So many medications, so little access

March 1, 2017

Why are drugs so expensive? It’s complicated. Who is profiting? Not just "Big Pharma". Is there a solution to this problem? Only if everyone is willing to pay their fair share.

Three decades ago, when I began my dermatology residency, I learned to prescribe a variety of medications for a wide spectrum of skin diseases. Very few of these carried FDA-labelling to support safety and efficacy for the condition and age of the patient who used them. And access to the medication was rarely denied.

The past decade has brought tremendous innovation to medical dermatology and miraculous new treatment options to patients with formerly devastating diseases. But prescribing these medications is easier said than done, with good reason.

None of my patients can afford to pay the retail price of even the least expensive of patent-protected drugs, and the cost of treatment with a biologic agent would bankrupt all but the very wealthiest of Americans. Yet new drugs and biologic agents are coming to market at a rapidly increasing rate, and significant minority of people in the US would probably benefit from using one. But even our prosperous country could not support the cost of unrestricted access to these ground-breaking agents.

Why are drugs so expensive? It’s complicated. Who is profiting?  Not just "Big Pharma". Is there a solution to this problem? Only if everyone is willing to pay their fair share.



NEXT: The cost of drugs


Most Americans are not aware that the price we pay for drugs subsidizes medications for everyone else in the world. Our free-market economy, relative affluence and patent-protection allows for a seller’s market.  So, pharmaceutical companies rely on the profits generated by US sales to satisfy their return-on-investment and fund the research pipeline.

Strategies implemented by third party payors to control costs have focus on incentivizing appropriate use and limiting access. These efforts began with creation of tiered classification of drugs by cost, shifting some of the costs for more expensive drugs to patients, a very unpopular maneuver. Simpler, but more distasteful to consumers are restricted formularies. 

This has been gradually replaced by the prior authorization (PA) process, a tactic that theoretically permits drug access when medically warranted. But approval parameters vary by payor, complicated by additional oversight from pharmacy benefits managers (PBMs; see additional information below). These layers add extra costs to the system, or opportunities for profits, depending on your perspective. PBMs are a growing, and very profitable industry, while the annual costs of interacting with health insurance plans rose to an estimated $50-80,000 per physician in 2006.

In some cases, PBMs consider medical necessity and patient safety, based on FDA-labeled indications. But this information can prompt irrational recommendations, like substitution of an inexpensive potent topical corticosteroid for a black-box labelled topical calcineurin inhibitor (TCI) for infants with chronic moderate-to-severe inflammatory skin disease, or quantities of the same medications for older children limited to 30 gm per month.  This focus on “safety” is more likely a thinly-veiled attempt to mask the real incentive: cost-saving.

In other cases, regulation should prohibit the rationale for medication denial. I recently spent hours drafting a summary PA appeal on behalf of a complex patient who I strongly felt would benefit from a biologic agent. After this denial, I spent additional hours on the phone, attempting to request a peer-to-peer review, only to be derailed with a heinous edict:  “this patient’s plan does not allow peer-to-peer reviews”.

In addition to cost-savings for payors, denied access to medication shifts perceived responsibility and blame from payors to clinicians.  Although clinicians may regard a failed PA as wasted effort, it is important to be aware that time and energy invested into the appeal process will increase payor costs, along with a chance that the increasingly expensive PA process will be waived for a particular drug.

At best, a flawed PA system simply delays treatment.  At worst, treatment is restricted, an outcome that has been referred to as “prescription abandonment”. The irony is an ultimate increase in costs from emergency room visits, hospitalizations, comorbidities, lost patient productivity and end-around maneuvers by frustrated clinicians, like submitting multiple prescriptions to see which one gets filled.

NEXT: CEO salaries


Healthcare CEOs earn higher salaries than in any other industry. Big Pharma has borne the brunt of the blame for high drug prices, but 8 of the 20 highest paid healthcare CEOs work outside of pharmaceuticals. And the exorbitant salaries posted for the 12 pharmaceutical company CEOs is much more reflecteve of at-risk stock value than base pay and the high-risk/high-reward nature of the industry, which is among the most innovative in the worldwide market.  

Many businesses that do not develop, manufacture or distribute drugs also profit from the high cost of medications. In the past 2 decades a large number of cottage industries have been feeding at the trough. The growth of these ancillary businesses reflects the increasingly complex requirements of drug development and distribution as well as unnecessary efforts.

On the development side, a growing number of companies owe their success to the need for services to support the billion dollar cost of clinical trials. The most prominent segment is contract research organizations (CROs) that oversee data collection. The CRO business was globally valued at >$27 billion in 2014, and expected to almost double in the next 5 years.  

Other companies certify and educate investigators, provide equipment and software to create and handle clinical images or collect and electronically transmit radiographic images and labs in a HIPAA-compliant manner.  Many of these businesses also answer to and support “not-for-profit” consortium oversight, e.g. Transcelerate BioPharma Inc.  And the 1992 Prescription Drug User Fee Act permitted FDA funding with fees from pharmaceutical companies. 

A 2016 report documented that a total $7.67 billion has been generated for the agency since then (an average of ~$300 million per year, but increasing over time).

With regards to distribution, specialty pharmacies were the first business model established to facilitate access to high cost and “high touch” medications (with complex distribution, administration, and patient management). While many specialty pharmacies filled an unmet need for patients, at least one was infamously owned by a pharmaceutical company who took advantage of the model to enhance the appearance of sales of their high cost drug. In the past 10 years, many smaller specialty pharmacies were acquired by PBMs, to consolidate power for price negotiation, processing and paying medication claims for payors.  PBM company profits may be difficult to track. ExpressScripts, the largest PBM, is independent. The CEO's salary is among the highest in healthcare: $14.8 million in 2015. Second is CVS Health Corp. UnitedHealth Group's OptumRx is third. Others are owned by integrated healthcare systems. Recently CVS decided to eliminate coverage for several psoriasis medications, a decision that carried a potentially negative impact for patients and dermatologists large enough to warrant AAD intervention.

I have tried to empower patients to advocate for themselves, but only a rare individual is willing and able to successfully navigate the convoluted system.  For many, cost is only an issue if it is personal.  A number of medical services companies have recognized this problem and profited from support by pharma and insurers to help patients identify discounts, rebates and compassionate use opportunities.

Unfortunately, these are only available to patients using costly medications for labelled indications (which almost always exclude those under age 18). And the pharmaceutical company strategy of providing short-term free drug on a compassionate-use basis in hopes of securing payment for long-term use has not been successful, even after compassionate use has proven safe and effective.

NEXT: Marketing costs


Marketing costs

As for marketing, this budget can be much larger than that allocated for research and development.  Marketing to consumers and clinicians accounts for the bulk of this spending, but pharma pays enormous fee to companies that “shape and brand” products. It costs several hundred thousand dollars or more to name, label, and package a proprietary drug.

An underappreciated pitfall of owning a brand-label drug is liability. Manufacturers of branded drugs, but not generics, can be sued for adverse events. In these cases, the physician and hospital are liable.  So, payors that prefer generics are also protecting themselves against liability, and shifting that risk to providers.  Damages related to vaccine-associated adverse events fall into a loophole paid by the federal government. In these cases, settlement includes non-disclosure.

So a solution is likely to be as complex as the problem. The best solution is for everyone to give: pharma, payors, PBMs, clinicians and patients.