The $84,000 Pill: Weighing the high cost of pharmaceuticals

Healthcare in Utah
The innovations, trends and challenges shaping Utah’s healthcare industry

Last fall, Utah Business hosted the first annual Utah Employers Healthcare Summit. The event brought together healthcare providers, carriers, employers and institutions to discuss the seismic changes that are reshaping healthcare as we know it. The summit featured multiple sessions and compelling keynote addresses. Here, we bring you some of the highlights from the day-long event.

When people talk about healthcare costs, the price of prescriptions and treatments inevitably comes up early and often.

While drug costs represent less than 10 percent of healthcare costs overall, expensive treatments tend to get talked about. Recently, the price jump for a 60-year-old drug that treats taxoplasmosis, an infection from cat parasites that can cause birth defects, from $13.50 to $750 per pill—a 5,000 percent increase—created headlines across the country and sparked outrage on the internet.

Daraprim, the company that bought the rights to the drug and increased its price, is just the latest entry in the ongoing debate about whether some drugs are effective enough to justify the cost.

A financial balancing act

Not all drugs are created equal—nor are they priced the same, according to panelists discussing the subject in “The $84,000 Pill,” a breakout session at the Utah Employers Healthcare Summit.

Generic drugs, which are usually relatively inexpensive, take the lion’s share of the prescription pie, followed by name-brand drugs. Bioengineered specialty drugs take the remaining portion, but represent the greatest prescription costs, says Doug Burgoyne, president of VRX Pharmacy Services and moderator of the panel.

“They’re the least often dispensed but often the very most expensive,” he says.

These drugs typically involve larger material than normal drugs and are thus less stable, and often require special handling, such as refrigeration. This category of drug includes treatments like vaccines, insulin and remedies for conditions with limited treatment options. On average, these treatments can run a patient $5,000 per month.

New cancer drugs, for example, can cost upwards of $121,000 per year, Burgoyne says, which patients and doctors have to weigh against their effect.

“The care they receive today is so much better than five or 10 years ago; it really qualifies as a breakthrough,” Burgoyne says “The only downside is their considerable expense.”

There are no generic versions of these drugs, per se, Burgoyne says, but “biosimilars” exist—though they have to go through the same rigorous FDA approval for the original drug, which includes human trials. The considerable development time for these medications, as well as the strict FDA approval process, factors into the cost.

Only 30 percent of drugs overall recoup their development costs, says Peter Pitts, president for the Center for Medicine in the Public Interest—costs, which as of December 2014, rose to more than $2.6 billion. New or specialized drugs have to cost enough to keep their parent companies in business, Pitts says.

“Anybody who is in business knows the bottom line is comprised of several layers of cost, none of which can be brushed under the carpet,” he says.

Pitts argues that while new treatments might be a financial burden for insurance companies and patients, their cost is justified in extended and higher-quality lives, as well as decreased costs for less effective, long-term treatment for common ailments. Breakthroughs in cardiovascular disease treatment alone save $500 million annually, Pitts says.

Paying now or later

The $84,000 pill in question is a 12-week course of a Hepatitis C treatment called Sovaldi. In 2000, Pitts says, a 48-week treatment of injections and antiviral medication had a 50 percent cure rate; Sovaldi boasts a 90 to 100 percent cure rate with fewer side effects, enough for the FDA to designate it as a “breakthrough” drug when it got its stamp of approval in 2013.

The cost is significant, Pitts admits, but is incurred only once, and curing a chronic, life-threatening disease saves money in the long run, as well as contributing to a significantly higher quality of life and healthcare.

“When you only think about the $84,000 pill, it is true, but it’s not accurate and it’s not relevant,” Pitts says. “The price value needs to be put in perspective with what it delivers. … It’s about outcomes.”

Diana Brixner, a professor in the University of Utah Department of Pharmacology, says the one-time nature of that cost does help put it into perspective against long-term treatments that initially cost less but would add up to eventually costing more over time. Brixner points to drugs using variants of the gene PCSK9, which can be used to lower LDL levels in patients, but also cost roughly $14,500 per year for life.

In early October, FDA approval was granted on a drug that treats late-stage carcinoma. Brixner says the treatment costs $250,000 per year, but has been shown to shrink tumors by 49 percent, giving patients an average of 4.2 more months of life. Weighing those costs and benefits is in some ways trying to put value on life.

Bringing down the cost

Costs of new drugs are often higher than older drugs or the new drugs’ eventual generic version because companies are trying to recoup their research and development costs, but have only a limited time to do so before their patent runs out. If patent laws were adjusted for pharmaceuticals to extend the life of those patents, companies would have longer to recoup those costs and thus could price the drugs somewhat lower.

Because so much new innovation is occurring in small startup companies, the industry as a whole would benefit from more collaboration between companies, helping make breakthroughs potentially faster—and cheaper, suggests Kelly Slone, president and CEO of BioUtah.

“Today, most everyone is having these discussions in their own silos. As an ecosystem, we need to write those silos down and make it a collective discovery,” she says. “The whole innovative ecology is very fragile because there are so many startups.”

Another component of high drug costs is from manufacturers battling with insurance companies in what Dinesh Patel, managing director of Signal Peak Ventures, compares to a used car salesman and customer haggling over a price. A company may offer the drug at one price, but settle for one the insurance company is willing to pay; they have to anticipate how high they have to originally price a treatment to get the cost they actually need, Patel says.

“Everybody’s looking for who’s going to reimburse them. When you invest a lot of money in any company you make sure they have a plan to get reimbursed,” he says. “[Companies] price it high because you know you won’t get it.”