CareTalk Podcast – Dr. Peter Bach: Drug Price Warrior on His Hopes for The New Administration

Dr. Peter Bach (Director, Center for Health Policy and Outcomes, Memorial Sloan Kettering Cancer Center) stops by the show to discuss the dangerous rise in cancer drug prices and how the Biden administration could tackle them.

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About Dr. Peter Bach:

Dr. Bach is the Director of Memorial Sloan Kettering’s Center for Health Policy and Outcomes, is a physician, epidemiologist, researcher, and respected healthcare policy expert whose work focuses on the cost and value of anticancer drugs. Dr. Bach is leading efforts to increase understanding of the US drug development process and develop new models for drug pricing that include value to patients. Dr. Bach described a 100-fold increase in cancer drug prices since 1965 after adjusting for inflation, and that the cost of an additional year of life from a cancer treatment increases by $8,500 each year. In 2012, he and other physicians at MSK drew attention to the high price of a newly approved cancer drug and announced his hospital’s unprecedented move not to offer it to patients because of its high price tag with no notable improved clinical outcomes. The drug price was later cut in half by the manufacturer. Dr. Bach’s work in lung cancer screening has led to the development of several lung cancer screening guidelines and one of the first-ever risk-prediction models for this disease. He has also proposed a number of strategies for Medicare to link payment to the value of healthcare services delivered. Dr. Bach has been inducted into the National Academy of Medicine, American Society of Clinical Investigators and the Johns Hopkins University Society of Scholars. He served as a Senior Advisor for Cancer Policy at the Center for Medicare and Medicaid Services in 2005 and 2006. He has published more than 100 peer-reviewed articles and editorials in scientific journals such as the N Engl J Med and the Journal of the American Medical Association. He has also written numerous healthcare-related op-eds and been featured in mainstream media outlets such as the New York Times, New York magazine, the Wall Street Journal, Forbes, NPR, and 60 Minutes. Dr. Bach completed his undergraduate studies at Harvard University and his medical studies at the University of Minnesota and the University of Chicago Harris School. He completed a residency in internal medicine at Johns Hopkins University followed by a fellowship in pulmonary and critical care medicine at the University of Chicago and Johns Hopkins. While at the University of Chicago, he was a Robert Wood Johnson Foundation Clinical Scholar. Dr. Bach has been a faculty member in MSK’s Department of Epidemiology and Biostatistics since 1998 and a Senior Scholar at the International Agency for Research on Cancer since 2008.

Transcript:

David Williams:
John, I’m worried if we cut drug prices, there’ll be no innovation.

John Driscoll:
How about we try it and see what happens.

David Williams:
Welcome to Care Talk, your weekly home for an incisive debate about healthcare business and policy.
I’m David Williams, President of the Health Business Group.

John Driscoll:
And I’m John Driscoll, the CEO of CareCentrix.

David Williams:
All right John, what do you got cooked up for us today?

John Driscoll:
Well, we have in the emerging world of vaccine drug pricing and new administration, an expert on all of that Dr. Peter Bach, one of my great mentors in understanding how screwed up our drug pricing and development world is. With some thoughts, insights and perhaps some insults about how we can improve where we are. Peter, welcome to the show.

Peter Bach:
I’m thrilled to be here. Thanks for having me, John.

John Driscoll:
Peter, how did you get into this drug pricing development, political landmine area? Certainly seems to be an area where America has only overachieved in pricing and then followed with development.

Peter Bach:
I ended up here because I wasn’t smart enough to actually do real science, so I ended up like many people who study the healthcare system focusing on what comes after good science and asking questions like, if we have a therapy that actually improves health, why isn’t that therapy getting to people? And if you start asking that question with regard to drugs, then you immediately come to because they cost too much, because the economics are messed up, because the way we price stratify in the U.S. causes huge out-of-pocket costs, because we keep thinking we have a market instead of what we actually have, which is a policy guaranteed set of monopolies that we poorly regulate.

Peter Bach:
And the other reason I got here was I somewhat naively went into government, the best decision I ever made, but naively only in the sense that I didn’t realize to what extent policies had been rejiggered to an almost guaranteed price inflation and loss of access to pharmaceuticals and particularly in my area of interest, which is oncology and cancer drugs, which has been absolutely exploding. But once I saw that the system is actually engineered and the regulatory and payment environment was inflationary by its very nature, I thought, “Okay, this is a problem I can wrap my head around and should be working on fixing because new treatments that actually help patients with cancer should be affordable and get to them and we should fix the market to make sure that happens.”

David Williams:
Peter, there’s a lot of concern about cancer drugs in general, in this country people don’t like the idea of rationing and there’s a concern if you limit what prices can be, you’re going to keep these therapies off the market and the patients are going to suffer. I mean, how do you reconcile that?

Peter Bach:
Well, it’s a C-suite talking point, it’s not reality. We rationed healthcare in this country much more than any other advanced economy in the world. And the way we rationed it is regressive. I’m not really concerned given that we pay two X plus higher prices in the U.S. for drugs than most other countries even after adjusting for purchasing power, or currency or whatever you want to adjust for, that if we paid somewhat more rational prices, we wouldn’t still have a widespread access. You also have to remember that access to whom in the sense that if we continue to say, we need a market counter balancing mechanism where on one side there’s the buyers mostly PBMs and hospitals.

Peter Bach:
And on the other side, there’s the seller manufacturers and there’s intermediaries in there wholesalers and stuff. But if you say one of them gets to charge as much as it possibly can, the drug company, and the other one has to negotiate to get lower prices and then those negotiating tools are primarily things like blocking access either if they were step therapy or prior auth or shifting costs on to individuals, when those costs can be monumental with respect to even annual income and most people with illness, you’re essentially saying we’re going to let lower income people eat the consequences of our not being able to craft effective policy. That’s why any argument about rationing has to start with, well, what rationing are we going to get rid of now, before we start thinking about what rationing and good policy
might actually call us.

John Driscoll:
But Peter, when I argue with pharma executives they say, “Oh gosh, if you started to cut those price or cap those prices, or actually allow the largest purchaser of drugs in the world, the United States government to negotiate, well then there’s no incentive to actually develop the drugs.” You’d be killing the industry  cooking the golden goose as it were.

Peter Bach:
It’s a carefully home talking point and they’ve been using it for at least two decades when prices were a third of what they are today after adjusting for inflation. And so I don’t really get it like, they were saying, you’re blow up of  successful industry is 20 years ago when we were paying much less. Now we have to pay higher rates and we blow it, we can’t even regress to that point. But these absolutes statements, don’t hold up to scrutiny on any of the dimensions you might want to challenge them on. For instance, the bill that was introduced in the house that would have Medicare negotiate drug prices and have those prices float into the commercial market, produced enormous savings and was estimated to have slow the pace of innovation by two or 3% with innovation measured as the rate of new drug approvals.

Peter Bach:
But on the flip side, it was projected to save more than a hundred billion dollars in not spending on drugs, but in spending on other kinds of health care like hospital visits, because drugs, when their prices fell would get used more. And so there’s a basic formulation here that’s absolute when it really should be in any terms thought of in terms of trade-offs. The other part is at every time we’re told that every new drug and every new indication is the innovation we need, even though sometimes those new therapies are for very few people. Often those new therapies or new indications are only marginally effective, but we’re forced fed this idea that everyone is infinitely valuable or has no price that can be put on it because it’s health and stuff.

Peter Bach:
Normal markets don’t work like that. If you have truly killer new products, you can charge really aggressive prices. And if you don’t, you don’t have a market. But in this case, there’s laws in place requiring markets, there’s intermediaries that make money buying and reselling your product at a more costs. There’s all these things in place that reinforces notion that every new drug can’t be priced. And that’s why we are where we are.

John Driscoll:
But Peter, everybody realizes that drugs are too expensive. It’s a bi-partisan issue. Left-wing talk radio has been on that for years and that right-wing talk radio is on the fact, because everyone has relative to can barely afford or can’t afford the drugs that they need. If we’ve got popular agreement on that, what should government do right now that would help solve this huge, and only getting bigger social problem of access to drugs at a reasonable price.

Peter Bach:
It’s true. It’s at the two ends of the spectrum on talk radio and trying to get it from the two ends of the spectrum up on Capitol Hill is our challenge. You can think about this strategy from a number of perspectives. I like to think about them along the gradient of which rubicons that are politically challenging, or let’s say stick with the metaphor, deep and fast running water are the hardest to cross. And so I generally favor starting with let’s enforce the social contract that the pharmaceutical industry has agreed to, which is that after a fixed period of monopoly pricing, prices go down and drugs are cheap.

Peter Bach:
And so we’ve done a lot of work pointing out that biologic drugs, which are about 2% prescriptions and 40% of spending right now have maintained monopolies vastly longer than the 12 years that were set out in the BPCIA, the law that created the biosimilar follow-on. And that the biosimilar market has turned into a great market for biosimilar manufacturers, which is exactly what we don’t want. We want it to be an aggressive cut through a market that looks like generic companies with those generic margins, but instead Pfizer and Amgen and Novartis have marched in there and they’re like, “Oh, I recognize operating margins like that. I’ll take some of it.”

John Driscoll:
So you’re saying just for those who aren’t following… And by the way, thanks for the classical reference, you must’ve gone to Harvard. The RomansThis transcript was exported on Jan 29, 2021 – view latest version here.

Peter Bach:
It was a law application here.

John Driscoll:
How do you think about that though like, are you saying that we could enforce the law now and have a different result?

Peter Bach:
I’m sorry for quickly getting in the weeds, all I was thinking about was rivers in Italy, but actually although I think I bet shure if is… So here’s the problem, if you’re going to leave money for new drugs, you need older drugs that are big market players to eventually give up their pricing power. And the theory with generic drugs entering after five to seven years or so against the big sellers that are small molecules or chemical drugs, the Lipitor from the ’80s worked well. And when we got these biologic drugs, we tried to reinvent the same system using biosimilars and it hasn’t worked and it really won’t. It’s created more profitable players.

Peter Bach:
And so we can’t enforce current law. It’s current law that has failed. We need new law. And what we should do is say in this context, biologic drug makers, you get 12 years in monopoly power, and then you sell it cost plus. Which is what if a truly hyper-competitive market were in place would drive you to. And so we’ve been trying to get policy makers to see that their objective is if your marginal economic costs of biologic drugs, cost plus or however you want to think about super competitive pricing are after exclusivity, biosimilars aren’t going to get us there. So you should regulate prices.

John Driscoll:
Really what you’re saying though, to take all the economic phrases out, is they claim that there’s a market that’s competitive and it’s structured so it’s not. Without new law, we will never have the prices come down.

Peter Bach:
Right. That’s even for the biologic drugs that face any competition, most of them are long past the date they should have then faced zero competition. It’s just, this is a natural monopoly to get back to economic terms, but this is a market that will not have the robust competition you want to get the policy goals to go ahead and regulate prices. And I think that’s the easiest place to start. There’s been no negotiating by Medicare in a policy like that. We’re not importing drugs from Canada. We’re not importing prices from Germany. We’re not importing health technology assessment from the UK. We’re not taking the marching in on patents. We’re not doing any of that stuff, which I think are the various rubicons that are going to be more difficult to afford. And so the real challenge here is can we even do
that? Even when we have a very clear policy objective that really is widely agreed upon even by the pharmaceutical industry, can we simply write laws that get us there? And I’m not sure we can.

David Williams:
When you’re talking about health technology assessments, so in the UK they have NICE, and in the U.S.
we have ICER at least which is…

Peter Bach:
And we have ICE.

David Williams:
Okay, NICE or ICER, we have ICE also. I think they were thinking of getting rid of ICE, but then maybe that’s not happening right now. But with ICER, I think one of the challenges with negotiating their drug prices, or even saying what it should be is that people say, “Well, if it’s my family, you can’t put a price on that.” And that they think the drug industry has played off of that, but there are ways to look at it in a more rational manner. And so even when you’ve got a monopoly or you’ve got something like biosimilars that aren’t really working out, something like ICER would say like, here’s what the price should be rationally. Is that an approach that works methodologically and could work politically as well?

Peter Bach:
Yes and yes. Both challenging, but to be clear, a couple of things, so let’s take as ICER, what health technology assessment, let’s call that, I don’t know, inadequate standard for a discussion, the first point which is that everybody wants more of everybody else’s money for their own Val benefit. Is not a unique problem to drugs. It’s true in every market. And so it shouldn’t surprise us that people want the town to invest in the subway stop closest to them more than one in a different borough if you live in New York, or clean up the parks that are closest to them so their kids can play in it. And so everybody will look at, “Oh, look, it’s this pool of money. I want more of it to come to benefit my family.” Sure, normal reaction doesn’t work. It is the death knell of collective action at some level, that’s one part. But more importantly, a couple of clarifications.

Peter Bach:
One is this idea of value based pricing. Paying for drugs based on how well they work, how many qualifies they generate is exclusively limited to the period when a drug has its monopoly. It is the reward, it’s the prize, and they only get it for a certain period of time. It’s not designed for this other part of the market where things are supposed to fall to costs. People will say, what should we be paying for aspirin and stuff like that, that’s irrelevant. What should we be paying for laboratory today? This is only during that socially contracted period where high prices are supposed to be high. But the other thing is, it’s not the dollars that we should be transferring to the innovator. It’s the ceiling of what should be transferred.

Peter Bach:
Not because it’s an efficient price to spur innovation. That’s a different number and that’s what we should be transferring the innovator, we have to figure out what it is. What it is, is a ceiling, because any dollar amount above that is money we could use more effectively on something else. On a different medical treatment, again, on restoring a park, on fixing a subway station, on educating children, on military, pick your poison there, but it signals like, “Okay, that’s enough money, above that now we’re really spending inefficiently.” But that doesn’t mean the innovators should get all that money either.

Peter Bach:
Just a story here if I can digress, it’s not really a story because I can’t give you any confidential information. Here’s the thought experiment, drugs like Herceptin got go decisions in then late 1980s, Humira in the mid 1990s. Do you think there’s any way when a company like Genentech or AbbVie  looked at developing those drugs, they said, “We’re going to be able to capture the prices they’re capturing today.” And that drove that go decision. And the answer is, of course not, nobody could anticipate the price inflation we’ve had. That number that they had in the spreadsheet when they made the go decision, that’s the number that we had to be able to deliver, not 10 X, not 20 X where we are today, because that’s what it took to spur the innovation.

John Driscoll:
Peter, I think people don’t have the context that drugs now cost as much, and in terms of total medical cost as hospitals do, I mean, it’s the cost problem in healthcare that’s eating the entire system. And to your point, it’s also costing us parks, and cops and a whole series of other things, because ultimately there’s only so many dollars to go around. Let’s maybe try to close this out with what’s your lightning round recommendations for the Biden Administration? What are three things the Biden Administration and Congress could do to solve this drug pricing problem at a time when the world now loves biopharma and drug companies, because they’re delivering the vaccine. We are in a politically fluid time, but you’ve got the presidency here, you’re talking to Schumer and Speaker Pelosi, what are the three things they should move on right now?

Peter Bach:
Well, I keep sending them emails and I must have the wrong email address add.

David Williams:
I think they’re busy getting rid of the viruses and they think one’s in your email instead of in your bloodstream.

Peter Bach:
Exactly. First of all what I’ve already mentioned, absolutely clamped down on the exclusivity period to make sure prices fall to marginal cost or affordable levels immediately after exclusivities ended either through an introduction of competition or price regulation. Number two, there are a series of deeply problematic incentives throughout the distribution chain. Doctors get to mark up drugs 100% basis hospitals. Unbelievable markups, especially in the commercial space that are positive incentives for inflation. That’s also true in the intermediary space.

Peter Bach:
And the last thing is focus on the monopolies that are in the distribution system and break them up. Particularly on the pharmacy benefit manager side, we are down to approximately three PBMs, and that means the worst of what monopolies do. They don’t need to actually offer decent products anymore. They can capture from every side more of their money. And so if we break them up, they will actually move into a position where they must offer decent products, which will be products that have lower priced drugs. I have no problem with using health technology assessment as a fourth thing for launch prices of drugs. If we are a market oriented country, these are the things we need to do.

David Williams:
Great. Thank you. It’s always three, so we asked for three we got a bonus for it. I hope we’ll not have to pay extra for that fourth one, but in any case that’s it for another edition of Care Talk. I’m David Williams, President of Health Business Group.

John Driscoll:
Thank you Peter. This has been wonderful.

Peter Bach:
It’s my pleasure and David, I’m going to use the pharma model for that because I added on a fourth thing, I want another three years of monopoly protection.

David Williams:
Listen, let’s talk rebates when we’re off the line here and we’ll figure it out.

John Driscoll:
I think the other thing that we all have to remember is at the end of the day a drug pricing problem ends up with a frail senior, a budget constrained middle-class person, a rich person, none of whom can afford the drugs or the healthcare costs that they’re suffering from every day. You’re on an incredibly important topic. Thanks for sharing your wisdom with us today. I’m John Driscoll, the CEO of CareCentrix thanks for listening.