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Drug Pricing Is Not a Fair Fight (03:37)

Brand-name prescription drugs are so expensive in the United States in part because of the market exclusivities that government provides to pharmaceutical manufacturers, both for patents and to keep generics off the market, says Harvard Medical School Professor Aaron Kesselheim. At the same time, various rules prevent payers from negotiating with the brand-name pharma companies that set the price. “We have a very inefficient system set up that doesn’t contribute to price lowering,” says Kesselheim. He asks Harvard Pilgrim Health Care CMO Michael Sherman how, as a payer, he finds this negotiating environment, and which rules he finds most problematic in moving toward value-based pricing.

“I tend to be very pro free markets, but this is a scenario that needs a little bit more regulation because the types of regulations that exist are those that are protectionist,” replies Sherman. “We have an environment where essentially a pharma company can come out with a drug, they can set a price, certain classes are protected — we have to cover them — there are other state mandates and requirements that require us to cover drugs by law, and we don’t have the ability to purchase perhaps in other countries where they are less expensive.”

He also acknowledges safety concerns and the inability to operate entirely online. “That’s a perfect storm, to have a challenge in managing cost,” he says.

In cases of competition, payers can engage in discussions on branded drugs and price access and look to outcomes-based agreements, says Sherman. Harvard Pilgrim has had companies go at risk for some outcomes, ranging from a small amount of risk to the entire cost of the drug.

Physicians who write the prescriptions care about price, and that has helped drive demand. But the problem is for drugs with no competition. “We and employers have been reluctant to say no,” says Sherman. “I believe if we did say no we’d get the drugs for less because the question ‘would they sell them for less?’ has been answered in other countries all over the world.”

Sherman explains that if he goes to a pharma company that has a high-cost drug that works in some people but not others, and suggests it’s worth less to the latter, “they show me the door.”

“Without the ability to say no, and without some constraints on the pharma companies, it’s not a fair fight,” he says.

From the NEJM Catalyst event Navigating Payment Reform for Providers, Payers, and Pharma, held at Harvard Business School, November 2, 2017.

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