It’s no secret that drug costs comprise the largest portion of an employer’s group benefits plan expenditures, but what goes into these costs? That was the topic of this year’s GIPC event, Unravelling Drug Pricing, today in Toronto.
There’s no getting around it: most new treatments and preventive measures are more expensive, said Mark Ferdinand, vice-president of policy research & analysis with Rx&D, speaking on the topic of pharmaceutical pricing. It costs between $500 million and $2 billion to develop a new drug, he explained, yet only three out of 10 marketed drugs recoup their research and development costs. And a mere 10% to 12% of new drugs in the pipeline actually make it to market.
This is the ongoing challenge of drug development: manufacturers need to cover their expenses and make a profit, but rising drug costs are a constant headache for plan sponsors.
So what’s a fair price for a new drug? It depends on your perspective. From a manufacturer’s viewpoint, key factors that influence pricing include development costs, authorization requirements, the drug’s advantages compared to other treatments and market size or market share.
When deciding whether or not to provide coverage for a new drug, plan sponsors should look not only at the cost but also at the drug’s effects on patient health and the prevalence of the disease it treats. “The big question is whether or not the associated clinical benefit with that new drug is worth the incremental cost,” Ferdinand added.
A system of care
With provincial drug reform initiatives in the headlines, some stakeholders are looking to governments to balance the competing priorities of drug manufacturers, plan sponsors and plan members. Pricing controls through policy changes can help control drug costs, but Ferdinand cautioned that such changes could also inhibit innovation and reduce access to drugs within the overall healthcare system.
The issue, as he sees it, is that policy changes don’t address the root problem: human behaviour. “The reality is, the health product itself is not going to cause the benefits we want. There’s something missing, and it’s called the system of care…the people who actually provide the care, make the choices; the people who care for themselves and take the drug appropriately. That’s the thing we don’t talk about.”
He added that while drug cost discussions often focus on the supply side (providers) of the equation, the demand side (end users) needs more attention. “Unless you deal with demand, you’re not going to affect costs over the long term—and, worse still, you’re never going to achieve sustainability.”