Pharmaceu+cals""

Compara+ve"Eec+veness"Research"
Week"14"
April"15,"2015"

1"

Agenda"
Prescrip+on"drug"expenditure""
Drug"development"process"
Brand"vs."Generic"
DirectGtoGconsumer"adver+sing"
CER"approach"

2"

1"

Prescrip+on"drugs"account"for"11%"of"
health"care"spending"($250"billion)"
Types"of"Expenditures,"2013"
Percent'Spending'
4%"

Hospital"care"

11%"

Physician"&"clinical"services"

6%"

38%"

3%"

Dental"&"other"professional"services"
Other"services"

6%"

Home"health"care"
Nursing"care"

8%"

Prescrip+on"drugs"

24%"

Durable"medical"&"other"products"
3"

4"

2"

Prescrip+on"Drug"Expenditure"
One"of"fastest"growing"component"un+l"early"2000s"
Spending"in"the"U.S."for"prescrip+on"drugs"was"$271"billion"
in"2013,"nearly"7"+mes"the"$40.3"billion"spent"in"1990."

From"1999"to"2009,"the"number"of"prescrip+ons"
increased"39%"(from"2.8"billion"to"3.9"billion)."
Started"decelera+ng"around"2007GG"
"Increase"in"the"generic"dispensing"(~60%"of"all"Rx)"
Slower"growth"in"prescrip+on"drug"prices"
Growing"consumer"safety"concerns"about"certain"drugs"
5"

Total"Prescrip+ons"Dispensed"&"
Prescrip+ons"per"Capita"

6"

3"

Outpa+ent"Prescrip+on"Drugs"
2004'data'

<65'years'old'

65'&'older'

Average"#"of"Rx"
lled"

10.1"

23.5"

Average"cost"
per"year"

$485"

$1,102"

Average"OOP"
cost"

$199"

$623"

7"

Average"#"of"Unique"Prescrip+ons"
8"
6.3"

6"

6.7"

6.3"

4.7"

4"
2"
0"

2.9"
2.2"

2.2"

<5"

5GG17"

18G44" 45G64" 65G74" 75G84"

Age"group"

85+"
8"

4"

Reasons"for"the"increase"in"
pharmaceu+cal"expenditures"
Increase"u+liza+on"of"drugs"
Increase"in"number"of"elderly"
Increase"insurance"coverage"
The"Medicare"Moderniza+on"ActMedicare"Part"D"
It"reduced"elderlys"OOP"cost"for"prescrip+on"drugs"
and"es+mated"to"have"increased"prescrip+on"drug"
use"by"13%"
Private"insurance"coverage"for"prescrip+on"drugs"

Innova+ve"drugs"
9"

Share"of"Prescrip+on"Drug"Spending,"
by"Source"of"Funds"

10"

5"

Innova+ve"Drugs"
Contributed"to"rise"in"cost,"but"also"now"can"treat"
illnesses"that"were"untreatable"and"have"subs+tuted"
for"more"costly,"invasive"medical"treatments"
Many"new"lifestyle"drugs"to"improve"quality"of"life"
(Clari+n,"Viagra,"Prilosec)"
Enbrel,"to"treat"rheumatoid"arthri+s"can"cost"$1,600"a"
month"
Prospect"of"beker"health"and"higher"quality"of"life"
11"

Pfizer, cholesterol
reducer, $7.2 billion
annual sales

Bristol-Myers Squibb,
treat advanced
melanoma (type of
skin cancer), but not
curative, $360 million
annual sales, $10,000
per month

Bristol-Myers Squibb/
Sanofi, treat heart
disease, $6.1 billion
annual sales
12

6"

New"technology"can"result"in"higher"or"
lower"health"care"costs"
Cost"increasing"
Cancer"drugs,"such"as"biologics"
BristolGMyers"Squibb s"Yervoy"
Approved"by"FDA"in"2011"
Increases"life"expectancy"of"pa+ents"with"advanced"melanoma"for"several"
months,"but"does"not"provide"a"cure"
Es+mated"cost"of"$10,000"per"month"

Cost"decreasing"
Vaccines"

Many"technologies"have"both"costGdecreasing"and"costG
increasing"components"
Improved"anesthesia"is"less"harmful"to"the"pa+ent"
Decreased"postGopera+ve"inpa+ent"days"(cost"decreasing)"
Increased"number"of"pa+ents"eligible"for"surgery"(cost"increasing)"
Butler"CA,"Yang"A,"Chiou"C,"et"al."Ini$a$ng'Coverage:'A'Seamless'Approach'To'Biopharmaceu$cals."New"York:"Barclays"Capital,"2011"
(December"8).'

13

New"medical"technology"contributed"between"27%"and"48%"
of"healthcare"expenditure"increases"from"1960G2007"
Rela+ve"contribu+ons"to"healthcare"expenditure"increases,"1960G2007"
100%
90%
80%

Medical price inflation

70%

Demographics

60%

Insurance coverage

50%

Income

40%

Technology

30%
20%
10%
0%
Technology
Estimate
(low)

Technology
Estimate
(high)

Source: Smith, Newhouse, & Freeland, 2009 Health Affairs

14

7"

Contribu+on"of"new"drugs"to"increase"
in"drug"expenditure"
%"contribu+on"of"changes"in"price"and"u+liza+on"to"
1993G1998"increase"in"prescrip+on"drug"spending"

15"

Medical"research"seems"to"be"a"worthwhile"
investment""the"U.S."may"even"invest"too"likle"
Between"1970G1998,"improvements"in"life"expectancy"
added"$2.6"trillion"per"year"to"na+onal"wealth""
Medical"research"is"key"contributor"to"increased"life"
expectancy:"for"example,"progress"against"heart"disease"
contributed"an"es+mated"$1.1"trillion"of"the"$2.6"trillion"
annual"gain"

U.S."may"invest"too"likle"in"medical"research"
Medical"advances"producing"10"percent"reduc+ons"in"
mortality"from"cancer"and"heart"disease"alone"would"be"
worth"$10"trillion"

U.S."invests"more"($36"billion"in"1998)"than"European"
Union"countries"($3.7"billion"in"2000),"even"though"laker"is"
25%"more"populous"
16

8"

The"Pharmaceu+cal"Industry"
2"types"of"drug"manufacturers"
Those"that"engage"in"research"and"
development"and"market"brand"name"drugs"
Generic"manufacturers"
Fairly"compe++ve"industry""
Top"4"rms"have"about"28%"market"share""
Top"10"rms"in"2007"had"a"combined"market"
share"of"55%"and"accounted"for"$157"billion"in"
U.S."sales"
17"

Top"10"Pharmaceu+cal"Corpora+ons"
by"U.S."Sales,"2007"

18"

9"

Market"Power"and"Mergers"
The"industry"has"been"characterized"by"
horizontal'mergers"
Drug"companies"merging"with"other"drug"
companies"
ver+cal"mergersG"rms"diversify"into"another"
product"line"(e.g."drug"companies"merging"with"
When companies get larger, cost of production goes down
chemical"suppliers)"
By"becoming"larger,"economies"of"scale"will"
increase"eciency"and"decrease"costs"
19"

20"

10"

Major"Legisla+ons"
Pure'Food'and'Drug'Act'(1906)'
Forbade"sale"of"unsafe"pharmaceu+cals"
Federal'Food'Drug,'and'CosmeDc'Act'(1938)'
Replaced"Pure"Food"and"Drug"Act,"gave"Food"and"Drug"
Administra+on"(FDA)"authority"to"oversee"safety"of"
food,"drugs,"and"cosme+cs"
Kefauver'Harris'Amendment'(1962)'
Amendment"to"Federal"Food,"Drug,"and"Cosme+c"Act"to"
ensure"ecacy"of"drugs"and"require"full"disclosure"of"
side"eects"
21"

Major"Legisla+ons"(2)"
HatchLWaxman'Act'(1984)'
Grants"FDA"approval"to"generic"compe+tors"upon"
proof"of"bioequivalence"rather"than"upon"proof"of"
safety"and"ecacy"(allows"generics"to"bypass"
costly"and"+meGconsuming"clinical"trials)"
To"appease"major"drug"companies,"extended"
patent"life"of"branded"drugs"by"2.8"years"on"
average""

22"

11"

How"does"a"drug"become"a"drug?"

FDA"drug"approval"process"can"take"more"than"a"decade"and"
averages"$868"million,"but"can"reach"$2"billion""
23"

How"does"a"generic"drug"become"a"
drug?""
Because"of"HatchGWaxman."
"
"
it"need"only"prove"that"it"is"bioequivalent."
"(no"signicant"dierence"in"amount"of"ac+ve"
ingredient"that"reaches"site"of"drug"ac+on)"

24"

12"

Patents"and"Generics"
Once"FDA"approved,"company"has"exclusive"
rights"to"sell"the"drug"for"up"to"20"years,"most"
last"12"to"15"years"
"
Because"likle"if"any"compe++on,"prices"are"high"
and"the"companies"argue"that"it"helps"to"oset"
the"R"and"D"costs"
"
"

Are"generics"the"same?"
Physicians"have"to"make"the"case"that"a"
pa+ent"needs"a"brand"name"
Side"eects"
Or"specic"clinical"need"that"cant"be"met"with"a"
generic"

Study"showed"that"just"913"physicians"cost"
taxpayer"(via"Medicare)"an"extra"$300"million"
in"2011"alone"by"choosing"nameGbrand"drugs"
Wrote"5,000"prescrip+ons"

13"

Half"of"the"top"10"prescrip+on"drugs"in"2010"went"o"
patent"in"2011"or"2012"
NearTerm
Patent
Expirations
2011
2012

2012
2012
2012

Source: Saftlas H. Industry Surveys - Healthcare: Pharmaceuticals.

New York: Standard & Poor s, 2011 (December 1).

27

Comparing"brandGname"drug"cost"per"month"
with"generic"subs+tute"cost"per"month"
"
Diabetes,"Glucotrol"10mg"tablet"$42"$84""""Glipizide"10mg"tablet"$4$8"
Heart"failure,"Coreg"12.5mg"$166""""""""""""""""""""Carvedilol"12.5mg"$44"
High"cholesterol,"Zocor"20mg"$175"""""""""""""""""Simvasta+n"20mg"$70"
Migrain,e"Imitrex"25mg"tablet"$78""""""""""""""""""Sumatriptan"25mg"tablet"$48"

"

Source:"Consumers"Union,"2011"

28"

14"

Research"and"Development"
Expensive"and"+meGconsuming""
$800"MillionG$1.7"Billion"spent"on"R"and"D"
Only"1"in"every"5,000"to"10,000"compounds"screened"
eventually"becomes"an"approved"drug""
For"the"top"ten"companies,"R"and"D"accounted"for"11"percent"
of"sales"in"1990,"rising"to"14"percent"in"2000.""

29"

Research"and"Development:"Innova+on"
or"Marke+ng?"
"ReGengineering"or"Drug"Delivery"Products""
Of"the"78"drugs"approved"by"the"FDA"in"2002,"only"seventeen"
contained"new"ac+ve"ingredients,"and"only"seven"of"these"were"
classied"by"the"FDA"as"improvements"over"older"drugs."
The"other"seventyGone"drugs"approved"
were"varia+ons"of"old"drugs"or"deemed"no"
beker"than"drugs"already"on"the"market.""
Example:"New"drug"delivery"design,"
Melthylphenidate"HCL"(Concerta)"
ADHD"prescrip+on"with"extended"+me"
release"caplets.""

15"

Pricing"Innova+ve"Drugs"
Drugs"price"markup"is"determined"by"the"
purchasers"price"elas+city"of"demand"
A"new"prescrip+on"drug"is"priced"many"
+mes"higher"than"its"actual"cost"of"
produc+on"
Innova+ve"drugs"are"priced"based"on"their"
therapeu+c"value"and"the"availability"of"
good"subs+tutes"
High"price"markup"if"lack"close"subs+tute"
31"

Price"Discrimina+on"
The"drug"manufacturers"sells"the"same"
prescrip+on"drug"to"dierent"purchasers"at"
dierent"prices.""
HMOs"pay"less"than"independent"retail"
pharmacies."
Pa+ents"without"drug"coverage"pay"more"at"
retail"pharmacy"than"those"who"are"part"of"
managed"care."
"
32"

16"

Prescrip+on"Sales"by"Outlet,"U.S."Market"

33"

U.S."pays"among"the"highest"prices"for"
prescrip+on"drugs""
120"

Prices'for'Prilosec'in'$'

100"
80"
60"
40"
20"
0"
U.S."

Canada"

France"

Germany"

Italy"

Mexico"

U.K"
34"

17"

Demand"side""
Physicians"serve"as"
pa+ents"agent"
Lack"of"perfect"
informa+on"lead"to"
marke+ng"
Physicians"are"unaected"
by"cost"of"the"drug"they"
prescribe"
Pa+ents"with"prescrip+on"
drug"coverage"are"also"
not"price"sensi+ve""
35"

Pharmacy"Benet"Managers"(PBMs)"
PBMs"are"organiza+ons"that"contract"with"
health"insurers"(or"employers,"in"the"case"of"
selfGinsured"companies)"to"manage"
prescrip+on"drug"claims."
They"manage"the"cost"of"prescrip+on"drugs"by"
nego+a+ng"discounts"and"rebates"with"drug"
manufacturers"and"by"establishing"drug"
formularies."
36"

18"

Drug"Formularies"
A"drug"formulary"is"a"list"of"drugs"that"is"covered"by"the"insurer"
(or"more"specically,"the"PBM).""
A"Dered'formulary"charges"higher"outGofGpocket"payments"for"
more"expensive"drugs."For"example,"a"typical"+ered"formulary"
has"four"+ers:"
Tier"one:"generics"(lowest"copay)"
Tier"two:"branded"drugs"for"which"the"PBM"has"been"able"to"nego+ate"
a"discount"
Tier"three:"branded"drugs"for"which"the"PBM"has"not"been"able"to"
nego+ate"a"discount"
Tier"four:"specialty"drugs"and"biologics"administered"in"physician's"
oce"(highest"copay)"
37"

DirectGtoGConsumer"Adver+sing"
The"informa+on"provided"in"ads"is"typically"quite"
oversimplied"and"vague."
They"work"really"well:"name"recogni+on."
DTC"adver+sing"may"increase"u+liza+on"of"drugs"by"
promp+ng"some"consumers"to"request"the"adver+sed"
drugs"from"their"physicians."
Contribute"to"overall"increase"in"spending."

38"

19"

39"

Source:"Donohue"et"al."NEJM"2007;"357;7"

40"

20"

Top'20'
PharmaceuDcal'
Products'in'
Terms'of'
Spending'on'
DTC'AdverDsing'
in'2005'

Source:"Donohue"et"al."NEJM"2007;"357;7"

41"

COMPARATIVE'EFFECTIVENESS'
RESEARCH'

21"

Comparative Effectiveness
Research (CER) "
CER"is"the"comparison"of"two"or"more"health"
care"interven+ons"in"which"technologies,"
products,"or"procedures"are"evaluated"against"
each"other"and"against"conven+onal"
standards"of"care"
CER"may"be"used"to"generate"guidelines"for"
care"and"reimbursement"that"are"binding"on"
the"many"players"within"the"health"system"

Ins+tute"of"Medicine"deni+on"
The"genera+on"and"synthesis"of"evidence"that"
[directly]"compares"the"benets"and"harms"of"
alterna+ve"methods"to"prevent,"diagnose,"
treat,"and"monitor"a"clinical"condi+on"or"to"
improve"the"delivery"of"care."
The"purpose:"to"assist"consumers,"clinicians,"
purchasers,"and"policy"makers"to"make"
informed'decisions'that"will"improve"health"
care"at"both"the"individual"and"popula+on"
levels.""

22"

Learning"the"keyGwords"

CER"Approach"
Compares"value"of"one"drug"with"one"or"more"
other"drugs,"rather"than"just"comparing"it"to"a"
placebo"
Drug"A"vs."placebo,"sta+s+cal"dierence"
CER:"Drug"A"vs"B"vs"C"

23"

Impact"of"CER"Decisions"
CER"may"restrict:"
The"introduc+on"and"dissemina+on"of"a"new"technology,"if"
it"is"more"expensive"and"less"benecial"than"exis+ng"
treatments"
Choices"of"treatment"and"procedures"to"those"whose"
benets"jus+fy"their"costs"
Sites"of"care"(e.g.,"to"ter+ary"centers"that"can"deploy"them"
eec+vely)"
Choices"of"provider"(e.g.,"to"those"with"special"training"and"
experience"in"using"a"par+cular"treatment)"

Benets"of"Compara+ve"Eec+veness"Systems"
Quality"improvement:"For"example,"surgery"to"
reduce"lung"capacity"is"more"eec+ve"than"
drug"treatment"for"pa+ents"with"certain"types"
of"emphysema,"but"not"others"
Cost"savings:"without"compromising"pa+ent"
outcomes,"or"denying"pa+ents"the"care"most"
likely"to"be"eec+ve"for"them""

24"

CostGeec+veness"
"

Quality"Adjusted"Life"Years"(QALYs)"
A"drug"may"keep"someone"alive"but"does"it"
extend"quality"life"(years"of"produc+ve"or"quality"
of"life)"
At"what"cost?""
Cost"U+lity"Analysis:"ra+o"between"the"cost"of"an"
interven+on"and"the"benet"it"produces"in"terms"of"#"
of"years"lived"in"full"health"
How"much"does"it"cost"to"extend"the"quality"of"life"by"
1"or"more"years?""
$/QUALY"

25"

Whats"consider"costGeec+ve?"
According"to"WHO,"an"interven+on"is"
considered"costGeec+veness"if"the"
incremental"costGeec+veness"ra+o"(ICER)"is"
GDP"per"capita"for"each"QALY"gained"
For"U.S."it"would"be"about"$50,000/QALY"or"lower"

Usually"considered"costGeec+ve"when"ICER"is"
1G3"+mes"GDP/QALY"

Incremental"
costG
eec+veness"of"
CT"screening"
compared"to"no"
screening"

26"

Current"Issues"
CER"vs"Personalized"medicine"
Could"lead"to"the"exclusive"use"of"drugs"or"
procedures"that"are"more"cost"eec+ve"
Diminishes"innova+on"
PPACA""cannot"be"used"for"se~ng"benet"
levels"or"what"would"be"covered""

CER"and"the"PPACA"
Developed"the"PCORI"(Pa+ent"Centered"
Outcomes"Research"Ins+tute)"
"
Can"not"use"informa+on"about"costs"(cost"
eec+veness)""(QALY)"to"set"premiums""

27"

InGclass"discussion"
"Angell,"M."(2000)"Editorial."The"pharmaceu+cal"industryGTo"
whom"is"it"accountable?"
Read"the"paper"and"discuss"the"following"ques+ons."
""
Considering"that"this"editorial"was"wriken"15"years"ago,"
do"you"think"many"of"the"issues"related"to"the"
pharmaceu+cal"industry"(such"as"cost"of"drugs,"research"
and"development,"prots)"are"dierent"today?"""
Have"we"seen"any"changes"on"the"items"that"the"author"
suggests"at"the"end"of"the"editorial?""

InGclass"debate"
DirectGtoGconsumer"(DTC)"adver+sing"is"legal"in"the"
U.S."and"only"one"other"country"(New"Zealand)."""
We"will"divide"the"class"into"two"sides"in"order"to"
debate"the"topic."Feel"free"to"use"outside"resources/
websites"to"prepare"your"argument."
Each"group"will"develop'a'set'of'5"arguments"
defending"their"stance."Aer"developing"your"ideas"
(take"about"20"minutes),"please'elect'2"
representaDves"to"par+cipate"in"the"class"debate.""

28"