Is Drug Pricing Open And Honest?

by Matt Eyles

July 25, 2017

When it comes to drug prices, we keep hearing the same refrain from the pharmaceutical industry. Drugmakers have long argued they set prices to recoup their research and development costs and to invest in new therapies. Everyone wants new and innovative treatments to be developed that address important medical needs. But, should society take drugmakers at their word and assume that five- and six-figure launch prices for drugs are automatically reasonable and appropriate?

Currently, pharmaceutical pricing is the proverbial “black box” — and not to be confused with the type of black box that FDA puts on certain prescription drug labels in order to call attention to serious or life-threatening risks (though excessive drug prices may have a similar effect). Drugmakers do not have to disclose how they set prices for their medications, leaving policymakers and the public in the dark when it comes to the prices being charged. This makes transparency an important first step to understanding the true value of high-priced medications.

What would increased transparency show us? A window into the way drug prices are set would likely reveal that prices no longer have any correlation to the costs associated with discovery and innovation. For the past 20 years, leading drug companies earned more than 70 percent of their sales from products they didn’t develop.

Transparency with drug pricing is important, particularly given the amount of taxpayer investment in research and development. Shouldn’t the public be able to know how those funds are being spent?

More transparency with prices and clinical outcomes would allow physicians, patients, and payers to understand the true value of a treatment. Ultimately, transparency is about ensuring patients have access to the drugs they need, and creating a sustainable, vibrant, and innovative health care system for everyone.

Health plans and drug companies are finding common ground to encourage transparent communications about the efficacy and safety of not-yet-approved medicines. For example, Eli Lilly and Anthem looked at the benefits of pre-approval communications between drugmakers and health plans. These open, transparent discussions would not only provide greater insight into the expected price of prescription drugs (which is helpful in setting premiums and drugmakers’ negotiations) but also greater patient access to new medicines. A win for everyone.

Matt Eyles is Executive Vice President, Policy and Regulatory Affairs at AHIP.