In this health care podcast, I’m speaking with Maura Calsyn from the Center for American Progress—or CAP—and we’re talking about value-based drug pricing and the impact that COVID-19 may have on its definition, operationalism, and broad adoption.
I remember a situation (kind of years ago, actually) where a pharma company decided to lower its price on an infused product. Normal supply and demand would dictate that if you lower your price, you will get more overall business, which will result potentially in more overall revenue—the old supply-and-demand curve at work. In this case, though, that pharmaceutical brand’s business plummeted. The Pharma had to raise their price again to capture the market share that they wound up losing by lowering their price. Why? Because doctors get paid a percentage of the drug cost to administer the product. So, the lower the drug price, the less a physician gets paid. Provider organizations have a big incentive to prescribe the highest-priced product—so, you know, the opposite of whatever you learned in Economics 101.
On the other hand, and possibly more often, we have Pharma pricing products based on what they think the market will bear. And historically, that has meant a really high price point because the market will bear, it turns out, quite a lot. There’s this perception that our national and employer pocketbooks are unlimited when it comes to health care spending. And I can see how the health care industry would get that idea, because it pretty much has always been a true statement. Despite a lot of grousing and complaining, the bill gets paid.
But pain causes change. It is very possible that this pandemic will not only change how medical care is delivered, which we’ve been talking a lot about in the past few episodes; but also it will have an impact on how pharmaceutical drugs are priced and patented. If you think about it, and I started to think about it after this conversation with Maura, the optimal price for a pharmaceutical product would be an amount that enables everyone in a population who needs the drug to be able to get it. What a tragedy it is when there is a drug, when science has produced a drug that can help someone who is suffering but they can’t get it. Maybe this is because a health care middleman is trying to game the system for as much profit as possible, or maybe it’s because the manufacturer set their price high to earn as much money as they can from those who can pay, but at a sacrifice of those who cannot.
Maura and I talk about the emerging “Netflix Model” or the “Australian Model” of paying for drugs in this health care podcast also, which is pretty interesting.
Prior to her role at the Center for American Progress, my guest Maura Calsyn worked at HHS in the general counsel’s office and was lead attorney and/or worked on a number of Medicaid initiatives, including the Medicaid rebate program.
You can learn more at americanprogress.org. You can also connect with Maura on Twitter at @maura_calsyn.
Maura Calsyn is the managing director of health policy at the Center for American Progress. In this capacity, she plays a leading role in American Progress’s health policy development and advocacy efforts. She has authored and coauthored work published in The New England Journal of Medicine, JAMA Internal Medicine, US News & World Report, and The Hill. Her work covers a range of topics, including Medicare and Medicaid payment reform, health care transparency, and trends in employer-sponsored insurance. She has also testified before Congress.
Prior to joining American Progress, Calsyn was an attorney with the US Department of Health and Human Services Office of the General Counsel. During her time there, she served as the department’s lead attorney for several Medicare programs and advised the department on implementation of the Affordable Care Act. Before joining the Office of the General Counsel, Calsyn worked as a health care attorney at two international law firms and represented a wide variety of health care payers, providers, and manufacturers. Calsyn first worked in health policy as a health care legislative assistant for Rep. Anna Eshoo (D-CA) before attending law school.
Calsyn graduated cum laude from Harvard Law School and received her bachelor’s degree summa cum laude from Hamilton College.
03:48 The value of pharmaceutical products.
06:58 “We’re dealing with what might seem like an infinite amount of resources, but it’s really not.”
07:03 The “Netflix” or “Australian” payment models vs value-based pricing.
09:35 “You need a transparent and really replicable process.”
10:41 Considerations of equity and affordability.
11:10 “Everybody wants people to get the drugs that they need … I think the question really is just, ‘Who is paying for it?’”
11:44 What value-based pricing really means in the pharma industry.
13:22 “We’re confusing what is actually a value-based price with some of the tools that are used to try to get closer to that.”
14:03 Why extracting prices by future impact holds implications for the health industry on the whole.
15:44 “Value-based pricing is a tool to be able to lower health care prices across the board.”
16:15 The problem with shifting costs.
17:20 Generic pricing and the patent system.
18:30 Leveraging fear.
20:40 “There’s the ability for extraordinary amounts of money to be made here in a way that really does not advance the health of the country.”
21:33 Next steps for value-based pricing in Pharma.
23:08 “How are you going to justify those prices?”
23:28 “If you keep pressing and pressing and pressing, there’s going to become a breaking point.”
24:42 “We need to preserve a way to make sure that those products are developed.”
26:26 “Are there other ways that we need to finance and bring to market drugs?”
27:43 The call to action for value-based pricing in Pharma.