turing, Valeant– as a quick aside, GSK is the
owner of DARAPRIM in the UK. Sells the product for $0.66
a tablet compared to the $750 that was discussed before. So extremes– on the one hand,
in terms of price behavior, and extreme innovation on the
other, I think as you echoed. The productivity out of the
industry in terms of R&D output has increased. In 2015, FDA approved 45
new chemical entities. And if you look at 2006 to
2014, the average was 28. So the yield, the
productivity coming out of the research and development
labs is yielding innovation. The list that Caleb showed in
hepatitis C, in heart failure, in cancer, in HIV,
just to name a few. But like Dr.
Anderson, I often do ask myself, what if we had
the luxury of the hepatitis C agents and either disease
modification or a cure for Alzheimer's, and maybe to
throw on another large tumor type in cancer
innovation, how would we pay and afford and make
room for that innovation? I guess from an
industry perspective, and this is
certainly the way GSK looks at it, the trust and
sentiment of the public as evidenced in the survey is
probably at an all-time low.

It's not what it was when I
joined the industry in 1990. And really, that's a
consequence, I think, of a duality of issues. One is the way of
working or the business model of the industry, the
commercial model, and secondly and singularly, the
pricing and access issue. So just to share a bit on
GSK, if you'll indulge me. GSK's a large, diversified,
multinational company and consumer health products. Global leader in vaccines
and pharmaceutical products, including our ViiV
Healthcare business, which is a joint venture
with Pfizer and Shionogi. Our current CEO,
Sir Andrew Witty, not in the last 12 months,
not in the last 18 months.

When he became CEO
in 2008, recognized that trust was really
the fabric of the future. We just celebrated 300
years as a company. All the lineage of
GlaxoSmithKline, 300 years. I would like to believe that
we'll persist for another 300 years, but in order
to do so, we need to restore trust
and societal trust, and in particular
around pricing. So we have undertaken
several things to do that. We were the first
to publicly disclose an anonymized patient-level
clinical trial data, so good clinical results
and poor clinical results. And other companies
have started to follow. Excuse me. We were the first, at the
beginning of this year, to cease payment to physicians
for speaking promotionally on our behalf.

And we were the first and
still the only company to remove a
prospectively-defined volume or market share
target as a means to compensate through
bonus incentives our sales professionals. We did that because
we believed that there could be an
unintended consequence of encouraging inappropriate
use or off-label use. So it stands to reason that a
company that's taken stances would also take very seriously
its position on pricing. And on that measure,
since 2008, we have consistently
and intentionally been in the bottom
50% of our peer group in terms of annualized
price increases for established products.

Each of our last six
launched medicines have been launched at
parity or lower list prices than the next-best alternative
or the current standard of care, which, Antonio,
I saw in your survey, could be viewed, was viewed as
a potential component of what would be considered
a fair price. And lastly, on a net basis,
incorporating, as John just mentioned, the compulsory
discounts as mandated by statute in Medicare– sorry, Medicaid,
as John elucidated, and the market-driven rebates,
our compound annual growth rate on a net price basis
over the last five years, from 2010 to 2015, is
an increase of 1.7%. So we think we've
found what, to me, as I start to get into the
survey and the policies, is the right balance. Congressman Waxman
mentioned the word balance in the panel and that word came
up over the lunch, as well.

This is all, in my view,
about that balance. We believe that the
innovator should be able to gain a profit
for their discoveries, but, like the dual entitlement
theory, on the other hand, patients or consumers
shouldn't be exploited. So it's about
finding that balance. Being able to be rewarded for
the inherent risks of research, discovery, development, and
commercializing medicines and vaccines, but
at the same time, ensuring that patients have
access and affordability. One policy proposal
that wasn't discussed that I think addresses, perhaps
in part, John's concerns that payers have– I've always felt that payers– obviously, they do
care about price.

They care as much about
price predictability. We're currently restricted from
discussing clinical evidence, value, price, intended
patient population, et cetera, with payers prior to approval. So to move from the zero sum
game where one entity wins, the other loses, or vice
versa, to a shared view, an aligned view,
prior to approval. That's one policy proposal that
we advocate for very strongly. In terms of variable
exclusivity periods, I think, as the author acknowledges,
it is a bit complicated, especially as you
think about the fact that we struggle today to align
on a common definition of value against a fixed patent period.

Now we'd be compounding
value definition against a variable
patent period, which could have the unintended
consequences of rewarding marginal improvement, lower
value, lower spend products, achieving, actually, a
longer period of exclusivity than a true
breakthrough innovation. In terms of the
regulatory reciprocity, we think that's an idea that has
merit and should be considered. Value-based contracting–
I think John explained that very well. Operationally, it's
proven difficult to align contractual agreements with
payers based on outcomes.

And the sophistication
needed from a measurement and time-period
standpoint, often it collapses under its own
weight for that reason. Lastly, the bundled
payment model that Dr. Anderson
described– we do believe that medicine
should be included, that it should be
evaluated in pilots, looking at bundled payment. Obviously, in ESRD,
as was mentioned, drugs are already included. The one caveat we would
say is that the ambition should be to improve
quality and outcomes. Not simply look at
the cost component, but look at it
holistically in a system. And also, the
bundled payment needs to accommodate new technology,
new innovation coming midstream, perhaps,
when it wasn't factored into the upfront
pricing of the bundle. And then lastly, Dr.
Sharfstein's paper and the comprehensive view of
pricing solutions– generally, one of the criterion
for evaluation was reducing drug spend. And I would just suggest
that, as was mentioned, there are some drugs where
you're getting efficient output outcomes per spend, and
maybe some drugs where it's inefficient.

So rather than solely
looking at reducing drug spend as an end
in and of itself, trying to improve the efficiency
or effectiveness of that spend, we have– I'm most familiar, I
suppose, with a old model called the Asheville Project. I live in Chapel
Hill, North Carolina. This was in Asheville,
North Carolina, probably 15 years ago
in type 2 diabetes, where pharmacists, through
MTM intervention, adherence, compliance, discussion with
the patient on appropriate use, were trying to manage for better
outcomes in type 2 diabetes.

And the outcome of
that program was an actual increase in
pharmaceutical drug spend, but a lower
total system spend. So I think the key is to find
where are those pockets where there's under-utilization
of medicine, there's poor adherence, where
actually driving up drug utilization
appropriately could actually lower total system costs. So I guess, in closing,
again, I thank you very much for the invitation. Whether or not any of these
policies end up being applied, I think the important
thing is that we discuss sensible solutions to what is
an unsustainable cost trend so that, in the end, the
most important stakeholder [INAUDIBLE]
continuing the patient has the ability to access
and affordably leverage the innovation that's
coming through. Thank you very much. [APPLAUSE] GERRY ANDERSON:
So let me finally introduce Tricia Neuman. Tricia is the Senior Vice
President at the Kaiser Family Foundation and– I'll get the title right– director of the Foundation's
program for Medicare policy and its project on
Medicare's future.

Tricia has worked at the
Ways and Means Committee, and most importantly, she's
a graduate of Johns Hopkins. SPEAKER 2: We're firing
up the projector. It will be just a moment. TRICIA NEUMAN: OK. OK, that's fine. They're firing up the
projector, and I'm just going to keep talking. GERRY ANDERSON:
[INAUDIBLE] You're up. TRICIA NEUMAN: I'm up. OK, great. It is really an
honor to be here. And I feel like this is
prescription drug boot camp, since we've all been
at it for quite a while.

But I know I found it
really interesting. And Gerry, I thank you for
putting all this together and for inviting me. And Jamey, I think
it was just great that you were a
part of this meeting because so often
the industry's not in with these
policy discussions, and you're obviously
so thoughtful. And we're not going to get any
further in terms of coming up with solutions without
the industry at the table, as Congressman Waxman was
saying earlier tonight– today. GERRY ANDERSON: [INAUDIBLE]. TRICIA NEUMAN: What? GERRY ANDERSON: It's still day! TRICIA NEUMAN: Today. I just feel– well, you know. Anyway, we are all here
for a common interest, which is that we are all here
because we think people should get the drugs that they
need at an affordable price, and that the costs are
reasonable and fair to payers, including people in an
environment where there are constrained resources. And that's a big
package of things that we're all
trying to achieve, but I think we are
trying to achieve it.

I'm going to focus a little bit,
like some of the speakers have, on Medicare because that's
the area where I've spent a whole lot of time thinking. And it's also because
Medicare's a big payer, as you heard from Sean
Cavanagh a little bit earlier. He gave you some numbers, but
the bottom line of his numbers is that Medicare today is– 20% of Medicare spending
today or close to it is for prescription drugs,
when you put it all together, inpatient and outpatient. So it's kind of a big
deal for Medicare. And it's also a
big deal– and I'm sorry to be focusing on costs.

I also mean to focus on value. But if you look
at costs, what you can see in this
colorful chart is that Medicare spending
on drugs took off after the implementation of the
Drug Benefit, which was great because that meant
people were getting drugs and Medicare was paying for it. But Medicare spending on drugs
has really been ticking up and is 29% today and going
to 34% within the decade. So this is a big
issue for a program that is concerned about costs. And it is why people are paying
attention to drug pricing and drug costs generally. Now, back years ago,
I was a history major, although I'm not a historian,
but I do respect history. When the Drug Benefit was– JEREMY GREENE: [INAUDIBLE]
definition of historian. TRICIA NEUMAN: And
you even used a word I did use– the historicity,
or something like that.

Back when the Medicare
Drug Benefit was enacted, there was a lot of concern– it reflected in
the top red line– about what the cost of
the Drug Benefit would be, and that, in part, explains why
there is this funky donut hole. People didn't believe there'd
be enough money over time to pay for it. And as you can see here,
the costs of Part D have been so much lower
than what the actuaries and CBO projected. There were big fights,
and there have been big fights, about why was that. Was it because competition
between private plans worked? Some people definitely
believed so. Was it because of generics
coming onto the market? Some people
definitely believe so.

Or was it estimator error? And some people definitely
believe it was that. These are largely
academic fights, but the bottom line
is, this bottom line is no longer staying flat. And because drug spending
is rising now so much more rapidly than anybody had
projected in recent years, we're all talking about this. And we will continue
to talk about this. We will continue
to talk about it because drug costs
under Part D are projected to rise so much more
rapidly in the next decade.

And as you can see,
this is looking at per capita Part D spending,
which almost didn't grow. 1.5% average annual
growth rate is kind of like not growth in
the scheme of a big government program. But what you can see
is, in the next decade, Part D spending is
expected to grow by 6.5%. That's an average
annual growth rate. So that's a lot. And that's why we have
to talk about solutions. And that's why we're here. A lot of people have
talked about Sovaldi, so I'm not going to
talk that much about it. Just to make the point that the
numbers that you've seen here translate into big dollars. Again, for Medicare, from 1%
of Part D spending in 2013 to 6% in 2014 to 10% in 2015. So if you're looking
at $92 billion– I was thinking about
Gerry's comment about an Alzheimer's drug. And I think you
said $400 billion. So relative to what
we're spending today, it's just like a
nonstarter to think about what that would mean for
a sudden increase in spending.

It's obviously something we
need to pay attention to. I want to switch gears and talk
about people for a second, not just program spending,
because I want to show you what this means for people. We think of Part D
as a program that provides pretty good benefits
except for the donut hole that everybody has been
talking so much about, but Medicare does not cap
out-of-pocket spending. It has an out-of-pocket
threshold, a catastrophic threshold. What that means is,
there's a big cost to people for some of these
high-cost drugs when they reach the catastrophic level. They're paying
thousands of dollars– I don't have the dollars
here– for Humira, Sovaldi, and Revlimid, but I'm showing
it relative to median income. And my point here in
terms of policy options is this is an issue for people.

If they can find the
money, it's obviously a big out-of-pocket expense. If they can't find
the dollars, then even though Part D
might pay for a drug, people are going to
go without the drugs that they need
because their Part D plans aren't going to cover
their full costs of the drugs. One of the policy options
that's actually not on the table is providing a real limit on
Part D out-of-pocket spending. So maybe, as you're thinking
about your sets of policy options, you might think
about whether or not that would be something to add. Actually, this
whole session today has been great for stimulating
ideas about new policy options. So we do do surveys,
and we've done a lot of testing of
the public about what they think about drug prices.

And I guess medical
students, in some ways, are representative of
the general public, which was great to hear. But people just think these
drug prices are unreasonable. And they're blaming the
pharmaceutical companies. They're not really blaming
the insurance companies. They think that something's
not quite right. It doesn't pass
the fairness test when they hear about all these
prices that are coming out. And many people are quite
supportive of various policies that they hear about. I have to say, I
don't think they know a lot about the
details underneath them. You call them, and they're
answering the phone while they're cooking dinner
and they go, oh, yeah, I want the government to negotiate
drug prices for seniors. But you can see there's
sort of a general flavor of, yes, this is a
good thing and this is something we want to do. And this, to me, is
really interesting. This is true on a
bipartisan basis. When we asked people
this particular question, is what they think about having
the government negotiate lower drug prices for
people on Medicare, you can see more than 80% of
Republicans, Independents, and more than 90% of
Democrats liked this idea.

They're favorable
about this idea. So the challenge, and
the one that we're here to talk about today
is, how do you get underneath this
broad sense of, we need to do
something to make drugs more affordable for people? And I'm just going
to bring it down to the nitty-gritty
details that are required in order to make this work. This particular policy is one
that's generally discussed. It was generally included in the
Obama administration's budget this year, but specifically
for unique drugs and high-cost drugs,
but not much detail. And the actuaries took a
look at it and they said, yeah, well, not much detail. We're not going to give you
any savings for that, either.

So it's an idea
that's out there, but it doesn't really seem
to have the savings that are required to make
a difference, at least per the scorekeepers. But there are almost
an infinite number of options that are out there. And a lot of good wins
were presented today. I guess if I had one
point I would leave you with that hasn't been said
before is while there are many options on
the table, and we can talk about the strengths
and weaknesses and the benefits and limitations of
some of these options, I'm not sure there's the
political will to do something. And maybe Congressman Waxman
will talk more about that. People talk a lot about
this, but it's not my sense that something's about
to happen in a big and a meaningful sense. There's a lot of conversation,
but not much action. So I think part of the
challenge that people who care about this issue face
is keeping the issue visible, trying to talk about
it in a way in terms of what it means for people– why this is an important issue.

The people themselves
don't really care about the
specific components. They just want to be able
to get the drug that they need when they need it
at an affordable cost. And that's why the hard
work needs to be done. I don't really have time to
talk about other proposals, but I think several of
them are really worthwhile, as many questions, probably,
as I have comments about them. I think looking at it from
the public health lens is a really great and different
approach and one that we ought to be doing more of. On bundling, I
think the question that comes to my
mind is, that seems to be useful for trade-offs
between different types of services within
the bundle, but I don't know how it addresses
underlying launch-price issues. It raises the question about
whether or not physicians or whoever's controlling the
bundle are really in a position to negotiate to leverage
down lower prices. It did make me think, as you
were talking, about, how is it, in a Medicare
environment, that we can get physicians to be
more sensitive to equivalent prices, equivalent drugs,
when there's such a big price difference? And of course, that brings
to mind my mom and her doctor and how her doctor, who's a
terrific doctor, but he really doesn't pay attention to what's
covered under this Part D plan versus that Part D
plan, and whether her drug is on the formulary or not, or
whether it's tier 1, tier, 2, tier 3, or a
specialty-tiered drug.

I can't really blame him. That's a lot of work. Even though I sort of blame him
because he's a concierge doc, but I shouldn't. But the point is this. Maybe we could think about some
incentives for the Medicare program to encourage physicians
to pay more attention to these issues on
behalf of their patients because my mom is going to
leave with a prescription. If her doc says she
should take this– this is a true story–
generic sleeping medication because that's the one
that he prefers for her, she's going to fill it. She's going to come
home and tell me that she can't believe she had
to pay $300 for this generic because it was off formulary. She didn't understand that. So somebody needs to work on
creating an environment where the prescribers are helping
their patients choose among equivalent drugs so
that we're not spending money needlessly, both on behalf
of the Medicare program and also on behalf
of their patients. I could go on. I actually have a
bunch of other ideas, but I know we're being
very sensitive to time, even though I haven't seen a
scary "one minute" come up.

But anyway, thank you. I think this has been a
really interesting day, and I'm very grateful to
be here at my alma mater on its 100th anniversary. And thanks for
putting this together. [APPLAUSE] GERRY ANDERSON:
That's been great. Henry, we'll ask you
first as the historian, to talk, and now as
the next steps of, where do we go from here
now that you've listened to all this discussion? Where do we move forward? HENRY WAXMAN: I thought
the presentation that Tricia Neuman
just made, some of the pluses and minuses
of the various proposals, was an excellent one. As I look at this
problem, it seems to me that the public looks at
a few instances and jumps to conclusions. Look at the Shkreli
situation, where the man was
completely out of line in raising the prices
the way he did.

Look at the genuine
concern that we have about the hepatitis C drug. And we don't know what to do
with situations like that. It's a real problem, and we
have to think it through. But as I indicated earlier, one
of the biggest problems we have is just a steady increase
in the price of drugs. If you listen to the
presidential debates, they have the answers. They seem to have the
answers for everything. And their answer is– should I go back here? SPEAKER 2: Yes, please. HENRY WAXMAN: OK. SPEAKER 2: We're on camera. HENRY WAXMAN: Oh,
[? on camera? ?] OK. I thought that what
Tricia Neuman had to say– [LAUGHTER] –was excellent. And we've listened
to these problems and possible solutions. And the public, of
course, is outraged at the high price
of drugs, but they are looking at these
idiosyncratic issues, like Mr.

Shkreli and
the hepatitis C drug. With the hepatitis
C drug, for example, we did see a
reduction in the price when there was competition. So I keep coming
back to, competition is one of the best cures
for overpricing of drugs. But I think it
becomes oversimplified when we have the presidential
candidates come up with a solution. If only Medicare can
negotiate the prices. It sounds right. On the other hand, we
do have negotiations with the pharmaceutical
benefit– PBM's manufacturers– managers. But I don't know that, if
the government negotiated, we'd get any much better deal
than what they're getting now. So it is a much
more complex problem to say that there's
an easy answer. So we've got to
try out some ideas, think through some ideas. But whatever is proposed,
it involves trade-offs. It involves trade-offs, some of
which we've had discussed today and some of which
we'll realize as we think through in
more granular detail about the various proposals. So as we go forward thinking
about these proposals, I think the scholars
did an excellent job. I'm still plowing
through the whole list of details of the proposals.

I think they were
very, very good– whether we should
put them in a bundle, whether we should look at it
as a public health problem, whether we should
approach the payers and have the payers handle it. I'm not going to touch on all
of them, but very few issues unite Democrats, Republicans,
and Independents. They're all united on the idea
that we pay too much for drugs and people are outraged if those
who need those drugs cannot get access to them. That unites us all. But what will divide us
is when we start looking at each of the solutions. And sometimes there
is no one solution. There are trade-offs,
and we have to decide as a society
what trade-offs we're willing to accept. So after sitting here and
listening all afternoon, as we have all done, I
will leave with the idea that I was really pleased
that Johns Hopkins has taken on this responsibility
to look at the issue and look at all the possible
strands of approaching a solution.

And policymakers will have
to sort through it all. But it's not an easy resolution. We just have to keep
looking for some things that we can try out. And quite frankly, when you
think you have a resolution and enact it into
law, as I look back at all the years we've
had the Hatch-Waxman Act, no, there's no one solution. Whatever solution you get
will lead to other problems and we have to keep
revisiting them. Thank you all very much. Pleased to participate. [APPLAUSE] GERRY ANDERSON: Josh gave
me a challenge, which is to get the meeting on time– I'm sorry. Josh gave me a challenge to
get the meeting done on time, and we've accomplished that. There is a reception
following this, so I'm hoping that
everybody will get a chance. I know that I haven't
given you an opportunity to ask questions.

I wanted to make sure that we
got all the presentations out. But hopefully, people will be
able to stay for a little bit and ask the questions of the
people about whatever option they have or what's the
industry's position or all those different kinds of things. So with that, where
is the reception? SPEAKER 2: It's just
after [INAUDIBLE] Gallery. So we're going to make a
left as we exit Sheldon Hall, in front of the Wall of Wonder. GERRY ANDERSON: OK. Thank you. SPEAKER 3: Wall of Wonder. GERRY ANDERSON: Wall of Wonder. [APPLAUSE].

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