Drug Pricing, Public Opinion and New Models for Pharma

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As public criticism of drug prices intensifies, and healthcare moves to "value-based" pricing and purchasing, Sloan-Kettering’s interactive, online tool Abacus offers insights into the factors that must go into pricing a drug

For years, many industry observers have lamented pharma’s poor public opinion, and its portrayal in fiction, film and popular culture.  Some companies have taken steps to change this, by making their actions and motivations more transparent, by changing the way that sales rep performance is judged, by eliminating opportunities for bribery and corrupt business practices to take root abroad.

But the popular image of a greedy industry is not disappearing any time soon.  Spending on drugs increased by 13% last year, USA Today reports, and many new cures are out of reach for many consumers.  Some physicians and hospitals have exerted pressure on manufacturers to increase availability of treatments.  

The Kaiser Family Foundation’s June health tracking poll of 1,200 adults in the U.S.. found that 73% said drug costs are unreasonable, and 76% blame drug companies for setting drug prices too high.  10% blame insurance companies for high drug costs, and an equal number say both drug and insurance companies are to blame.

Half of the respondents say they currently take prescription medicines.  Of these, 21% say it is difficult to buy these medicines, and 25% say that either they or a family member have not filled a recent prescription due to high costs.  Another 18% say they have skipped doses or cut pills in half to try to save money.

In addition, 53% suggest that there should be more regulations limiting drug prices.

In fact, specific regulations won’t even be needed.  As research moves into personalized and “precision medicine,” the market is also moving to “value-based pricing and purchasing,” and payers will determine what a reasonable cost for any treatment is.   (In unrelated news, just this week, HRSA proposed a bill that would penalize manufacturers when they or distributors charge consumers over the 340B ceiling level for their products.)


Price vs. benefit decisions will determine whether a treatment even reaches the patients it might help.

This is new territory for most companies.  Pricing any new drug, and determining its value, is difficult and the ground rules are rapidly changing.   Recently, the Sloan-Kettering Center in New York City released Abacus, an interactive tool that uses FDA data and other criteria to determine the price of a drug.  http://www.drugabacus.org/

Value-based pricing represents a major change for healthcare, and to the whole process of setting prices for new therapies.  How will that change pharma's business models?

How can drug companies share some of the risk of developing new cures?  What do you think of this issue, and the new models that are being discussed? 

And, on a broader level, what will be needed to change the public's opinioin of the industry? Please write in and let us know what you think.