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May 29, 2019

Cost of healthcare and biopharma implications

By Nigel Darby, Advisor - GE Healthcare Life Sciences

The pharmaceutical industry has become a lightning rod for public anger, particularly as new medications tend to be costly. But, our healthcare systems are burdened with the costs of lifestyle challenges. How does public health initiatives tackle these increased costs?


Dr. Nigel Darby has held several executive positions at GE. He most recently served as Vice President of Bioprocess for GE Healthcare Life Sciences from 2008 to 2016. At present, he is Advisor to the CEO of Life Sciences. Nigel has substantial experience from both the medical industry and academia. For example, he has held executive positions at AstraZeneca and spent 16 years in academic research in medicine and molecular biology.

One of the pleasures of working in healthcare is seeing the amazing progress we’ve made as an industry to tackle disease and improve quality of life. But we face a big problem! Too often, we see headlines promoting the latest medical triumph, countered with stories of patients denied treatments due to access or high costs. Against this background, the pharmaceutical industry has become a lightning rod for public anger, particularly as new medications tend to be costly. The industry’s success has become something of a double-edged sword, as the profits generated, and lack of access stoke the public and political outcry. How did we get here and what can be done about it?

First, we should recognize that we have become victims of our own success, as pharma innovation and consequent increasing life expectancy are a big driver of healthcare costs. Our healthcare systems are also increasingly burdened with lifestyle challenges, such as obesity, which cost the U.S healthcare system US$342 billion in 2013. Saving that kind of money would fund a lot of new and innovative healthcare, but the public health initiatives to tackle these costs are often an anathema to public and politician alike. Think, for example, of the reception that ‘sugar taxes’ have received. Like it or not, however, it’s only a matter of time before individual’s lifestyle choices and the impact they have on healthcare costs become a target for payers.

Unfortunately, the debate about healthcare costs and drug prices has become increasingly ideological. Drug pricing is very complex and there are specific factors at play in individual countries. For example, the fragmentation of the payer structure and the involvement of ‘intermediaries and facilitators’ in the U.S. are often seen as a cost driver compared to the UK where most drugs are funded by the NHS based on economic evaluation of the cost-benefit. Some would argue this ultimately means UK patients have less access to new drugs than patients in the United States, but the distinction may be semantic. Access in the U.S. is often determined by ability to pay…an individual’s insurance coverage and ability to co-pay drug costs. What’s often not recognized in the headlines is how the industry’s competitive dynamic counterbalances this with generics, and more recently biosimilars, as well as increased competition in key indications that puts a brake on costs. For example, the NHS in the UK is targeting billion-dollar savings through progressive introduction of biosimilars. Even for on-patent drugs, we’ve seen rapid reductions in costs when there are multiple players, as was evident in the hepatitis C treatment market.

Recently a few new medicines have hit the headlines because of their very high costs, US$100,000 to more than US$1 million in the case of some proposed gene therapies. Not surprisingly this has resulted in pushback from some payers, consternation from patients and questions of how pharma companies justify the price. While some argue payers are unwilling to fund such expensive treatments, I’m not sure that’s the full story. Over the years, high-cost transplant surgeries have become much more acceptable to payers as they realize how cost-effective the treatments can be. While it has been a journey, ironically, many countries now lament the lack of donors and desire to do far more of the ‘costly’ surgeries. This, and other examples, such as the recent approval of some CAR-T therapies in the notoriously tough UK system, suggest payers can accept high prices--sometimes.

The key point is: therapies need to meet a ‘value for money’ threshold and there is a big concern, particularly in the early days after a launch that the drug really works as promised.

The pharma industry undoubtedly gets the point about value but is in a struggle to transform its traditional flexible pricing mechanisms that relied on high public ‘list prices’ mitigated by confidential agreements with payers around discounts and other cost reduction measures. Then, add to the widespread debate and sometimes disbelief about industry related costs, particularly R&D costs, and questions of what a reasonable return for investors should be in such a high-risk business. The lack of transparency around all of this is at the heart of public and political frustration.

Telling our story in a more convincing manner is part of the solution, as is more active participation of patients in pricing discussions. Nevertheless, wherever you are in the world, solving our challenge is likely to involve outcomes / value-based pricing. It won’t resolve the co-pay or fragmentation challenges of the U.S. market, but it’s probably the most realistic starting point for building a broad consensus for action. It’s not without its complexities and practical challenges. Nevertheless, it’s encouraging that a recent survey of opinion in pharma companies shows an understanding of a need for change, reasonable openness to value-based approaches (though general lack of experience) and, perhaps surprisingly, an acknowledgement that such arrangements can be win-win.

There are a number of ways to manage value-based pricing, but they all move towards sharing the risk between the pharma company and payers. Some of the simplest approaches suggest parts of the industry get the message with very straightforward payment for results. So, for recent introductions of CAR-T cancer therapies and the first gene therapies with list prices in the US$500 000 to US$1 million range, there are clear staged payments based on achievement of specific measurable clinical outcomes. This reassures the payer they will not have a hefty cost for a failure.

So, we’ve made a start, but is it enough? Considering that earlier this year a fierce war of words resulted in significant reduction in insulin prices in the U.S., it is clear that intense political pressure is driving the industry to take action. Everyday businesses and healthcare professionals work diligently to improve our quality of life, but pricing and access will continue to be a battle globally that industry must take note of.