Prescription Drug Sticker Shock Has Washington State Looking For Relief

Feb 26, 2016

The state of Washington spends about $1 billion per year on prescription drugs -- that’s state and federal funds. And the cost has been going up. Now some state lawmakers are wondering if there’s a way to drive a better bargain. Or at least shed some new light on how drugs are priced.

If there’s a villain in the world of prescription drug pricing its Martin Shkreli. As CEO of a drug company, he hiked the price of a drug used by pregnant women and HIV patients 5,000 percent.

Rep. Elijah Cummings of Maryland took the opportunity to give Shkreli a stern lecture at a House Oversight Committee hearing earlier this month.

“The way I see it you can go down in history as the poster boy for greedy drug company executives or you can change the system. Yeah, you,” Cummings said.

Shkreli smirked, but said nothing. Afterwards, he tweeted, “Hard to accept that these imbeciles represent the people in our government.”

Explaining drug prices

A recent legislative hearing in Olympia on prescription drug pricing was less dramatic. Democratic state Senator Kevin Ranker made the case for requiring drug companies to explain their pricing in annual reports to the state. He said it was about transparency.

But the pharmaceutical industry weighed in against the idea.

“The question is, the requirements that they’re calling for, how will that ultimately help patients, how is that going to help patients afford their medicine? Is it because they’re going to take this information and apply a price control?” Priscilla VanderVeer, deputy vice president of communications for the trade group Phrma said.

It takes a complex flowchart to even begin to explain how prescription drug pricing works. It’s a world of negotiated prices and back end rebates. Standing between the patient and the manufacturer are a multitude of players. Depending on who the purchaser is, the cost for the same drug can vary wildly. And drugs are getting more expensive.

To help explain some of why this is we turned to two people on the front lines of prescription drug purchasing: Donna Sullivan, chief pharmacy officer for the Washington Health Care Authority, and Dan Lessler, chief medical officer at the Washington state Health Care Authority.

‘The generic cliff’

Sullivan and Lessler said to understand what’s happening with drug prices you need to understand this moment in history. Basically the way they see one drug era is over.

“They’ve called it the ‘generic cliff,’”Sullivan said. “We’ve gone over the generic cliff and that era is gone.”

In other words, Sullivan said there just aren’t that many new cheaper generic drugs coming on the market. At the same time, Lessler said the era of specialty drugs is taking off.

“I think for the first time we’re seeing very expensive, very effective medications that are directed toward a very large population,” Lessler said.

These are drugs that treat common conditions like diabetes and high cholesterol. They can cost $15,000 per year.

VanderVeer acknowledged drug prices did spike in 2014, but she doesn’t accept the idea of a generic cliff. In fact she said another round of generics will hit the market in the coming years creating another sort of cliff.

“You know what we call a ‘patent cliff’ where a number of drugs go off patent and become generics,” VanderVeer explained.

In addition, she said cheaper alternatives to specialty drugs known as biosimilars should start to become available.

The present and future of drug pricing

For all the complexity of prescription drug pricing, there are some basic rules of the road—mostly set by federal law. Veterans Affairs gets the best price. Medicaid is next best. Everyone else, negotiates their own price.

Here’s how that plays out in real life: Consider the diabetes drug Lantus. The VA price is $100. The Medicaid price after an additional rebate is $175. But the state of Washington pays nearly $250 after rebate for that same drug for state employees.

Democratic state Senator Reuven Carlyle finds that outrageous.

“The fact that taxpayers are getting a really great wholesale deal for a drug in one account, but getting taken to the cleaners for that same drug in another account is ridiculous.”

This year, Carlyle introduced legislation to require state agencies to seek drug prices as low as or less than the VA price. His idea didn’t advance. Nor did the drug company reporting requirement proposal.

If there’s one thing both sides seem to agree on it’s that in the future pharmaceutical pricing might look very different: instead of getting paid for every pill dispensed, drug companies may get paid based on the how well that pill works to make a patient healthy.