[This post originally appeared on Forbes.com on September 6, 2016.]
Almost a year ago, I argued that pharma needs to “heal thyself” on drug pricing – but I was skeptical the industry could end its addiction to price hikes far in excess of inflation, often taken several times in a single year. Today, Brent Saunders of Allergan laudably rose to the challenge.
Saunders is the first major drug company CEO to explicitly renounce egregious price increases. In a blog post outlining his company’s “social contract with patients,” Saunders vowed that Allergan would:
- Limit price increases to single-digit percentages, “slightly above the current annual rate of inflation,” net of rebates and discounts
- Limit price increases to once per year
- Forego price increases in the run-up to patent expiration, except in the case of corresponding cost increases
This could be a turning point for the pharma industry – because actions like Saunders’ are the only way for pharma to rebuild its tattered reputation and get back to its business of discovering and developing important new medicines. As I said previously:
…[T]he target on Pharma’s back when it comes to drug pricing has grown steadily, with no signs of abating. Media coverage and election-year rhetoric have intensified, and the drug industry’s positions and practices are coming under heightened scrutiny. Even Pharma’s most logically sound arguments seem increasingly unlikely to turn the tide of public and political opinion in the industry’s favor.
So unless Pharma wants to double down on its bet that the whole drug pricing brouhaha will blow over, the industry needs to demonstrate it’s serious about the issue – and the best place to start is by exerting some self-control, starting with annual price hikes on marketed drugs.
Allergan’s move runs counter to the rhetoric from drug industry lobbying groups who, in response to media and government pressure to curtail price hikes, are trotting out their usual shopworn arguments: price increases are necessary to sustain R&D; pharma limits the burden on patients via rebates and discounts so they don’t pay the “list price;” increases on innovative drugs are different from (and somehow more acceptable than) those on agents with off-patent core ingredients (viz. Turing); and anyway, insurance companies, providers and others are the real baddies in terms of spiraling healthcare costs.
But as I argued in another prior post, those arguments are completely irrelevant, and the time for them has passed:
The question with regard to annual drug price increases isn’t whether pharma’s annual price hikes will be questioned, but when new regulations or business practices will emerge to rein them in. And if any pharma execs want to have a seat at the table when that happens, their best chance is to take a principled stand against the most egregious excesses, and try to establish themselves as credible partners in defining the new shape of the drug pricing landscape.
To be fair, although Allergan has made a great move in the right direction, there’s still work to be done. In order to prove he’s adhering to his promises, Saunders will need to explicitly show how list prices are transformed into “actual” prices via rebates and discounts. So far in the industry, this math has been completely opaque, making it impossible to calculate who makes what along the drug supply chain and exactly how much is paid by which patients. With millions of Americans still uninsured or covered by high-deductible plans, this transparency may bring Saunders and Allergan into the thick of a larger debate over healthcare reform, and catalyze an epic showdown between pharma and payers.
But for now, Allergan has made an important step toward reining in drug price hikes and rehabilitating pharma’s reputation, and Brent Saunders deserves full credit for being the first major drug company CEO to abandon rhetoric in favor of specific and measurable promises. Today is a good day for anyone who cares about ensuring that impactful, innovative drugs are affordable and accessible to all. Let’s hope Saunders and Allergan follow through, and that their peers jump on the bandwagon sooner rather than later.