Year of Living Competitively – What to Expect with Drug Prices

June 1, 2017 Michael J. Alkire

In the year of population health, pharmaceuticals have a huge role to play – they can prevent and cure disease, improve or maintain health and avoid exacerbations of existing conditions. But pharma’s rewards are only reaped if the products are priced competitively.

We’ve all heard about Turing and Valeant, which came under fire last year for astronomical price increases, virtually overnight. Although these may be the most visible cases, they aren’t isolated incidents. In 2016, the top 10 Medicare Part D prescription drug plans increased their premiums by an average of 8 percent, with five plans raising premiums by double digits (the highest rate of increase in the program’s history) all because of increased drug costs. In fact, 98 percent of our health system CEOs say drug costs are a major challenge for their systems.

In almost every instance we’ve seen, these irrational price abuses are a direct outgrowth of unhealthy, anti-competitive market dysfunctions. These dysfunctions range from sole source drugs that allow for monopolistic pricing power, to small markets that don’t provide enough competitive leverage, and closed distribution channels that prevent potential new competitors from accessing the drug for necessary generic studies.

We don’t think Republicans will look to price controls to fix the problem, and frankly, we don’t think price controls would work. Instead, we think they’ll work to close the loopholes that are preventing natural competitive forces that drive down prices.

There’s strong bipartisan support for legislation requiring the FDA to fast track approvals of new generics if there are two or less manufacturers in the market. And, we need to do much more to increase the availability of biosimilars. Biosimilars are essentially the generic version of corresponding biologics – very high cost and complex drugs.

The FDA has been slow to approve new drugs. Really slow. According to a recent report, most competitors wait 3.5 years before they can enter the market and compete with an incumbent. To correct the issue, we need legislation that would give the FDA authority to push approvals to the front of the queue when it’s clear that the drug in question would fix a market that has too few players.

Other solutions include prohibition of ‘pay-for-delay’ deals, clarifying that orphan drug status only applies to the original inventor of the drug, and the easing of closed distribution regulations so generic competitors have more opportunity to test therapeutic equivalents and get to the market faster.

We urgently need policy change to close these loopholes and get competitive entrants into the market as fast as possible. Because competition works. And it works a lot better than price controls.

We know this from our own experience. Leaning on our collective group purchasing power to foster healthier competition, putting manufacturers through a head-to-head bidding process to exact price concessions… brings results.

Price increases in our drug portfolio have held constant at just 4.5% a year, well below the drug price inflation rate of 17% over the same time period. And we aren’t just negotiating better deals. We’re also working to maintain supply levels among all the manufacturers we partner with.

With the rise of precision medicine, we expect to see more high-priced drugs entering the market. So, just hoping for the best isn’t an option. We need to act on this now more than ever.

Download our eBook for more on the state of rising drug costs and read our policy recommendations for Congress and the administration.

Author information

Michael J. Alkire

Michael J. Alkire

Chief operating officer at Premier, Inc.

I’m a healthcare executive from Ohio who helps healthcare organizations provide higher quality care at a better cost. When I’m not working you’ll find me spending time with my family, likely at one of my children’s sporting events.


The post Year of Living Competitively – What to Expect with Drug Prices appeared first on Action For Better Healthcare.

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