Drug makers and insurers, longtime rivals, eye an alliance on prices

By Dylan Scott
STAT, November 24, 2015

With rising drug prices such a hot topic here, drug makers and health insurers are both coming under heavy fire.

So much fire that they’re considering a radical response: working together.

After years of relentlessly attacking one another, leaders of the pharmaceutical industry and the health insurance lobby are considering — warily — cooperating to shape any federal legislation that emerges from the public outrage at the high cost of medications.

The two powerful lobbies remain fundamentally at odds in their agendas: In the most basic terms, drug makers want to make as much money as they can for their medicines, and insurance companies want to pay as little as possible.

But both lobbies have new leaders, who recently met for breakfast at a French bistro in what could turn out to be a tentative step toward an alliance. And both are under a lot of pressure from Congress and the Obama administration to figure out a unified response to high drug prices.

Health insurers

Marilyn Tavenner, a reserved, unflappable former hospital executive, took over at America’s Health Insurance Plans, the prominent health insurance lobby, in August. Six months earlier, she had resigned as the head of the federal Centers for Medicare and Medicaid Services, which made her one of the top federal officials overseeing the implementation of the Affordable Care Act.

In an interview with STAT, Tavenner described her goals this way: Stop the public relations battle with the drug lobbying group Pharmaceutical Research and Manufacturers of America over who deserves the blame for drug prices. And start a constructive dialogue about how to fix it.

Shortly after Stephen Ubl was named new head of the PhRMA lobby in September, Tavenner reached out to him, offering a sit-down to get acquainted. This month, they met for breakfast at Poste, an upscale French bistro in downtown Washington.

In terms of approaching lawmakers with a plan on pricing, she said, “I would want to go to PhRMA first and see if there’s something that we can take together as an initial solution. That would be my preference.”

Tavenner’s stance is simple: The insurance industry took a bigger hit under President Barack Obama’s health care law. Its market was significantly overhauled. So this time, it’s pharma’s turn.

“I would argue that [insurance] plans have definitely undergone a fundamental change,” Tavenner said, “and I’m not sure PhRMA’s there yet.”

She pointed to the health care law’s requirement that health plans disclose how much of their premiums are spent on actual health care, as opposed to administrative costs or profits. “Why wouldn’t that apply to PhRMA?” she asked.

Drug makers

Ubl, who started his career in Washington working for Republican Senator Chuck Grassley of Iowa, assumed his post at the beginning of November.

Drug makers… have one of the most experienced and influential lobbies, with big expectations about getting their way. The independent research firm APCO Insight recently ranked PhRMA, and its $200 million annual budget, as the most effective lobbying group in the nation’s capitol.

PhRMA officials in interviews emphasized their interest in working with insurers to find workable policies. But they also spent a lot of time reiterating how much health plans have changed under the Affordable Care Act, leading to consumers paying more of their own money for drugs.

“They are paying more, but not all of that is in relation to us and our products,” said Lori Reilly, PhRMA’s executive vice president for policy and research. “That’s in relation to how the system is changing and how the insurance benefit design has changed in a way that doesn’t always help patients.”

Drug makers want to turn the conversation to one of value — in particular, the value that they say their medicines provide by preventing people from getting sicker. That not only helps the patient but could save money for society in the long run, they argue.

If a breakthrough new drug comes to market, Reilly said, “will it have a big price tag? It might. If we really are moving toward a value-based health care system, then medicines that truly represent value should merit a larger price, and we’re comfortable with saying that should be the case.”

So what now?

Nobody is expecting any major legislation before a new Congress and president are sworn in in 2017. So for now, both sides are publicly posturing, trying to position themselves for backroom negotiations if and when the nitty-gritty work of drafting a bill gets underway.

Political momentum might force the groups into the alliance that Tavenner and PhRMA are weighing. Recent polling has found that drug affordability is Americans’ number-one health care concern, and politicians are responding accordingly.

The Department of Health and Human Services convened a forum on drug prices last week that included top officials from both industries. The star panel featured Merck chief executive officer Kenneth Frazier, who also happens to chair the PhRMA lobby, and Kaiser Permanente chief executive Bernard Tyson, who sits on AHIP’s board.

Their differences were on full display.

Frazier stressed the drug industry’s commitment to value, while cautioning that it’s hard to define that. Tyson argued that the drug market must be overhauled because, in the end, a drug company can price a medication however it wants.

“To me, that says we’re not on a level playing field yet. That’s what the government should be looking at,” Tyson said. “There’s something wrong with the whole ecosystem.”



In new ad, Hillary Clinton puts insurance industry on notice

By David Nather
STAT, November 21, 2015

Democratic presidential candidate Hillary Clinton is featuring her proposal to rein in rising prescription drug prices in a new ad — with a populist twist that turns health insurance companies into the bad guys.

In the ad, released Saturday and being aired in New Hampshire and Iowa, Clinton highlights her history of work on health care issues and promises that one of her next fights will be about about “taking on insurance companies to bring down drug prices.”



Hillary Clinton’s Plan for Lowering Prescription Drug Costs

Hillary for America, The Briefing

Hillary Clinton believes we need to promote competition and leverage our nation’s bargaining power to lower drug costs on behalf of Americans.

Clinton’s plan will ensure that new drugs coming on the market provide value and high quality to consumers, rather than adding to cost without improving treatments and outcomes. Clinton recognizes that new drugs can constitute incredible breakthroughs in treating diseases from Hepatitis C to cancer to heart disease – and we need to ensure that there are proper incentives for real innovations that bring effective products to market. Clinton believes that Americans should not face extreme costs, or pay too much for drugs that do not in actuality improve on available treatments. She has a long and strong record of supporting the evaluation of the value, quality, and comparative effectiveness of new drugs. That’s why she’ll build on provisions in the Affordable Care Act that invest in private research, and other private efforts, to use the results of private-sector analyses to hold drug companies accountable for justifying their costs and ensure Americans pay drug prices that reflect the improved value new treatments provide.


Although what we needed was a single payer national health program, Congress and the Obama administration elected to protect the interests of the insurance and pharmaceutical industries by allowing their powerful lobby organizations, AHIP and PhRMA, to craft health care reform by merely expanding our fragmented, dysfunctional model that placed their interests first while falling far short of goals that were important for patients – universality, affordability, and health care choices.

By merely expanding our fragmented, dysfunctional financing system controlled largely by the private sector, perpetuation of existing problems plus the introduction of new problems by private sector innovations were inevitable. Of course, we’ve seen the expansions in the use of high deductibles which are causing financial hardship, and the increased use of narrow networks which are taking away patients’ choices in health care. As if these weren’t bad enough, the change that has caused the greatest distress, according to polls, has been the skyrocketing prices of drugs.

In decades past, physicians and hospitals were able to raise prices because patients were insulated from the escalating costs by their insurers. But health care spending increased to levels that threatened the affordability of insurance products because of the high premiums that were required to cover health care costs. That led to the managed care revolution, which, though tempered, left insurers in control of health care pricing through provider contracting.

Now that drug plans have become a standard, the pharmaceutical firms are insulated against the potential decline in their market that could occur with patient resistance to escalating drug prices. Although the insurers and pharmacy benefit managers do negotiate some discounts, they have not been able to prevent pricing of treatment regimens in the tens or hundreds of thousands of dollars.

The insurers need the support of their clients in fighting these prices that make their insurance premiums even less affordable. To do this they have created drug tiers which shift outrageous portions of the costs onto the patients. Thus the insurers have enlisted patients in their quest to make drugs once again affordable, while shifting the blame onto the pharmaceutical firms.

So now AHIP and PhRMA are joining forces to forge a compromise between keeping drug prices as high as possible while keeping insurance premiums low enough to maintain their market presence. Who is being left out of the negotiations? The patient.

Just as the Affordable Care Act increased administrative complexity for the benefit of the insurers and drug firms, the current negotiations will introduce more innovations that serve their industries well regardless of the impact on patients.

The likely outcome is that there will be some moderation in pharmaceutical pricing, just as there was with physicians and hospitals, along with an expansion of the principle that the patients must bear an income-depleting portion of the cost so that they don’t use highly expensive drugs that they don’t really need, or so the consumer empowerment theory goes.

People want the government to do something about these outrageous prices. AHIP and PhRMA would like to keep the government out it it. So what is the prospect that we may see truly effective government intervention, beginning with genuine price controls?

This year of presidential politics, nothing will happen. After the election, the Republican approach will be to reduce government involvement and allow the marketplace to work its magic. The problem with that is we already have the most expensive health care system in the world  precisely because we depend too heavily on the markets.

What would the Democrats offer? The leading candidate for president, Hillary Clinton, would “build on provisions in the Affordable Care Act that invest in private research, and other private efforts, to use the results of private-sector analyses to hold drug companies accountable for justifying their costs and ensure Americans pay drug prices that reflect the improved value new treatments provide.” She would rely on the private market!

We have a recipe for expensive, innovative drugs exclusively for the wealthy and whatever cheap generics that can be made available for the rest of us. As stated above, what we need instead is a single payer national health program for all of us.