The Pharma Pricing Dilemma

How to Rebalance the Picture
There’s front page outrage in today’s The New York Times. The pharmaceutical industry is roasted again in “Drug Makers Raise Prices in Face of Health Care Reform.” How much of the criticism is deserved, and how much is a result of poor communications or inadequate reporting?

The article cited several studies that link big increases in drug costs to legislative efforts – like bumping up carpet prices just before the big sale, or the rush to raise interest rates and fees before credit card reforms become law. The most recent study was conducted for the AARP by Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota. It concluded that drug prices increased approximately nine percent in the face of an overall decline in the Consumer Price Index of 1.3 percent. He told the Times, “When we have major legislation anticipated, we see a run-up in price increases.”

Not so, said Merck spokesman Ron Rogers. “Price adjustments for our products have no connection to health care reform.” But Joseph Newhouse, a Harvard health economist, said he found a similar pattern of stiff increases after Congress added drug benefits to Medicare in 2006. He said, “They [the industry] try to maximize their profits.”

No kidding. Of course the industry, any industry, wants to maximize their profits. Indeed, there’s an obligation to employees and shareholders. The problem is one of perception. What is smart business that helps to guarantee the long term success of the enterprise, what is abuse or greed, and what is corporate desperation?

The other side of this story is not told particularly well, and it’s hard to determine if it’s the lack of space accorded the pharmaceutical industry by the Times, the lack of a compelling message by the industry or both. The article states that “Drug makers say they have valid business reasons for the price increases” but then fails to explore it further.

Ken Johnson, senior vice president of the Pharmaceutical Research and Manufacturers of America (PhRMA), does manage to get a shot in by criticizing the study methodology and its sponsor. “In AARP’s skewed view of the world, medicines are always looked at as a cost and never seen as a savings – even though medicines often reduce unnecessary hospitalization, help avoid costly medical procedures and increase productivity through better prevention and management of chronic diseases,” he said.

Yes, good points, but readers are still left with questions and concerns. And, what about the cost of failure – the part of the price increases that are necessitated by the sheer difficulty of bringing new, differentiated medicines to the market? The reality is that, without the ability to replace innovative products lost to generic competition, outsized price increases will continue to play an outsized role in pharmaceutical profitability.

So, what needs to be done in order to achieve some balance, some greater understanding of the complexities in healthcare costs?

Provide proof. The industry must deliver concise, compelling and understandable information. Any spokesperson should be able to recite at least three pieces of evidence to support their position. And, if you believe the methodology of the offending study is flawed, develop your own bullet proof information.

Utilize credible supporters. The extreme pricing contention was delivered by two academics, a consumer group and an industry analyst. The industry’s position was staked out by the pharmaceutical trade association. It’s clear where most readers will place their trust.

Strike the right tone. Lashing out may be tempting but it could have the effect of creating sympathy for your adversary. And, in this case, the object of PhRMA’s annoyance – the AARP – represents millions of the industry’s customers.

Think about the timing. It may be that, as Catherine Arnold of Credit Suisse said, “If you’re going to take price increases, here and now might be the place to do that, because the next year and the year after that might be tough.” But, if these price increases cancel out some of the savings promised by the industry during negotiations over health insurance reform, don’t be surprised if some legislators attempt to exact new concessions with renewed determination.
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Hide or Seek?

It’s Time for the Healthcare Industry to Find New Footing
There's plenty of blame to go around these days. We’ve all seen angry fingers pointed at the tobacco companies for pushing products they knew to be hazardous and additive. There were hearings before Congress, lawsuits and some new restrictions on marketing to teens.

HMOs came under fire for denying medical claims and access to potentially life-saving interventions. Lawsuits and some high-profile reversals in coverage decisions ensued.

Big oil and oil speculators had us over the figurative barrel when a gallon of gas went over $4.00 a gallon. With the collapsing economy, gasoline prices have fallen by more than 50 percent (though the price of oil has fallen by more than 70 percent).

The list continues with the biopharmaceutical industry. Despite cost assistance programs, there are still too many patients who choose between filling a prescription and buying other necessities. They may not have insurance or their co-pays for medications may be enough to tip a limited budget into the red. There has been some relief with the implementation of the Medicare drug benefit and more has just been promised by President Obama in his address to Congress.

Now, there’s another group to vilify – the financial industry. Predatory lenders, over-compensated CEOs and Ponzi-scheming money (mis)managers.

Though sometimes pushed from the front page by competing bad news from the banking and housing crisis, there are still plenty of stories out there that help fan the flames on healthcare. And they’re not just about cost and access: law suits and investigations on drug promotions, side effects, data disclosure and fraud help to keep the fury fresh. (We all know that a healthy fraction of the drug, device and diagnostic industries’ low reputation is self-inflicted, but that’s a whole other discussion.)

All of this has helped to divert some attention away from the issues and concerns of those healthcare sectors that are involved with discovery and innovation. Indeed, true healthcare reform – expanding access, and improving care and efficiency – will be difficult to achieve unless we enhance our ability to detect, treat, cure and prevent diseases.

So, what kind of visibility should the biopharmaceutical, device and diagnostic sectors be seeking right now, especially when the chairs are empty at HHS, FDA, NIH, CDC and CMS? One option is to do nothing and enjoy the relative calm (compared to what the financial sector is experiencing). To some, it’s schadenfreude – a nice change to see public anger and resentment trained somewhere else. Another option is to fill the void with new ideas, new approaches and reengage our publics.

For a snapshot of the current messages coming out of the key industry trade associations, I went to their web sites. The most prominent feature on PhRMA’s homepage highlights Meredith Baxter’s battle with breast cancer. Also, there are links for prescription assistance, healthcare reform and medicines in development. Likewise, the AdvaMed web site has a number of links to interesting content. However, neither have a clean, clear set of rallying points. BIO is a little closer to at least part of what I think we need. There’s a CNBC interview with association president James Greenwood from their CEO & Investor Conference. He makes a clear connection between healthcare and the economy – the need to “expand access to health care while expanding incentives to innovate.”

Like housing, banking and automobiles, biotech is in a crisis. Perhaps this is one of the messages that needs to be amplified and expanded to gain more relevancy with more audiences. The scary facts are that a quarter of biotech companies have six months or less of cash. Half have 12 months or less. The editorial in the February issue of Nature Biotechnology remarks that “many promising products now face financial oblivion.”

Yes, we need healthcare reform to expand access. Yet, without the underpinnings of new research, and new diagnostics and therapeutics, we will lose the capacity to consistently improve health. The transformation from trial-and-error approaches to DNA-guided medicine, ensuring that we get the right medicine in the right dose, will be pushed back by who knows how long. And, our economic competitiveness, our lead in innovation, will wane.

Certainly, the public doesn’t want to hear that healthcare, like the other sectors mentioned above, is looking for a bail-out. But some heads need to come together and think about new ways to build support for a remarkable but hobbled industry.

A Pioneer Passes

Martin Delaney, HIV/AIDS Activist, Taught Us Much About Communication and Finding Common Ground

Martin Delaney was the founder of Project Inform, the San Francisco-based organization dedicated to providing “information, inspiration and advocacy for people living with HIV/AIDS.” Marty threw himself into this public health crisis because he didn’t want to sit on the sidelines while his friends were dying. (He was not HIV-positive; it was liver cancer that killed him at age 63.) His organization and others, like ACT UP and GMHC, changed the way we viewed HIV/AIDS and much more.

We met not too long after Project Inform was founded. I was in the Public Policy and Communications department at Hoffmann-La Roche and he was on the other side of the table. With anti-retroviral drugs in the pipeline, seeing the emerging influence of AIDS activist groups (and the break-ins and boycotts affecting Burroughs Wellcome, manufacturer of Retrovir®/AZT), and imagining the potential benefits of hearing the patients’ point of view, I pressed for engagement. I remember quoting Lincoln to my management: “As our case is new, so we must think anew, and act anew.”

There was no playbook. Pharmaceutical companies didn’t interact with consumers. The Company would inform the “learned intermediary” – the physician – and he or she would communicate with the patient. Marty helped to bury that dogma and enhanced the dialogue between all of the key stakeholders. The industry and the FDA grappled for years over ways to expedite the review and approval of drugs for serious or life-threatening diseases. Marty helped to change policy, and many thousands of patients were able to gain early access and benefit from new therapies. Information about new treatments, managing side effects, insurance coverage and the availability of clinical trials was largely uncoordinated. Marty helped to launch a well-regarded newsletter, town hall-style meetings, and an AIDS treatment hotline.

Interacting with Marty helped me to learn a key lesson: the importance of finding common ground. The world was changing. The normal course of business – the normal course of life – was disrupted. We, the industry, and the patient community approached our goals from different directions using different strategies and tactics but much of what we all sought was the same. Our constituency was their constituency and everyone wanted new medications on the market as soon as possible. The two “sides" worked jointly to expand drug access, enroll patients into clinical trials, renew R&D tax credits, and reauthorize the Orphan Drug Act.

It wasn’t always pretty. There were bumps in the road but at least we were on the road together, held there by mutual interest and mutual respect.

His lessons went beyond the HIV/AIDS community. I remember attending a meeting at PhRMA (then known as PMA) headquarters in Washington, DC. Expecting to see representatives from the AIDS advocacy organizations, the room included members of some just formed cancer patient groups. They were brought along to learn the ways of the pioneering AIDS organizations. It was brilliant.

Marty was dogged, built and expanded relationships, leveraged his network and communicated in new ways with a firm but calm approach. His contributions were many and should be remembered.