Dr. Jeffrey Pevnick was on the brink of retirement last year when he was diagnosed with a potentially fatal heart condition and thrown a financial curveball: The St. Louis psychiatrist was prescribed a $225,000-a-year drug — Pfizer
tafamidis — to treat the disease.
Under his Medicare prescription-drug plan, his initial out-of-pocket cost was about $5,000 for a three-month supply of the capsules, he says. “If I don’t take it, I’ll die sooner,” he says of the drug, which is the only Food and Drug Administration–approved treatment for his condition. But the price is “outrageous,” says Pevnick, 72, who retired in January. “I think it’s greed.”
People on all sides of the contentious drug-pricing debate agree on one thing: Retirees like Pevnick shouldn’t have to drain their bank accounts at the pharmacy counter. A cap on out-of-pocket costs in Medicare’s Part D prescription-drug benefit is an element of Republican and Democratic drug-pricing bills as well as the pharmaceutical industry’s reform agenda.
But drug-pricing researchers say the popular Part D overhaul, which would help millions of retirees and perhaps even save lives, must be paired with broader reforms that directly tackle high drug prices — and those are far more controversial.
Reforms focused only on limiting out-of-pocket costs would dampen the consumer price sensitivity that helps keep drug prices in check, many researchers say, contributing to higher drug prices, premiums and government spending. In the absence of other changes, a Part D out-of-pocket cap would be “like writing a blank check to the pharmaceutical industry,” says Stacie Dusetzina, an associate professor at Vanderbilt University School of Medicine.
Riding a tide of goodwill generated by the COVID-19 vaccines’ success, drug manufacturers are backing the out-of-pocket cap and advancing other ideas in Congress as well as in court that largely cushion patients’ exposure to the cost of medications without addressing underlying drug prices directly, researchers say.
Next week, the U.S. District Court for the Southern District of New York is scheduled to hear oral arguments in a case Pfizer filed last year against the federal government, seeking a legal go-ahead for proposed copay assistance programs that would let the pharmaceutical giant help cover many Medicare beneficiaries’ costs for tafamidis — sold by Pfizer as Vyndamax and Vyndaqel — the drug Pevnick takes for his heart condition. Ge Bai, associate professor at Johns Hopkins Carey Business School and Bloomberg School of Public Health, says the lawsuit is part of a broader pattern of drug companies attempting “to blindfold or insulate patients from the true cost of the medications they use,” giving the companies more leeway to maintain high prices.
Pfizer said in a statement that it appreciates that cost sharing is intended to make patients more price-conscious and incentivize the use of lower-cost therapies. “However, we do not believe the Medicare Part D benefit design was intended to limit access to breakthrough therapies for middle-income Medicare patients when no other approved therapeutic options are available,” the company said. The company declined to comment for this story about tafamidis’s price, but Suneet Varma, global president of Pfizer’s rare-disease unit, told Barron’s last year that the price is “responsible, because of the transformational value this delivers for patients and the size of the rare-disease population it treats.”
The Pharmaceutical Research and Manufacturers of America, or PhRMA, the powerful drug-industry trade group, backs a Part D out-of-pocket cap, among other reforms, but has not endorsed any particular drug-pricing legislation. “We’re willing to come to the table and be a part of those discussions,” says PhRMA spokesman Brian Newell. “We recognize these reforms have costs associated with them, and we’re willing to do our fair share so long as it lowers what patients pay at the pharmacy and protects patient access to medicines and future innovation.”
For retirees as well as many younger patients and taxpayers, drug pricing is a high-stakes debate. Over the next 10 years, more than 1.1 million Medicare patients could die because they can’t afford their prescriptions, according to a recent study by West Health Policy Center. In 2021, Medicare Part D enrollees must spend $6,550 out of pocket before they reach the “catastrophic” coverage phase, where they typically still have to pay 5% of a drug’s cost, without limit. For retirees taking pricier drugs, that 5% is often unaffordable. Medicare picks up 80% of the drug cost in the catastrophic phase, while Part D plans pay the remaining 15%, and the drug companies pay nothing. High prices for brand-name specialty drugs mean that a growing number of patients hit catastrophic coverage after filling a single prescription, and Medicare’s spending in the catastrophic phase, which more than quadrupled between 2010 and 2019, is expected to reach $88 billion by 2029, according to a report by Medicare’s trustees.
A bill in the House aims to lower out-of-pocket costs while also addressing drug prices directly, in part through a government price-negotiation provision that the pharmaceutical industry opposes. “The only way you get pharmaceutical prices under control is to allow the price negotiation,” says Rep. Peter Welch, a Vermont Democrat. The fact that the federal government, the largest purchaser of prescription drugs in the U.S., can’t negotiate prices is “obviously absurd,” Welch says.
Although doubts were raised in recent weeks about Democratic consensus on the bill, known as H.R. 3, some on Capitol Hill say the divisions aren’t deal breakers. A letter last month from 10 House Democrats to House Speaker Nancy Pelosi said legislation “should make patient affordability the number one goal” and emphasized the need for bipartisanship, spawning questions about the fate of the bill and its price-negotiation provision. But Rep. Jake Auchincloss, a Massachusetts Democrat and a lead signer of the letter, “has always supported Medicare negotiation of drug prices,” says spokesman Matt Corridoni. “He is ultimately committed to voting with the Democratic caucus position, including H.R. 3.”
Taking on debt to pay for prescriptions
Pam Holt, a cancer patient and veteran of the drug-pricing debate, is getting frustrated with the lack of legislative progress. The 72-year-old retired teacher in Granger, Ind., has taken Revlimid for multiple myeloma since 2016. Under her Medicare Part D plan, her out-of-pocket cost was close to $12,000 the first year, she says, “which was devastating,” and the drug’s price has only climbed since then. Though she now needs fewer pills per month, she spent $6,700 on the drug in the first four months of this year, she says.
After launching Revlimid in 2005, drug maker Celgene raised the drug’s price 22 times, according to a 2020 report by the House Committee on Oversight and Reform. Bristol Myers Squibb
acquired Celgene in late 2019 and raised Revlimid’s price again, to $763 per pill, the report found. The more than $4 billion that Medicare Part D plans and beneficiaries spent on Revlimid in 2018 was the second highest expenditure for any Part D drug that year, according to the House committee.
To cover Revlimid’s cost, Holt says, she has taken on credit-card debt, refinanced her house, and sacrificed many of the pleasures of retirement, like travel and spending on her grandchildren. Holt is “furious” about the price increases, she says, particularly given that Revlimid is not a new drug and she sees the price hikes as “pure profit” for the company.
Though she started talking to lawmakers about drug-pricing issues several years ago and “heard lots of promises,” she says, “it’s hard to stay positive about it in light of nothing ever really happening.”
“We take great care to price our medicines based on the value they deliver, the scientific innovation they represent, economic factors that impact healthcare systems’ capacity to provide appropriate, rapid and sustainable access to patients, and the investment necessary to develop them,” a Bristol Myers Squibb spokesperson says.
A Pfizer victory in its lawsuit against the U.S. Department of Health and Human Services would further boost Medicare spending on pricey medication, researchers say. The suit revolves around federal policies that prohibit drug manufacturers from giving direct copay assistance to Medicare patients and restricts their funding of independent patient-assistance charities. A drug company that offers anything of value to induce Medicare patients to take the company’s drug may violate federal anti-kickback laws. If Pfizer wins, its proposed copay-assistance programs could be “a convenient tool” to tamp down patients’ price sensitivity, Bai says.
“The government’s view that copay assistance is not permitted means many seniors will have to forgo their needed prescriptions,” according to a Pfizer statement. The company supports Part D changes, including an out-of-pocket cap, but, until that happens, providing copay assistance to patients prescribed tafamidis “represents an equitable way to lower out-of-pocket costs for eligible patients,” the company says.
No matter what they’re paying out of pocket, many Medicare patients taking pricier drugs are concerned about how those costs will impact other payers and their drug-plan premiums. Darrell Dodds spent more than $20,000 out of pocket on tafamidis between late 2019 and May of this year, he says, before qualifying for free medication through a patient-assistance program based on his income. The drug’s price is “off-the-charts crazy,” says Dodds, 77, a retiree in Krum, Texas, and he contacted his congressman to push for action on drug prices but got no response. For rare-disease drugs like tafamidis, he says, drug companies can “charge whatever the hell they want, and the government so far has shown absolutely no spine in dealing with it.”
Some countries aren’t shy about tackling the issue. In guidance last month, the U.K.’s National Institute for Health and Care Excellence, or NICE, rejected tafamidis for treatment of the heart condition, transthyretin amyloidosis with cardiomyopathy, saying the cost-effectiveness estimates didn’t meet its threshold for an acceptable use of National Health Service resources. Pfizer said in a statement that NICE’s evaluation methods need to evolve to address barriers that “hinder equal access to rare disease medicines” in the U.K.
In Washington, the time to strike a drug-pricing deal is growing short, some analysts say. If there’s no agreement and the issue gets pushed into next year — a midterm-election year — the odds of success plummet, says Rick Weissenstein, managing director at Cowen Washington Research Group. “I’m not sure the Republicans will be willing to give the Democrats that win, and I think everybody retreats back into their foxholes.”
To be effective, reforms should not only lower patients’ out-of-pocket costs but also deal with incentives in the payment system that are pushing prices higher and address underlying drug prices directly, such as through government price negotiation, says Rachel Sachs, associate professor of law at Washington University in St. Louis. “There is no one drug-pricing problem,” Sachs says. With so many factors keeping drug prices high, “no one policy will solve all of them.”
H.R. 3’s multipronged approach would cap Part D out-of-pocket costs at an initial $2,000 per year, require drug companies in some cases to pay rebates to the government if they raise drug prices faster than inflation, and allow the government to negotiate certain drug prices with manufacturers, using international market prices as a target in negotiations and making those negotiated prices available to commercial plans. The negotiation provision would cut government spending by about $456 billion over 10 years, according to the Congressional Budget Office. It could also slash commercial health-insurance costs, according to a recent analysis by West Health Policy Center, saving employers $195 billion and workers $98 billion. “Not a lot of people realize just how important H.R. 3 would be for reducing healthcare costs for everyone in America,” not just seniors, says Sean Dickson, the center’s director of health policy.
The pharmaceutical industry objects to the negotiation approach laid out in the bill, which would impose financial penalties on manufacturers if they don’t agree to a price that falls within certain parameters. That’s “really not a negotiation,” PhRMA’s Newell says. The industry spent a record $92 million lobbying the federal government in the first quarter of this year, according to the nonpartisan Center for Responsive Politics, up 6.3% from the same period last year.
A more likely outcome, Weissenstein says, may be something similar to reforms previously put together by the Senate Finance Committee. That package included a Part D out-of-pocket cap and inflation-based rebates to rein in price increases, among other measures. Such reforms would cost drug manufacturers about $100 billion to $120 billion over 10 years, Weissenstein estimates, but would likely be viewed positively by investors in pharmaceutical stocks, who would be happy to get the issue off the table for now, he says.
Many patients relying on Medicare to cover their drugs face more painful trade-offs. Grant Ellis, 32, of Cambridge, Mass., has Medicare coverage due to a disability and relies largely on Social Security disability income of $780 a month. Early this year, he faced an unexpected $720 in out-of-pocket drug costs, he says, when his Part D plan added a prior-authorization requirement for one of his medications. “I was completely insolvent at the end of the month,” he says, and he had to turn to GoFundMe just to raise enough money for food. “I was devastated,” he says, because he’d carefully researched his Part D plan options and tried to diligently manage his expenses. “I thought I did everything right.”