Netflix has undeniably changed how consumers purchase their products. From entertainment streaming services to monthly cosmetic sample packages, the concept of buying a product once, or on an ‘as-needed’ basis, is quickly disappearing.
The aptly named ‘Netflix Model’ is now entering the pharmaceutical world, with everyone from the Senate Finance Committee to the Louisiana Department of Health to Nancy Pelosi exploring this modern method of consumption.
Monday afternoon, the Brookings Institution hosted a packed panel with varying perspectives, featuring Neerah Sood, Professor and Vice Dean for Research at the University of Southern California; Rebekah Gee, Secretary of the Louisiana Department of Health; Rena Conti, Associate Professor of Markets, Public Policy and Law at Boston University; Rekha Ramesh, Executive Director of Public Policy for Gilead Sciences, Inc., and Wendell Primus, Senior Policy Advisor to the Office of Nancy Pelosi. Rather than tackling drug pricing at large, the panelists focused on a case study of Louisiana’s implementation of subscription-style pricing for Hepatitis C treatment.
Sood outlined the benefits of the subscription model, stressing the fact that at current prices, it would take billions upon billions of dollars to treat the 90% of patients necessary to eradicate Hepatitis C. By presenting pharmaceutical companies with an upfront cost, consumers would gain unlimited access to their products, and more importantly, the additional cost of another patient would be virtually zero. As a result, Sood argued, companies would have a guaranteed revenue, which is a major advantage for the model. Further, the ‘true subscription’ model, as Sood referred to it, is the only model which maximizes incentive to treat additional patients, given that there is no increase in cost. In short, Sood did the unthinkable, by creating a model that benefits both the pharmaceutical companies and their consumers.
Following Sood’s presentation, Rebekah Gee sat down with moderator Louise Sheiner to discuss the affordability of the subscription approach. Gee recommended a modified subscription model, as opposed to Sood’s true subscription. The difference between the two approaches is the price cap used by the modified model, but absent in the true model. The price cap serves to protect consumers by limiting their out-of-pocket cost, while maintaining the products’ profitability. Once the cap is reached in Gee’s modified model, adding an additional Hep C patient comes at no cost.
Gee detailed the arduous process of bringing this progressive pricing method to one of the most disadvantaged states in the country. Louisiana, Gee’s home state, has a history of high incarceration rates, typically ranking in the top three in the nation. Further, 30% of people with Hep C in Louisiana will “pass through a prison in their lifetime”, according to Gee. These factors combined created a large and undeniable impetus for the Louisiana public health expert to find a way to expand access to Hep C treatment. Over the course of three years and countless hours of pro bono work by some of the nation’s brightest minds, Gee and her dedicated team arrived at their modified subscription model, which went into action last Monday.
Beyond expanding treatment availability, Gee now focuses on reducing the stigma surrounding Hep C patients, decreasing the time between diagnosis and treatment for those affected, and legalizing needle exchange in order to stop the spread of Hep C at the source.
The third portion of the event featured all speakers together, moderated by Matthew Fielder of the USC-Brooknigs Schaeffer Initiative for Health Policy. Rekah Ramesh of Gilead Silences and Rena Conti of Boston University joined Gee and Sood on stage to continue their discussion. Ramesh highlighted the budgetary constraints of the project, admitting that most politicians do not want to take on a project that won’t be finished before their term ends. Louisiana’s specific Medicare expansion made it possible for the initiative to take off, however other states may not be able to adopt the same policy.
Gee recommended bringing in the Center for Medicare and Medicaid Services (CMS) early on in the process in order to streamline their goals and implement them realistically. However, Gee noted that the very first step in adopting Louisiana’s approach would be to assess the needs of one’s own state considering that “what works for Louisiana may not work for other states”. While some states, such as Washington, have followed Louisiana’s policy guidelines, most are still deterred by the 2.5 year timeline of the process.
As Gee wrapped up on the political obstacles, Conti and Sood dove into the economics of the pricing mechanism. Both agreed that the subscription model was more advantageous than a traditional linear pricing model, as it eliminates a great deal of dead-weight loss. This difference greatly reduces cost-prohibitive barriers which plague so many Hep C patients. In the absence of monopoly pricing, Sood argued that there must be competition in the market in order to drive down prices and make the treatment affordable. Conti countered Sood, arguing that voluntary participation by pharmaceutical companies will be the keystone piece of the pricing mechanism.
Conti and Sood’s debate opened up the contentious topic of how to balance incentives for innovation with affordability. Pointing to the many market failures of the pharmaceutical industry, and the sad fact that many life changing drugs don’t get to market because they’re not profitable, Conti called for government intervention in order to rectify the failures of the current for-profit system. Gee unsurprisingly supported the notion of state negotiation, however, Sood pushed back. Pharmaceutical Benefits Managers (PBMs) already negotiate prices, argued Sood, and they are generally believed to be better negotiators than government representatives. For example, the government is tied to the interest of the people, while a PBM is not, thus the government doesn’t hold the power to say ‘no’ like a PBM does. Conti and Sood eventually compromised, agreeing that price negotiations may ultimately boil down to a question of ‘Who can say no?’.
The event concluded with a one-on-one sit down discussion between Dr. Wendell Primus and David Wessel, a senior fellow at Brookings. Dr. Primus gave the federal perspective, honed over his decades-long career on Capitol Hill, where he now serves as senior advisor to House Speaker Nancy Pelosi.
In Primus’ opinion, all those on Medicaid who are in clinical need of a drug should have guaranteed access to their treatment, however, states put up barriers that prohibit this. The current Secretary of Health and Human Services does not have the authority to actually lower drug prices, though the Trump administration seems to believe it does. Further, the administration’s current plan to tie drug prices, specifically biologics, to the International Price Index would not be effective in lowering drug prices. While the administration was recently granted authority to do so, it was just as quickly revoked, given its ineffectiveness.
The policy veteran stressed the need, on the part of pharmaceutical companies’, to recover Research and Development (R&D) cost for innovation’s sake, however, he strongly advised pharma executives to do so without gaming the system. Moreover, Primus recommended giving the Secretary the necessary authority to construct provisions to bar drug companies from price gouging when they have the monopoly. In the same vein, Primus urged law-makers to reform Medicare Part D and impose a limit on out-of-pocket spending for the injectables it covers. Echoing the recommendations of many others eager to reform the drug pricing system, Primus supported the idea of eliminating rebates and returning those savings to customers.
After a quick Q&A, in which Primus echoed the same thoughts he’d presented to Wessel, the event ended. In sum, Dr. Gee’s account of her experience with drug pricing reform proved that while it is possible, it takes large amounts of time, money, and most importantly, dedication to the cause in order to see it through. Despite the varying opinions presented by the panel, each in their own way expressed that Louisiana’s triumph was a small but crucial step in reforming American health policy.
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