As complaints grow about exorbitant drug prices, pharmaceutical companies are coming under pressure to disclose the development costs and profits of those medicines and the rationale for charging what they do.
Pharmaceutical cost transparency bills have been introduced in at least six state legislatures in the last year, aiming to make drug companies justify their prices, which are often attributed to high research and development costs.
“If a prescription drug demands an outrageous price tag, the public, insurers and federal, state and local governments should have access to the information that supposedly justifies the cost,” says the preamble of a bill introduced in the New York Senate in May.
In an article published Thursday, more than 100 prominent oncologists called for support of a grass-roots movement to stem the rapid increases of prices of cancer drugs, including letting Medicare negotiate prices with pharmaceutical companies and letting patients import less expensive medicines from Canada.
“There is no relief in sight because drug companies keep challenging the market with even higher prices,” the doctors wrote in the journal Mayo Clinic Proceedings. “This raises the question of whether current pricing of cancer drugs is based on reasonable expectation of return on investment or whether it is based on what prices the market can bear.”
Pressure is mounting from elsewhere as well. The top Republican and Democrat on the Senate Finance Committee last year demanded detailed cost data from Gilead Sciences, whose hepatitis C drugs, which cost $1,000 a pill or more, have strained the budgets of state and federal health programs. The UAW Retiree Medical Benefits Trust tried to make Gilead, Vertex Pharmaceuticals, Celgene and other companies report to their shareholders more about how they set prices and the risks to their businesses from resistance to high drug prices.
Even former president Bill Clinton, in a speech to pharmaceutical executives in Philadelphia last month, said it would be in the industry’s best interest to say more about its costs and pricing.
“Explain, explain, explain and disclose, disclose, disclose,” Clinton said, according to The Philadelphia Inquirer. “Don’t expect everybody to love you, but at least they will hear your side of the story.”
The pharmaceutical industry counters that its medicines provide great value to patients and the health care system and that high prices are needed to finance future research and development.
“Too often the focus has been solely on the price of a medicine and largely ignored the value these medicines are providing,” Robert Zirkelbach, a spokesman for the Pharmaceutical Research and Manufacturers of America told The Wall Street Journal. “We’ve made tremendous strides in the fight against cancer — death rates are down, survival rates are up and quality of life continues to improve.”
The pharmaceutical industry has already seen the veil lifted on various practices. Drug companies now have to report the payments, including meals and entertainment, that they make to doctors for research, consulting and promotional speeches. The companies have also had to disclose more results of their clinical trials and in some cases have started to provide raw data to outsiders.
It is unclear whether cost and pricing will become the next such area. The state bills, which are supported by some health insurers and consumer groups, have not progressed. The two U.S. senators, Republican Charles Grassley of Iowa and Democrat Ron Wyden of Oregon, have not reported the results of their inquiry. And shareholders of Gilead, Vertex and Celgene voted down the resolutions proposed by the UAW trust, though the trust says it reached settlements with Eli Lilly and with two other drug companies it would not identify.
The pharmaceutical and biotechnology industry trade groups say the transparency bills would be costly to comply with and would provide misleading information.
Even some people concerned about drug prices say that the cost to develop a particular drug has little to do with that drug’s price and that knowing such information will not keep prices down.
“The past R&D cost is really kind of a red herring,” said Len Nichols, a health care economist at George Mason University, referring to research and development. “The current revenue doesn’t pay for past R&D. It pays for current R&D.”
Prices for cancer drugs, some of which extend lives by only a couple of months, routinely exceed $100,000 a year, and some new ones exceed $150,000. And it is not unusual for the list prices of existing drugs to rise 10 percent or more year after year, far beyond the rate of inflation.
Cost transparency bills have also been introduced in California, Massachusetts, North Carolina, Oregon and Pennsylvania.
Three of the bills require disclosures for drugs costing $10,000 or more a year. The others have different criteria. Besides development costs, some of the bills would require disclosure of the costs of manufacturing, marketing and advertising. At least some of the bills also ask for a history of price increases, the profit attributable to the drug and how much a company spends in providing financial assistance to patients using the drug.
Two of the bills would allow the states to act on the information, not just require disclosure. Pennsylvania’s bill would allow insurers to refuse to pay for a drug if the manufacturer did not file the required report. In Massachusetts, a state commission would be able to set a maximum price for a drug if it determined that the price set by the manufacturer was significantly high compared with the benefits, costs or prices in other countries.
Most of the bills have not been acted upon, though hearings were held in California and Oregon.