Drugs' value to patients eclipsed by price tags

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Don't let critics blame pharma. As with many other sectors, our industry is experiencing upheavals no one predicted. Years ago, we developed blockbusters such as beta blockers, anti-anxiety products, antibiotics, and statins that improved the lives of millions of people. 

Thanks to these numbers, drugs could be marketed at prices that not only supported ongoing research, but were also affordable. Today we're being squeezed. Breakthroughs in personalized, genomic-based medicine are making it possible to treat diseases that didn't respond to the one-drug-treats-all approach. 

The more precisely we can identify and treat distinct disease subtypes, the less we can gain from economies of scale. Cancer is an obvious example, but it's hard to believe we're not going to see similar advances in diabetes, neurology, and even psychiatry. 

We're entering an amazing era, but getting there won't be easy. Here's an extreme example. Kymriah, the first cell-based gene therapy, treats a rare leukemia that occurs in a handful of children. The cost of treatment is $475,000 a year — the kind of price tag that gets critics howling for our blood. Yet the disease is so rare and the treatment given so infrequently, it turns out insurers can easily pay for it — without getting a dime from patients. 

The estimated impact on healthcare insurance premiums? About 40 cents a month. This would be acceptable if Kymriah were the last of its kind. But it's just the beginning.

Developing drugs for increasingly smaller populations creates huge financial pressures. Look at Teva. Faced with declining revenues, it had to lay off much of its sales force.
 
The company had high hopes for a new generic for a rare metabolic disorder known as Wilson disease. The drug was going to replace the standard therapy, which costs $21,000 for a round of treatment. Patients and support groups were thrilled.

The best Teva could do was launch its drug with a price of $18,000. Almost no one acknowledged the costs of bringing any drug, even a generic, to market, especially one with a maximum potential of several thousand scripts. No wonder CEOs may be thinking about the wisdom of developing drugs for orphan diseases — if simply trying to recoup your investment creates a PR catastrophe.

What's the solution? First, we have to accept that, as treatments become more focused on specific patient groups, costs will rise. Second, we must streamline the process of bringing drugs to market. Third, we should reconsider how we as a society pay for healthcare. 

Writing in the Harvard Business Review in March, Michael Geruso and two colleagues noted our current system rewards insurers who discourage patients with health issues from enrolling with high co-pays and deductibles. Many health plans deliberately structure their formularies to limit coverage of patients with substantial medical needs because these patients are unprofitable. 

And it's precisely when coverage is limited that drug costs receive so much attention.

What if the government provided financial incentives for insurers with higher numbers of patients with rarer, difficult-to-treat diseases? This approach, called risk adjustment, is being tried in a number of markets in the U.S. and Europe. 

Wouldn't it be great if drugs were once again praised for their value to patients rather than reviled for their price tags?

Sander Flaum is a principal at Flaum Navigators.

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