What To Watch As Pharma Prices Take Center Stage

SMITH BRAIN TRUST –  Pharmaceutical prices are poised to become a central issue for the next Congress, potentially forcing lawmakers to consider at least two factors that coincide with America’s higher-than-average drug prices.

The first is the lack of a governmental pharmaceutical price oversight board, similar to the ones that exist in Europe, Canada and the United Kingdom, where pharmaceutical companies typically charge far less for their products.

The second is direct-to-consumer (DTC) pharmaceutical advertising, those pervasive TV, radio and print ads that are common in the United States and banned in almost every other developed country (except New Zealand).

For years, Americans have paid higher costs for medications than their peers in other parts of the developed world, despite income levels that are largely the same. U.S. prices for the world's most popular drugs are on average three times higher than they are in the U.K., for example.

The issue, which helped drive many voters to cast ballots in the recent midterm election, could draw some rare bipartisan support next year in Washington, says Maryland Smith’s David Kass.

“It is extremely unfair to the American consumer to face these kinds of price differentials,” says Kass, a clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business and a former healthcare economist for the U.S. government. “And it’s not just Democrats that are complaining about this. You also have President Trump complaining about it.”

Ahead of the midterm elections, Trump unveiled a series of proposals aimed at prescription drug pricing in the United States. Among them was a plan that would require drugmakers to include a list price for most drugs in television ads. Another would establish an “international pricing index” that would link U.S. drug prices to those charged in countries like Germany and France.

The sentiment behind the measures mirrors to some extent what Democrats across the country had been saying throughout the midterm and the 2016 presidential campaign, Kass notes. “Ideologically, these are opposites who are saying essentially the same thing, though maybe proposing different solutions. But that is why I think we might see some strong bipartisan support on this issue.”

Kass says that as part of any reform, Congress should adopt a policy change that would allow Medicare to negotiate with pharmaceutical companies on behalf of their beneficiaries, which is currently prohibited. “It is negotiating power that results in other countries keeping their pharmaceutical prices low, and we could benefit from that here in the U.S.,” Kass says. “We should be able to negotiate lower prices for Americans.”

He says he’d like to see the premium over costs that Americans currently pay spread out among consumers across developed countries, reducing imbalances that disadvantage patients in the United States. “If the costs are spread out more equitably, then these companies would still be able to fund their research and development, and continue to earn a healthy profit,” he says.

Maryland Smith’s Henry C. Boyd III says the Trump administration’s proposal to include drug pricing in pharmaceutical advertising “might move the needle toward transparency,” but it’s unlikely to have a significant impact in curbing price increases or in influencing consumer behavior.

“For those fortunate Americans who have pharmaceutical coverage as part of their healthcare plans, a list price doesn’t necessarily reflect their own out-of-pocket expenses. Often times, co-payments are essentially de minimis, and because of that, many consumers will disregard the list price information,” says Boyd, a clinical professor of marketing at the Robert H. Smith School of Business and a former Merck rep.

In 2015, U.S. pharmaceutical companies spent an estimated $5.2 billion on direct-to-consumer prescription drug advertising, most of it on TV commercial product claim spots which require a fair balance of risks and benefits associated with the therapeutic agent. These kinds of TV ads are banned in most of the developed world, but Boyd doesn’t see them going away in the United States any time soon.

First, he says, “Big Pharma has marshaled empirical evidence which clearly shows such pull-oriented advertising works, driving consumers to their doctors in search of more information about treatment options.”

Second, he adds, the powerful Pharmaceutical Research and Manufacturers of America “(PhRMA) stands by the industry’s marketing practices and is likely to push back against any effort to curtail it. Taking a proactive stance, this lobbying organization will continue to argue that DTC ads: (1) create awareness of certain disease states, (2) educate the public about available treatment options, (3) motivate individuals to talk with doctors and healthcare providers, and (4) ensure compliance with prescribed treatment regimes.”

Done responsibly and ethically, Boyd adds, there’s a place for direct-to-consumer advertising. In his former life, Boyd carried the detail bag for Merck in the late 1980s. His area of expertise was broad-spectrum antibiotics for general surgery obstetrics and gastroenterology. At such time, Big Pharma had only begun to dabble with the campaigns. Boyd wasn’t involved in that marketing effort, but instead called on physicians and pharmacists at Stanford University Hospital in Palo Alto, California. From the sidelines, he watched as direct-to-consumer advertising came into vogue. He readily discerned that the ads often employed the same kind of messaging that hospital reps used in conversations with physicians. Each spot succinctly promoted the benefits and risks, listed potential side effects and contraindications.

“From that vantage point, advertising can be an enabler for consumers,” he says. “Merck ingrained in us that ‘medicine is for the people.’ That was a wonderful charge to have.”