Manufacturers and payers are guilty of making quick fixes that address a symptom but not the underlying problem. Sure, these quick fixes provide some temporary relief, but they ultimately fail. When manufacturers fail to innovate, a common fix is to introduce me-toos. High prices and rapid price increases are quick fixes to shareholder demand for high margins. In response, payers fix these problems with copay and co-insurance tiers and restrictions. Manufacturers “fix” these problems with copay cards and help providers request exceptions and appeal denials. Payers respond with fixes like exclusions and closed formularies. One stakeholder’s solution becomes another stakeholder’s problem, and so on and so on. It’s karma, baby.
Me-toos and high prices
Rather than tackling an unmet need by making a larger investment in time and resources or taking on greater risk for new drug discovery, manufacturers often bring a slightly improved product to market — the new stuff payers hate. The new product may work a little faster, last a little longer, or be a bit more user-friendly — and it just may be a little safer or more effective. Payers view products with small incremental enhancements as “me-toos,” a derogatory term to describe what they often view as a manufacturer’s selfish desire to get in on the action by bringing a poorly differentiated product to market. The me-too is likely to cost more than older alternatives, or, if an enhancement simply amounts to a patent play, then the me-too’s price may be similar but its cost to the payer is extended over time. The ROI for investors and shareholders makes this tactic attractive, although payers can limit the market potential through patient cost-sharing and restrictions.
Independent of the quality or performance of the product, manufacturers can charge very high prices and/or increase prices fast and furiously. Beyond high-profile examples of pricing or repricing that seems out of whack, there is valid growing scrutiny of the relationship between the cost and benefit of many drugs (e.g., the price and value of cancer drugs).
Copay and coinsurance tiers
In response to a market they perceive as being crowded and poorly differentiated, payers have used copay and coinsurance tiers to encourage the utilization of lower-cost products. This tactic can be effective when patients are sensitive to the out-of-pocket (OOP) cost differential between tiers. This sensitivity increases with the duration of therapy, where the monthly financial burden of treatments for chronic conditions can generate greater resistance than the short-term cost of treatments for acute conditions.
Copay cards and patient assistance
To offset the patient cost-sharing differential, manufacturers often introduce copay cards. Boy oh boy, do payers hate copay cards! Copay cards remove payers’ ability to manage utilization through tiering. For example, a high-cost product placed on a nonpreferred tier may cost patients an additional $30 per month versus a less-costly product placed on a preferred tier. But if a patient uses a copay card worth $30 per month to neutralize the copay differential, the payer incurs the higher cost of the nonpreferred product.
This practice should not be confused with financial assistance programs. The high patient OOP costs make some therapies simply unaffordable to some patients. In response, manufacturers often provide financial assistance to qualifying patients. In contrast to copay cards, payers do not typically view these needs-based programs with hostility.
Exclusions and closed formularies
If a manufacturer prices a product too high when there are alternatives, then payers may place it on a nonpreferred tier, place restrictions on its use (e.g., step therapy or prior authorization), or even exclude it from the formulary. Payers have recently used exclusions to punish manufacturers’ use of copay cards, and have responded to renewed demand from purchasers for closed formularies that restrict access to a narrower range of products. However, providers may gain access to blocked products through exception requests and appeals, and some manufacturers help to facilitate this pushback by sharing form letters and best practices (e.g., which articles to cite) with providers.
Rebates and price protection
For many years, manufacturers have addressed high prices by offering payers rebates in exchange for volume or market access. More recently, manufacturers have offered payers multiyear protection against price inflation. The opaque nature of these contracts confounds analyses attempting to measure the value of drugs and frustrates employers seeking to understand and manage pharmacy costs.
Fixes built to last
Value-based contracts offer a glimmer of hope — a mechanism for manufacturers and payers to craft sustainable, win-win solutions. But that’s much easier said than done. The challenges associated with agreeing on metrics, outcomes, and the value of a medicine depending on its success or failure in treatment explains why the amount of talk about value-based contracts is disproportionately greater than the number of executed value-based contracts. As they say, talk is cheap.
But time may be running out for a durable and transparent fix. Societal pressure is mounting to fix the problem with drug pricing. If the hue and cry is great enough, then we can expect a government intervention in response to a market failure. Manufacturers (and payers) either will learn from their mistakes and collaboratively get this right — and quickly — or will have to live with new governmental pricing policies.
Government regulation of prices would certainly lower prices, but at what cost? Surely there would be unintended consequences, including less R&D and fewer breakthroughs addressing unmet needs. No matter how we get there, alignment of acquisition cost with value would be a fix built to last.
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