'That model is not sustainable': Pharma giants AstraZeneca and Merck are sounding the alarm on the middlemen who stand between drug makers and patients
- Drug pricing remains an issue facing the healthcare industry, though little has been done to curb it.
- Pharma executives, including AstraZeneca US president Ruud Dobber and Merck CEO Kenneth Frazier are starting to get fed up, particularly with the role so-called middlemen play.
- For now, it's unclear where the rebates pharmaceutical companies pay out end up. "That model is not sustainable," Dobber said.
Rising drug prices have been at the center of American conversation for the past three years.
But amid all the finger-pointing, presidential call-outs on Twitter, and pledges to keep drug prices at bay, not much progress has been made to dissuade future price hikes or get prices in check for Americans.
Something still has to give, according to pharmaceutical executives who have a hand in the pricing discussion.
Ruud Dobber, US president of AstraZeneca, who oversees the pharma giant's US business in lung, heart and kidney-related conditions, told Business Insider that price increases have to be within a range that makes him feel comfortable.
"If I don't feel comfortable, that is simply not good," Dobber said. "I think it's reasonable to increase a little bit your price because you have something unique. We've only one objective, that we're making our drugs affordable for patients. If the drug is not affordable, the patients cannot benefit, and we will not be making profit. It's as simple as this."
AstraZeneca joined in with other pharmaceutical companies like Pfizer and Merck in freezing price increases for the remainder of 2018.
Dobber pointed to other members of the pharmaceutical industry - so-called middlemen - and the rebates that get passed around as an unsustainable aspect of the market. Pharmacy benefit managers negotiate these rebates as a way to negotiate a lower price off the list price drugmakers ultimately set. Drugmakers provide more than $100 billion a year in rebates and discounts, which are a big business for companies like Express Scripts, CVS Caremark and UnitedHealth Group's OptumRx.
"As a company, we are very clear that we would like to get rid of rebates and would like to move to what is called competition on the base of a net price," Dobber said. PBMs, for their part, argue that pharmaceutical companies set their own list prices, putting them in control of rising drug prices.
Merck CEO Ken Frazier in October had a similar perspective on the amount of money that goes to the middlemen in the pharmaceutical industry. The way he sees it, Merck publishes the list prices the company sets for a particular drug.
But after that's set, there are often discounts the drugmaker pays out to middlemen, which may or may not make their way to patients. Those discounts vary and are kept secret. And if you have a high deductible plan, you might still be on the hook for paying the full list price.
"I don't understand why we live in a world where 50% of the value goes to the supply chain," Frazier said.
Frazier said he expects to see disintermediation - or reducing the number of companies between a product and a consumer - start to happen in the pharmaceutical industry, in the way it's happened with cable. Before Disney owned its own media networks, it had to pay to get its content in front of viewers. Now, it owns media networks like ABC and ESPN, which it can use to show its content, making it one less step to get to viewers.
The same could happen in the pharmaceutical industry. Already, mergers are taking place that combine insurers with pharmacy benefit managers, the middlemen responsible for negotiating discounts to the list price of medications on behalf of health plans and insurers. And the Trump administration has been putting pressure on the PBMs and the rebates they receive from drugmakers. Whether those changes lead to less drug pricing pressure remains to be seen.
Dobber had a similar perspective on the amount of money getting redirected in the system.
"At the end of the day, it's a bit of black hole and you don't know where the money is ending up," Dobber said. "I think that model needs to change. I completely agree with Frazier that that model is not sustainable."
Over the next few years, Dobber said he anticipates a number of experiments playing out - including from players outside the healthcare industry like Amazon as well as mergers between healthcare giants like CVS Health and Aetna - that could have a big impact on the industry.
"The US system deserves a bit of a shakeup of the health system. It's too complex, it's too fragmented, it's too expensive."
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