In the Pharma Pricing Debate, We Are Talking About More Than Apples and Oranges

This week the Senate Finance Committee held the second in what will be four hearings on the price of pharmaceutical drugs – Drug Pricing in America: A Prescription for Change. The first hearing, on January 29, listened to a panel of patients, patient advocates and academics, while the second invited the leadership of seven major pharmaceutical companies. In addition the House Oversight Committee on Government Reform held its first hearing of the year also on the topic on January 29, the same day as the first Senate Finance Hearing. Early in the year, Senator Mitt Romney reportedly told pharma execs behind closed doors that “change is coming” – similar words uttered by Senator Menendez at the close of the second Senate Finance Committee hearing. More talk is to come.

But in viewing both Senate Finance hearings, to the ear of someone who pays attention to communications, it becomes clear that at least part of the problem has nothing to do with rebates, or couponing, or any of the mechanics of pricing – it has to do with communications – what it is people are talking about. It boils down to three things – there is price. Then there is value. And finally there is cost. Stakeholders are speaking from different corners. They are oil, water, and something in-between. And they don’t mix very well.

Price. Patients are concerned about price. Patients, after all, are consumers before they were patients. As a consumer, you walk into a store and you see an item and you assess whether or not you want to buy it based on the price. If there is a comparable item at a lower price, you are likely to opt for that. If it is on sale, that is also a big factor. You expect that the store owner and the manufacturer are going to get a cut, and earn a profit, and you accept that as fair.

But when you are a patient, it is different. In the end, the patient perceives the medicine as it would any other commodity – like buying a new smart phone. He is willing to pay a premium price for the newest thing, appreciates that investment goes into developing the technology and expects that expense is written into the expensive, but ultimately affordable (for most) price. And above all, no one expects that they will have to ration food or paying utilities in order to buy a smart phone, the way that some patients testified in the Congressional hearings that they must do for medicine.

Value. Then there are stakeholders, like industry as well as organizations that assess price who consider the value that a treatment brings to the patient and to society as a whole. An example used during the second Senate Finance Committee hearing was in the treatment of Hepatitis C. Prior, many patients with this condition had to eventually undergo liver transplants – an intervention costly in many ways, but especially dollars. Therefore, a new medicine that brings a cure and thereby circumventing thousands of dollars in costs to everyone should be priced at a level that reflects that value. So if we are saving $50,000, a $25,000 price tag reflects the value that the treatment brings to the table.

The problem of course is that when there is a high price tag, many patients will have a hard time – high co-pays, high deductibles, mean high out-o-pocket costs. If it is a treatment for a chronic condition, this means high on-going costs. And the message to patients, who are thinking price – is that everything is being valued except their own well-being. It becomes a “your money or your life” proposition.

Cost. And here is where it gets a little murky. To address the situation, there are a whole set of mechanisms to adjust the amount that will ultimately be paid by the patients. There is the list price, the direct price (DIRP), average wholesale price (AWP), there are rebates, there is the wholesale acquisition cost (WAC). You practically – well not practically – you do need a guide for this part. There are enough acronyms to have the person of above average intelligence (PAAI) confused, frustrated and feeling like something is going on. And this is the part where pharmacy benefit managers (PBMs) come into play. For patients, these are faceless entities. They are also likely the subject of a future Senate Finance Committee hearing on pharmaceutical pricing.

When talking about this issue, each stakeholder is speaking a different language. Smartphone patient price perception is confronted by real estate value model and complicating it all are an entity we never see with a lot of confusing language.

In the end, what we have here is communications problem on top of the problem in our approach to this marketplace. This is one of those classic communications situations where many of the stakeholders are so focused on what they need or want to say, they are not taking into account what their audience needs to hear. One the one hand, if we are going to solve the problem, we have to make sure everyone not only understands the problem. But perhaps more importantly, if we are going to make real headway, it is not so much about government hearings spouting hyperbole, but rather taking into account who our audience is and what they value – determining what they need to hear and addressing it in the course of the conversation – that will ultimately bring about a more satisfying outcome.

Photo by Kawin Harasai on Unsplash

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