Kayt Sukel

There’s no doubt: drug costs are skyrocketing-and those rising prices are affecting providers, payers, and patients in a variety of different ways.

 research study, Medicare Part D enrollees without low income subsidies are looking at having to pay thousands of dollars out of pocket for single specialty drug this year. Such costs, especially with 

baby boomers retiring at an average of 10,000 people per day

, are unsustainable-and President Donald Trump and others in government have been clamoring for ways to reduce list prices. 

But as all eyes are on drug manufacturers to see how they respond to increased political and consumer pressure, Nitin Naik, Vice President of Global Life Sciences and Transformational Health at Frost & Sullivan, says there are many factors that are contributing to rising drug prices. He says current research and development efforts are, in fact, one of the main drivers behind the increasing price tags seen on drugs.

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“There are several factors at play but mostly it’s the introduction of innovative molecules and specialty drugs used to treat complex disease pathways like oncology, rare disorders, and infections diseases like Hepatitis C,” he explains. “These all contributed to the overall increase in drug expenditures.”

, chief executive officer of the Pharmacy Group and the TPG family of companies, which provide services to associations, healthcare, and information technology organizations, payers, and pharmaceutical companies, says that the price increases of existing specialty drugs, sales, and marketing activities tailored to providers and patients to drive demand for specialty drugs, the lag in biosimilar adoption, and ineffective programs by health plans and pharmacy benefit managers (PBMs) have also played a role.

“There are many factors driving these costs,” he says. “And each patient population, from commercial to Medicare and Medicaid, will feel these rising drug costs differently.”

’s recent Managed Care Pharmacy Survey, specialty pharmacy stakeholders, including providers, consultants, health plans, and pharmacy benefit managers (PBMs), were asked to offer their predictions about what will transpire at the drug manufacturer level as it relates to drug pricing over the next three years. 

More than one-third of respondents (37.58%) said they believed they would see a short period of decrease in annual inflation rates, followed by a return to higher rates. That response was followed by the belief that inflation rates on existing products will continue to grow as they have for the past five to ten years (29.7%) and that we will see a prolonged decrease in annual inflation rates due to the increased scrutiny (18.79 %). Only 13.94% thought that a substantially greater number of drug manufacturers will decrease their current list prices.

Naik says that the increased focus on drug pricing is valuable as it helps to bring more pricing transparency to patients-giving them the opportunity to make informed decisions on optimal treatment strategies with their physicians. He says that he believes manufacturers will have to invest in integrated media outreach platforms to help guide patients and physicians to help do that. 

But as for significant changes in pricing in the near future? Naik is more circumspect. He says Frost & Sullivan expects modest rate increases due to collaborative efforts between government and manufacturers over the next three to five years. In addition, he doubts that the industry will see reductions in price across the board.

“Commercial drug plan spending has increased by 1.5% in 2018 compared to 3.8% in 2017,” he says. “In 2019, Frost & Sullivan expects lower pricing on drug categories related to pain, high cholesterol, and neurology due to the availability of generics in those segments. Categories related to diabetes, oncology, and HIV, however, will experience inflation due to the launch of new specialty products.” 

Despite those projections, Naik says it is important to understand that the current debate about drug pricing is not as simple as just decreasing list prices. He argues it’s really about putting out holistic information about the benefits of the drug treatment and pricing in relation to insurance coverage.

“We have a need to generate simple yet meaningful data,” he says. “Healthcare executives should look at adopting new artificial intelligence or machine learning technologies that can assist standardizing and comparing treatment options with the help of calculator tools to estimate the total out-of-pocket costs for each patient by applying plan specific information.”

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What execs and experts think of the future of drug costs.

Contemplating the Future of List Prices

Earlier this month, Judge Richard Leon of the United States District Court in Washington completed his review of the United States Justice Department’s decision to permit CVS Health, the owner of the largest pharmacy chain and one of the largest pharmacy benefit managers (PBMs), and Aetna, a leading American health insurer, to merge, determining that the agreement did not violate antitrust law. 

While many in the healthcare industry had voiced concerns that the merger would hurt competition, particularly affecting independent pharmacies, Aetna agreed to sell its Medicare prescription drug plan business to WellCare Health Plans in order to further open up the market. In granting the motion, Judge Leon stated that, “CVS’ and the government’s witnesses, when combined with the exiting record, persuasively support why the markets at issue are not only very competitive today, but are likely to remain so post-merger.” 

But Kamaljit Behera, a transformational health senior industry analyst with Frost & Sullivan, a global market research and analysis firm, says critics’ concerns of the merger are not without merit. With this agreement now in place, CVS has no real incentive to keep drug prices lower for insurers who are competing with Aetna, especially as WellCare continues to rely on CVS for pharmacy benefit management and retail pharmacy services. And it’s not clear that Centene’s decision to acquire WellCare for $15.27 billion, which many hoped would reduce potential antitrust issues, will offset those issues.

“We are seeing further centralization of power,” he said. “Today, five PBMs control more than 85% of the market and the top five pharmacies have more than 40% of the retail market share. This centralization of power without enforcement of transparency in margins and rebates is one of the reasons for the ambiguous and high drug pricing in the United States.”

Since November 2018, the industry has carefully followed CVS’ transformation from a pharmacy chain to a more all-encompassing health services company. CVS has added additional primary health services at its MinuteClinics as well as expanded its virtual care options for patients with chronic health conditions. In addition, it has availed itself of Aetna’s vast trove of data in order help identify the right locations for future clinics and 

. The company also plans to open 1500 more HealthHUBs-which provide health services right in its pharmacy retail stores-by 2021. Taken together, these moves show the kind of market power CVS’ and Aetna’s consolidation has brought to bear.

While the deal had not officially gone through until this latest review, CVS and Aetna were already essentially operating as a single entity-a fact that did not go unnoticed by Judge Leon, who took a moment to chastise the very common practice of companies acting as if merger deals were closed while the decision remained under court review, as required by the 

“If the Tunney Act is to mean anything, it surely must mean that no court should rubber-stamp a consent decree approving the merger of ‘one of the largest companies in the United States’ and ‘the nation’s third-largest health-insurance company,’ simply because the government requests it.”

What will the end result be? Khushbu Jain, a transformation health industry analyst, also at Frost & Sullivan, says CVS’s enhanced reach in the healthcare industry may offer greater convenience to consumers-but it likely won’t translate into what patients most want to see: lower healthcare or drug costs.

“The industry is already heavily consolidated,” she explains. “Cigna announced its acquisition of Express Scripts in March, soon after the CVS-Aetna news came out. And, in preparation for market headwinds and that concentration of power, companies are already looking at expanding their offerings in order to compete. For example, Anthem has now launched its own PBM, IngenioRx.”

She adds that in light of high drug prices as well as poor transparency regarding what drives those costs, drug price comparison websites and apps- such as BlinkHealth and RxRevu, as well as ePharmacy vendors like Amazon+PillPack-may end up the real winners in the long run from these large-scale mergers, as they can offer the savings consumers are seeking.

“Pharmacies, in general, will become the central cog in patient care and recovery and elevate their roles from being a commodity provider to an active participant in the patient care regimen,” she says. “Pharmaceutical companies will be in duress as the balance of power shifts-and price pressure increases from all sides.”

The deal is now official, but the companies have been acting as one for some time.

Official CVS/Aetna Merger: Greater Convenience, Less Cost Reform

, coming in two distinct waves and lasting 21 weeks, as “moderately severe.” The report concluded that influenza A viruses dominated two waves of the season, while influenza B showed only minimal activity. But while many are still conducting an after-action review of last year’s flu season, many physicians and pharmacists are concerned about what the year ahead may bring.

To that end, the CDC recently published its predictions about the upcoming season in a report entitled, 

Prevention and Control of Seasonal Influenza with Vaccines: Recommendations of the Advisory Committee on Immunization Practices - United States, 2019–20 Influenza Season

. The agency also updated its public webpage regarding the 

The public health agency notes that the latest trivalent, or three-component, flu vaccine will protect against three distinct strains that experts expect to be most common this year: they include the A/Brisbane/02/2018 (H1N1)pdm09-like virus, A/Kansas/14/2017 (H3N2)-like virus, and B/Colorado/06/2017-like (Victoria lineage) virus. The quadrivalent vaccine will have the addition of the B/Phuket/3073/2013-like virus of Yamagata lineage. 

The report also provides updated dosing and age recommendations for certain vaccines like the Afluria Quadrivalent and Fluzone Quadrivalent. Aaron Glatt, MD, FACP, FIDSA, FSHEA, chair of medicine at South Nassau Communities Hospital and a spokesperson for the Infectious Disease Society of America, says he doesn’t think there were any real surprises in the report.

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“Their guidelines are very similar to what we’ve seen in previous years,” he said. “They are solid and appropriate. That said, it’s too early to tell whether the vaccine is a good match for the upcoming season. We won’t know that until we see what kind of cases are being reported and what strains are actually out there resulting in severe illness.”

That said, despite some reports of last year’s vaccine being a 

CDC, the vaccine was just 29% effective overall

), Glatt says it is imperative that clinicians and pharmacists educate patients that even a poorly matched vaccine still offers important protection not just to individuals, but to society at large.

“Being vaccinated helps you avoid being infected with the disease. And if you do catch the flu, it will lessen the severity of the symptoms,” he explains. “Patients should also know that last year’s vaccination, even if it wasn’t the best match, remains protective. Research shows that people who are vaccinated for the flu every year have an advantage over those who aren’t vaccinated or even have just gotten their first vaccine this year.”

He suggests that pharmacists take the time to disabuse patients of common myths regarding the flu shot. 

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“One of the biggest myths people have is that they can get the flu from the flu shot. That’s just not true. It is essentially impossible to get the flu from the flu shot. If you happen to get the flu about two weeks after the flu shot, it was just a coincidence. There’s a small number of patients who might have mild discomfort after the shot but it’s nothing like getting the actual flu,” he says. “The other area where pharmacists can help promote vaccinations is by explaining that even a so-called bad match vaccination still helps to prevent serious illness.”

He adds that pharmacists who are looking to help improve vaccination numbers should look to the bigger box pharmacies like CVS and Walmart for guidance.

“They know how to do it,” he said. “They make it really easy for a person to just get the vaccine. No appointment, no waiting-they advertise with big signs and can answer questions and then do it right on the spot. Pharmacists have an important role to play, and I think physicians would like them to do more, to see more patients getting vaccinated each year as early in the season as possible.”

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, MD, stepped down after two years of service as commissioner of the Food and Drug Administration (FDA). Gottlieb was the keynote speaker at this year’s Asembia Specialty Pharmacy Summit in Las Vegas. During his speech, he discussed how the agency wrote “modern rules for new technological paradigms,” in order to create a regulatory framework to help govern drug development and approval opportunities in the future.

Gottlieb discussed those changes and how they will help implement sound regulations and policy moving forward.

“We had to rewrite the rules for how we were going to approach these new technologies and really lay the foundation for what the regulatory architecture would look like moving forward. In respect to gene therapy, a lot of the issues are not on the clinical portion of the review. These gene therapy products are so effective, you can often determine clinical effectiveness on a very small series of patients. 

“But there are safety issues: how durable will the treatment effect be? Will there be off-target effects? Those issues relate less to the clinical performance that is assessed in any premarket study and more to the product features and the vector itself that is delivering the gene. That is, how the gene gets set and sorted, and any manufacturing issues related to that.

“It’s exactly inverted from traditional drug development where approximately 80% of the complexity and challenge for the FDA is the clinical portion of the review and 20% is the CMC, or the chemistry, manufacturing, and controls portion of the review. When it comes to these gene therapy paradigms, 80% of the complexity for the agency is the product portion and only 20% is on the clinical portion.

“This lends itself to a whole new paradigm where you can use the framework of accelerated approval to allow these products to come to market more quickly based on small amounts of clinical data, recognizing that you aren’t going to answer all the longer-term questions in any reasonably-sized premarket setting. But, you have much more robust authority to require postmarket follow-up of these products, closely monitoring the patients under that legal framework.”

“With cell-based regenerative medicine, we promulgated a policy to establish a right mind about when a cell, taken out of your body and manipulated, could become a drug. That existed in law and regulation, but it never existed in practice if the agency hadn’t drawn a bright line and started to vigorously enforce around that line. We were seeing rapid growth in clinics, all marketing different stem cell products-some with really tragic outcomes. So we put out that guidance and started taking enforcement actions establishing that bright line. 

At the same time, we recognized that a lot of innovations happen in small academic medical centers where individual investigators were trying to develop these products. They didn’t have the resources or the sophistication to file individual license applications to become drug developers so, for the first time, we developed a framework, where as long as individual investigators were following the same manufacturing protocols for products, they could pull their clinical data and file a common application in order to get an individual license to each academic institution to market their own products. It was a highly novel approach to how we go about giving biological license applications to sponsors for the first time-and a paradigm we could replicate in other settings.”

“When it came to targeted medicine, we faced the idea that disease was no longer defined by phenotype but by genotype. This was really the holy grail of what came out of mapping the human genome. But the regulatory paradigm didn’t give us readily available tools to take advantage of this. So we started things like basket trials or tissue-agnostic trials where you’d get approval for a drug in multiple tissue types as long as they targeted the same molecular signature of disease. You’d also see master protocols where you could study multiple drugs within the context of the same registration trail or the same patient cohort. These were all designed to try to change the paradigm to allow for more easy and efficient development of targeted medicine.”

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“Things like next-generation sequencing (NGS) and artificial intelligence (AI) [are arriving], where you don’t have tools that lend themselves to premarket approval: An AI device is a self-learning device that learns from its own mistakes. How do you regulate that through a premarket approval process where you are testing the ability of the device not only to make mistakes but to learn from them and get better? Rather than set up a paradigm where we require premarket approval for these devices or premarket testing with NGS platforms, we said instead that we would certify certain publicly available databases of information maintained by the National Institutes of Health and if you test your device against that publicly available database and get a certain result, a certain performance characteristic against that publicly available data, that would suffice for FDA approval. That demonstrates the clinical utility, validity, and reliability of the device.”  

“Let’s talk about things like medical apps on your phone. How do we regulate that as a medical device? Do we require premarket approval any time a company makes a modification to such an app, which quite literally could happen overnight? We can’t ask monitors to come in every day with a supplement to a medical device application. Instead of regulating the product itself, we decided to take a firm-based approach. We’re going to regulate the firm and say as long as the firm that promulgated the digital health tool has good standard operating procedure in place to test the underlying architecture of the software, we will allow them to not only go to market with new modifications but go to market with new products without having to come in every time and ask for premarket approval from the FDA and be subject to postmarket testing and post-market monitoring.”

On electronic health records (EHRs) and practical data:

“For the very first time, the agency has the ability to use data from EHRs to conduct postmarket surveillance and, eventually, practical clinical trials in real-world settings. What will enable this is significant new resources that the FDA has already secured: About $51 million in base-funding for 2019 with more than $9 million in additional money put into the 2020 budget for a total of $60 million. That’s significant for the FDA.

“For the first time, the FDA has money to build out databases inside EHR information that they can use, not just for postmarket safety monitoring, but for premarket assessments as well. Now, $13 million is allocated to the Center for Biologics with development of capabilities to use EHR data for evidence generation. Almost $11 million is allocated to making EHR data and the payer claims data that they use right now to do post-market monitoring, as well as to explore and test real-world evidence for measuring drug efficacy as well as evaluating safety.

“The idea is to see if the agency can develop a new paradigm for replicating clinical studies using real-world evidence. You’ve seen a recent approval… for a drug treating men’s breast cancer where the effects were established using practical clinical data. There are multiple other examples, both public and private, where this same thing is happening. 

“This is really a paradigm change for the FDA. It’s going to change the culture of the agency’s prospective clinical data. And, I think, it will really change the opportunities for manufacturers in a very significant way because, if the agency builds its capabilities and builds confidence in these new data paradigms, it will open up more changes to sponsor and move forward these new kinds of clinical development approaches.”

At the 2019 Asembia Specialty Pharmacy Summit, former FDA Commissioner Scott Gottlieb discussed advances within the agency during his tenure.

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What lies ahead for the specialty pharmacy industry?

That is the question that Adam J. Fein, PhD, CEO of 

, attempted to answer during a panel entitled, “Specialty Pharmacy Industry Outlook: What’s Next?” at the 2019 Asembia Specialty Pharmacy Summit in Las Vegas in April.

Fein is often called on to discuss the future of specialty pharmacy and opened the panel by stating the industry was at an important “turning point.” referring to the HHS proposed rule to eliminate safe harbor protections for the rebates paid by drug manufacturers to pharmacy benefit managers (PBMs), Medicare Part D plans, and Medicaid managed care plans.

“We are at an inflection point that will potentially change the entire commercial model of the pharmaceutical industry for the first time in a generation,” he said. “We are potentially on the verge of moving to a world without PBM rebates-which will lead to a total change in the way we do business.”

But in order to offer his thoughts on what this brave new world might bring, Fein said it was important to consider the various factors that led to this point. He noted that, back in 2014, drug list prices were increasing in double-digit rates.

“Can you think of any other thing you buy where the same thing goes up 13.5% over one year and then another 11.9% the next?” he asked the audience. When industry executives like Mylan’s chief executive officer Heather Bresch were called to account by the U.S. government to explain the skyrocketing costs, they explained that they only received 45 cents on the dollar-the other 55 cents were going to other players.

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That’s shined a light on how rebates and kickbacks were influencing drug pricing-and hurting patients.

In his talk, Fein also addressed what he called the “gross-to-net bubble.” In the past few years, there has been a significant difference between list and net prices, or the cost of drugs after discounts and rebates. Such a bubble is simply unsustainable, he said .

“In 2013, $83 billion in rebates and other discounts were provided by manufacturers off the list price-by last year, that number was $166 billion,” he shared. “These things have essentially created a crisis for patients, who are paying out-of-pocket costs, their copay,s or deductibles, based on the list price.”

Given these issues, it’s not surprising that HHS proposed the antirebate rule-which many believe will be finalized in the next few months. Fein said, if it is finalized, it will “blow up the entire system” and require everyone in the specialty pharmacy industry to rethink how they do business. But, even if the rule does not go through, he said, the issues that brought us here still need to be addressed. Too much has been revealed about the inner workings of the industry, where the model is now that the sick subsidizing the healthy, he said.

“If approved, the entire way that plans and premiums manage specialty pharmacy would change,” he said. “We need to start focusing on the true net cost of drugs. You may see many brand name drugs vanish from formularies. And you will probably seem benefit design being to change. There will be a world of greater competition.”

He believes this kind of previously unfathomable “black swan” scenario will require physicians and patients to make direct cost and value trade-offs differently than they do at present.

“There will be an extensive amount of usage management. There will be a lot of formulary management,” he said. “You’ll see specialty pharmacies navigating a whole new world with their patients-and the rationale for the gross-net-bubble will disappear.”

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On the precipice of such radical change, the industry will have to rethink the way it has traditionally done business, he said. But, as with any other time of great uncertainty, there is the potential for remarkable opportunity.

“This is an exciting time. It’s a dynamic time. It’s a time of greater change than I’ve ever seen in this industry,” Fein concluded. “With all this change, with all this trouble, with all this complexity, try to stay positive.”

Specialty pharmacy has reached an “inflection point” with the power to change the entire industry model.