Drug Prices: They’re Too Damn High!

AIDS Drug Assistance Program OVERVIEW AIDS Drug Assistance Programs (ADAPs), jointly financed by Ryan White Part B funding and state appropriations, ADAPs are state-run and drugs are purchased a discount, capped lower than the government-negotiated ceiling price (340B price). The programs serve as the payer of last resort to provide HIV therapies to patients who don’t qualify for any other form of insurance or who have inadequate coverage.

Some factoids to know before we go on (forgive me if you know this already): There is very little transparency; pharmaceutical companies in the U.S. are not required to share the kind of data that would allow for more effective negotiations (i.e. R&D, marketing, cost to each payer, etc). Public payers in the U.S. are subject to price ceilings and mandatory rebate levels for each drug purchased to ensure lower prices. Greater capitalization on price controls and rebates can lead to greater negotiation leverage. Public payers buy more drugs to provide to PLWHIV than any other source. The Ryan White program is the third largest source of public funding for HIV care. There are more than 1 million PLWHIV today; however, more than half are not in regular care (RAND, 2012; CDC, 2010; Kaiser Family Foundation, 2007). The cost of HIV care is increasing. The main reasons for this are newer, more expensive drugs; rising cost of existing therapies; increased HIV infections overall; rising number of HIV patients on medication living longer (Jing et al., 2007; KFF, 2009a).

So here’s the thing…well, a bunch of things… High ARV prices have a direct impact on the sustainability of ADAP programs nationwide. They are a prime factor for ADAP insolvency. ARVs don’t have to cost that much. So here’s the thing…well, a bunch of things… Government payers cost contain by rationing care or by restricting eligibility for public programs. Limited funding and a growing need for HIV treatment will continue to cause the system to swell, forcing programs to make decisions on who will be covered. Stakeholders have options to reduce the cost of ARVs and procure as many drugs as necessary to serve every patient needing to access the AIDS Drug Assistance Program. ARV prices are NOT determined in a free market setting. The prices are generally negotiated between the pharmaceutical manufacturers and the buyers (i.e. Medicaid, ADAPs, etc.) There is limited credibility to the argument that high prices are needed to sustain the development of new drugs. There is a lack of (available) data demonstrating costs of manufacturing, therefore making it impossible to determine what prices are “fair” or “right.”

Some things to consider about antiretroviral drug pricing: Patents protect manufacturers and allow them to set the price. This concept is called monopoly pricing, whereby prices are set depending on how sensitive the demand is. In the case of ARVs, there are generally no substitutes and few generics. Manufacturers therefore have considerable market power to dictate price and maximize profits (RAND, 2012; Mas-Colell, Whinston, and Green, 1995). Some regulatory provisions, such as mandatory formulary additions of ARVs, allow manufacturers to price drugs free of fear that the drugs won’t be purchased. Methods of procurement, such as the absence of direct negotiations with pharmaceutical companies by individual buyers, can have the same effect. Drug manufacturers’ claim that high drug prices are necessary to offset research and development (R&D) are not substantiated by available data. Drugs with lower development costs, particularly those who have benefited from government subsidies, do not have lower drug prices (RAND, 2012; Keyhani, Diener-West, and Powe, 2005).

Some things to consider about antiretroviral drug pricing: Drug manufacturers will often anticipate or react to changes in markets, charging more for drugs in one market if price manipulation occurs in another market. The idea that prices are set based on costs incurred is discounted by similar drugs sold for different prices in different markets. Available evidence shows that prices are set for profit maximization. ARVs exist in a monopoly market (RAND, 2012). There is a moral dilemma in all of this. Price fairness should be considered. Because HIV patients need ARVs to survive, there is a high tolerance for price increases. However, the “fairness” of high drug prices is questionable when these costs make up large portions or surpass the incomes of poor and marginalized people. This also affects those who are insured. Insurances allow for a lower observed price by the consumer, but allow for drug manufacturers to charge high prices to payers (RAND, 2012). The existence of multiple, segmented markets allow drug manufacturers to practice price discrimination (Reinhardt, 2007).

Let’s talk about ADAP…that’s why we’re here! In 2007, ADAP instituted a minimum formulary requirement that requires all states to include at least one drug from each ARV class (Kaiser Family Found., 2012). Most ADAPs can either be categorized by one of two structural models--the direct-purchase model and the rebate model. ADAP is a discretionary program; each ADAP can set its own eligibility criteria. ADAP had 4,118 on waiting lists in 12 states, primarily in the South (NASTAD, 2012)

Systematic changes can affect ARV prices by bringing the market closer to a free-market situation (RAND, 2012) Have greater transparency. All players can have a better understanding of manufacturer pricing information, allowing for a level playing field in price negotiation. Use reference pricing, that is prices are based on those paid in other markets. Switch dually eligible beneficiaries from Medicare Part D to Medicaid, which pays lower prices for HIV drugs. Make the government the single payer for AIDS drugs. Ease minimum formulary requirements. Empower payers to exclude more expensive drugs if a affordable price can’t be negotiated. Change the patent system and provide subsidies that support innovation.