Episode 9: The "Disruptors" and the Role of Innovation in Drug Pricing

Drug Topics: Hello! Welcome to Over the Counter, the podcast from Drug Topics. I’m Gabrielle Ientile.

Americans spend an average of $1200 per year on prescription drugs – more than anywhere else in the world.

President Trump has aimed to prioritize lowering prescription drug costs for Americans, particularly for the elderly. On July 24, the president signed a series of 4 executive orders on drug pricing, focusing on pharmacy benefit managers, or PBMs, and the process by which they negotiate discounts and collect large rebate checks. The orders would also save patients under the Medicare part D program hundreds or thousands of dollars per year.

Donald Trump: We’re taking dramatic action to reduce the price of prescription drugs for American patients and American seniors. Previous administrations did nothing, absolutely nothing, as drug lobbyists, special interest in foreign countries unfairly ripped off our citizens.

Under the last administration alone, drug prices rose a staggering 55%. Thanks to my administration's aggressive action since taking office, we have successfully lowered drug prices for the first time in 51 years. But this reduction is still not close to what I want, what I expect, and I'm looking for help for our great seniors especially in particular, that's what we're doing today. You'll hear something which will be very shocking. It's been doing things that nobody thought could be done. It's going to have an incredible impact.

Drug Topics: The executive orders were supposed to take effect on August 24, but the deadline came and went with no action. On September 13, the administration announced a new executive order, that replaces the July 24 series, ordering the department of Health and Human services to put into place the same prescription drug prices as those offered in Europe and other developed nations.

In a September 13th tweet, president Trump wrote, just signed a new executive order to lower drug prices. My most favored nation order will ensure that our Country gets the same low price Big Pharma gives to other countries. The days of global freeriding at America’s expensive are over.”

But the Pharmaceutical Research and Manufacturers of America has been open in their disapproval of the latest executive order. PhRMA chief executive Stephen Ubl said that the policy is quote "unworkable" as well as an "overreach;” he also said it would give foreign governments a say in how the United States provides access to treatments.

Eric Levin, CEO of Scripta Insights, is also critical of depending on executive orders to implement needed changes to the pharmaceutical industry.

Eric Levin: I spent the first about 10 years of my career working with someone who now everybody knows, which is Kevin O'Leary from Shark Tank. I worked with Kevin for about a decade as we built that company and ultimately sold it and really got the entrepreneurial bug. And after I sold my last company, which was more in the consumer space, really wanted to start to attack some of the issues that I thought were important. When I had the opportunity to become a part of this company, it really was how important this issue is that that drove me and it's become really my passion now, as healthcare does impact so many people.

Drug Topics: Eric joined Drug Topics in August following the initial series of 4 executive orders that failed to take effect. He explained that based on the history of executive orders aimed at the pharmaceutical industry, he’s not very confident that these most recent ones will be any different.

Eric Levin: As we're looking at a bunch of new executive orders that were signed, I mean, I think all we have to do is look about a year prior to that. Very similar executive orders were signed, and I think they lasted about 3 weeks before they were completely quashed, and put on the trash heap.

Drug Topics: And while these government interventions may be well-intentioned, there are some serious obstacles standing in the way of meaningful progress.

Eric Levin: It is definitely, especially as it relates to pharmacy, been something that, for good reason, I think the government has tried to do the right thing in certain cases, but because of the complexity and the power of the lobby, it has been very difficult to see any of it move forward.

Judging by what happened to the last ones, I would assume that they'll all get tied up in court and blocked and put on some sort of an indefinite hold. The last time around certain places were also sort of held up by Congress. And I think that's where the lobbyists in particular have a big impact on that.

I think that underlying all of this is the incredible complexity of the system. And I think that, you know, so many of our problems in our healthcare system do have to do with the fact that, for some good reasons, and some not so good reasons, we built a very complicated system with lots of interdependencies and complexities that make it so that what seems like a simple answer often is not as simple as it may seem. There's a domino effect or other reasons that are less obvious that stand in the way or make something that seems on its surface to be a no brainer actually maybe not such a no brainer.

And I think if you take the first 1 that you talked about 340B discounts you could find, and I'm sure to do a whole podcast if you haven't already, people who just think 340B is a horrible and misguided idea and misused and improperly executed to start. So if we just look at this one, you could say, “in theory, good idea,” but if we take one step further back, we go, “should we even be doing 340B pricing?” That in itself is controversial, and I'm not making a stand either way on it, but I know that a lot of people feel strongly about it. And as we look forward on what 340B would do, and if it's used more, there's some really interesting ethical stuff that comes up with that.

There's this interwoven complexity that make all of this really challenging I think.

Drug Topics: Part of the executive orders would require federally qualified health centers that purchase insulins and epinephrine in the Medicare 340 B program to pass savings from discounted drug prices directly on to medically underserved patients. When I asked Eric if these health centers aren’t already offering these discounted rates to patients that need it only because they don’t have to:

Eric Levin: Yes, primarily, and secondarily, I think that there's a lack of knowledge on the consumer side, that that might be an option for them. I think it's not heavily promoted. There are already number of programs in place for people who can't afford drugs, including federal programs like this. And they are often underutilized because people just don't know. And we see that all the time in our business is that people don't realize that there's an option other than either the drug they're taking or the way that they're paying for their drugs.

Drug Topics: Rather than depending on executive orders and government intervention to do the hard slog of getting work done, Eric has a different idea.

Eric Levin: Like so many Americans and business people, what we've seen is that the greatest disruption for the positive has often come from private industry. And the reason for that is that often the disruptors are the ones who have nothing to lose, right?

So, a disruptors is able to come in and say, “Hey, this system doesn't make any sense. I'm from outside the system. So I'm going to ignore all that well, this is the way it's done that goes on within the sort of mega machine that's already running healthcare,” and finds ways to disrupt that are much more innovative, and that tend to sort of cut to the quick when it comes to the problem.

And so generally, what we see in America, I think, in most capitalist facing countries is that innovation trumps regulation almost every time. And I'm a firm believer regulation is critically important, especially in health care. But in many areas, we need these rules, we need the guardrails, they're in place to protect, most importantly, the consumers and patients. But there certainly are also times that they're protecting monopolies or oligopolies. And that's not a great thing for consumers.

This is really the business we're in. We are starting with a doctor who is an insider, I guess, but kind of an outsider from the big corporate machine point of view, right? His point of view is how do we how do we make patients healthy. And then a bunch of us that really look at how to solve complex problems with technology.

And ultimately, if we take a big step back in this marketplace, that the biggest challenge is transparency. And we hear about this all the time in our industry. This is one of the great buzzwords, and almost every CEO of any company who's in this space is going to tell you that transparency is one of the keys to changing industry. And they're all right. It's just hard to do because the system is so complicated as we talked about.

So what we really focus on is seeing through the complexity in order to get to a simpler answer. And that's what big data technology can do. At the core of what we do, we take essentially the bill that a payer gets from their PBM. And that's a lot of data.

So if you think about before software technology, or big data analytics coming along, if you think about yourself sitting down and trying to analyze a bill that's 100,000 lines long, with a whole bunch of things you can't pronounce, with prices that you don't necessarily understand. It's deidentified so don’t even know who it relates to. It would be so difficult to figure out if you're a good buyer or a bad buyer. And what we try to do is use technology to see the patterns and the outliers and the opportunities that are within this data and present them to a buyer, a payer, in a way that they can actually go, “Oh my gosh, that's what I'm buying and that's what I'm paying? We got to do something about that.”

And so very simply, it's using technology to provide a very direct and simplified level of transparency into what their spending is so that then they can create strategies to fix it.

Drug Topics: Though challenges also exist in private industry, Eric is hopeful, given the impressive innovation that is going on right now.

Eric Levin: What we see across all of this industry is there are innovative companies that are finding ways to reduce costs and provide transparency and create more direct relationships and better insights.

What we also see is that companies providing innovation are often battling an oligopoly of sellers or providers that make it very difficult to change because there is great profits in the way they do it today.

I'm hopeful and actually optimistic because when you live in the world we live in, we do meet a lot of other small innovative companies, especially when they want to talk about partnerships and they want - and I'm always amazed at how many companies are finding ways, even in the most arcane areas of this business to simplify and wring out waste.

Unfortunately, as we talk specifically about these executive orders, we have to look 1 step beyond. I love the book, if you ever read it, Freakonomics, because the great thing about that book was it sort of pointed out how what you see on the surface is maybe not really what's going on. You have to look 1 and 2 and 3 steps deeper.

And when you look at these executive orders, and even though they sound great, when you look at how you might implement them what the chances are of implementing them or what the domino effect of implementing them would be, it's relatively unlikely. And if it happens, the second piece that happens is, it's easy to find another way around it.

And I think that the companies impacted by these orders have been excellent at what we call whack-a-mole, right? Like you push down costs here the cost pop up there. And so you're in this constant game of chase trying to figure out where exactly the leakage is coming from. And they have a lot of variables that they can play around with.

I wouldn't count on this having a big impact on too many businesses in our lives in terms of the executive orders. However, I would highly encourage everybody in the industry to continue to try to solve these problems because they are real problems that are trying to be addressed here. And there are ways that they could be done.

It really does take a couple of things. One is the desire to do it. Two is a motivation to do it, because it's the right thing for your patients, your clients, etc. And the last one is really the ability to say, if we do so simplify the business, we will kind of all win. Because having government play around in our business because we're not doing a good enough job self-policing is more likely to have a negative impact on us as business people than it is if we do a better job being smart business people, implementing good solutions, and ultimately delivering better value for our patients.

Drug Topics: And as for drug pricing in the US overall, Eric urges the positive disruptors not to accept the status quo.

Eric Levin: When we talk about drug pricing in general, there are so many options on the table to save money. And the thing that I would really encourage everybody to do is to not just accept their status quo and say, “Hey, this is what we pay.”

And we have a lot of clients that just say, “Well, we just know pharmacy costs are going to go up 8% every year.” They don't have to, but if you take the attitude that they're going to - in fact, I think 1 of the great mistakes that it's made is made by CFOs because if you're in a big company and you get a budget, the CFOs will look into “Well, every year it goes up 8%. So we'll just automatically budget for 8%.” It doesn't put any pressure on the team to control the cost. It just sort of feeds the system.

Be innovative, don't be afraid of positive disruption, and there's a lot of things we can do to both make our patients healthier, make our members happier, and ultimately, be just as if not more profitable.

Drug Topics: That's all for this episode of Over the Counter. Make sure to tune in next time for insights from industry experts on the latest news, trends and innovations in pharmacy.

And as always, if you enjoyed this podcast, make sure to like, write a review and share with your pharmacy friends. Thanks for listening, and we hope to see you next time at the counter.