In 2014, the narcotic overdose treatment Naloxone cost $690. Today, the same drug sells for $4,500.
That’s just one example of recent dramatic drug price increases that a group of health care advocates in Lansing want to address on a statewide level. They’re backing new legislation that would require pharmaceutical companies to publicly report to the state information on what it costs to produce, distribute and market a high-cost drug.
In pushing for the legislation, advocates also cited the cost increases for an EpiPen — an allergic reaction treatment that costs $600 today versus $57 a decade ago — and cancer drug Gleevec, which went from $26,000 in 2001 to $146,000 currently.
“Pharmaceutical advances have brought life-saving medications that have improved treatment for many diseases, yet the rising costs of drugs threaten the sustainability of health care coverage for employers, patients and health insurers,” Karen Jonas, a pharmacy consultant for the Michigan Association of Health Plans (MAHP), told lawmakers during a recent legislative hearing on the bill.
Jonas cited a Kaiser Family Foundation analysis that showed drug costs have grown from 6 percent of U.S. health care spending in 1990 to 22.1 percent in 2017, and “they continue to rise.”
Christine Shearer, the deputy director of legislation and advocacy for the MAHP, a group that represents 13 health plans in Michigan that cover 2.4 million people, said the bill would “make the component of drug prices a matter of public record.”
The legislation, which is pending in the House Health Policy Committee, has the backing of the MAHP and Blue Cross Blue Shield of Michigan, as well as health care groups and business organizations representing employers, including the Grand Rapids Area Chamber of Commerce and the Detroit Regional Chamber.
Opponents include pharmaceutical companies and their advocates, as well as MichBio, the life sciences trade group in Michigan.
At the House Health Policy Committee hearing, Saumil Pandya of the Pharmaceutical Research and Manufacturers of America (PhRMA) argued the bill “doesn’t really capture the way medicines are priced, or the logic behind it.”
Pandya, PhRMA’s senior director for policy and research, would not defend the egregious examples of price increases cited during the hearing. Instead, he argued that pharmaceutical companies are bringing new drugs to market that are expensive but cure previously incurable diseases.
For pharmaceutical companies, research and development costs billions of dollars and often leads to failure, with only a handful of drugs making it to market, Pandya said. The companies price their drugs in an effort to offset those losses, he said.
“So when a company sets a price for a product that does launch — one of the very few that actually makes it to market — what they’re trying to do is not only recoup the research and development costs for that particular medicine, but for all the tries where they failed over and over again and they were not successful,” Pandya told lawmakers. “There is a need in a free market economy that we have right now for companies to be able to generate the headroom to create that innovation and to keep bringing these cures to the marketplace, and they’ve developed tremendous medicines.”
Stephen Rapundalo, president and CEO of the Ann Arbor-based MichBio, doubted the legislation would actually lead to lower costs. He worries it could hinder the state’s life sciences industry by diverting “scarce resources to accounting and compliance activities that could be better used on developing therapies that patients need.”
The legislation “threatens the entire biopharma industry in Michigan,” Rapundalo said.
“The only way research-intensive companies survive is because investors are willing to take huge risks and put significant financial resources behind our ideas,” he said. “The risk-taking is based on the expectation that successful research endeavors will more than pay for all the failures that occurred along the way.
“Investors, including large pharma, will be reluctant to fund small companies hampered by burdensome and costly regulations.”
‘A SMALL STEP’
The legislation, sponsored by Health Policy Committee Chairman Hank Vaupel, a Republican representative from Fowlerville, would require pharmaceutical companies to report an itemized account of what goes into a drug’s price when its wholesale or treatment costs exceed $10,000 in a year. The report to the Michigan Department of Health and Human Services must include the total costs for making and distributing the drug, R&D costs by the company or a third party — or the cost of acquiring the drug, and what the firm spent on its marketing and advertising.
The state would post the data in a public online database. Failure by a drug company to report the data would result in a $100,000 administrative fine.
A new state commission would publish an annual report on drug prices, costs and trends, and make public policy recommendations to mitigate price increases.
Eighteen states have already passed similar legislation and many others are looking at it, said MAHP’s Jonas, who calls the bill “a small step in helping to create transparency in prescription pricing.”
In his testimony to the committee, Pandya of PhRMA sought to shift some of the blame for high drug prices to pharmacy benefit managers (PBMs) who act as middlemen in the distribution network. He argued that a better way to deal with high drug prices is to require PBMs and health insurers to pass down to consumers the rebates and discounts they receive from drug makers.
He cited the decision in March by UnitedHealth Group, the largest commercial health insurer in the U.S., to pass along discounts from drug companies to fully insured customers.
“That is the way to reduce the costs to people,” Pandya said. “I’m not saying there’s not a problem. There’s a very big problem in our system. And the very big problem is how much patients are having to pay, but what patients have to pay is a large function of insurance design.”
However, backers of the legislation say transparency on drug pricing also remains necessary.
“You’re the beginning of the tunnel, and if we start there, then we can cast that light out, but we need to start somewhere,” said Rep. Abdullah Hammoud, a first-term Democrat from Dearborn.
Mark Cook, vice president of government affairs for Blue Cross Blue Shield of Michigan, said health insurers doing business in the state are legally required to report significant data on their finances to regulators, as well as to justify and secure approval for rates.
Noting that Blue Cross Blue Shield now spends more each year on prescriptions for members than on hospital care and that drug prices are rising at an unsustainable rate, Cook argued pharmaceutical companies should have the same kind of transparency requirements as health insurers in Michigan.
“Let’s start shining some sunshine on some of these different places,” he said. “There are a lot of factors that go into drug prices. It’s time to start learning what some of those factors are.”
Cook dismissed as “completely unbelievable” the argument that the legislation would impose a compliance burden on drug companies, since they already have much of the information prepared that it would require them to report. He also noted the bill does not seek to impose any controls on drug prices and profits, or what’s spent on advertising and marketing.
“It doesn’t say you can’t charge a 5,000-percent increase like some of these have been. It doesn’t say you can’t do it. You just have to say why you did it. You just have to explain the R&D costs,” Cook said.