Podcast: Drug Pricing in America Hits the ​‘Point of Absurdity’

For more than 40 years, David Mitchell worked as an ad man, specializing in the field of public health. In fact, if you wear your seat belt today because of the phrase ​“Click It or Ticket,” you’ve got David Mitchell to thank for that.

But in 2010, a medical diagnosis turned David’s professional career and his life upside-down.

I have an incurable blood cancer called multiple myeloma. It’s incurable, but it’s treatable with very expensive drugs.

For Mitchell, the annual price of staying alive was more than $300,000, a total that seemed so outrageous he decided to launch his own advocacy group, Patients for Affordable Drugs. Now Mitchell spends most of his time recording testimonials from fellow cancer survivors and talking to elected officials about the dire need for reform. And today, he’s speaking with us. 

I’m David Hebert, and this is the first episode of a podcast that we’re calling ​“Deep Dive [with Laura Arnold].” Produced by the Arnold Ventures philanthropy, Deep Dive is going to be tackling a host of different issues moving forward. But we want to begin the series by asking one fundamental question: How do you set a price on feeling better, or even staying alive? Laura Arnold, the Co-Chair of Arnold Ventures, is going to be asking Mitchell that very question in just a couple of minutes. But first, here’s Hannah Sawyer with a little bit of context.

For the past 28 years, this has been the ritual for Kristina Caffrey: Pour another glass of water, take another pill, all in order to treat the Gaucher’s disease that’s afflicted her since the age of 4. But Caffrey says it’s not the ritual that bothers her the most. It’s the sense that the companies making the drug are gaming the system.

They are earning just absurd amounts, and they’re earning all of this profit off of people’s misfortune.

Like other patients, Caffrey appreciates the innovative breakthroughs but can’t help but wonder if the price tag has reached the point of being, well, to use her word, absurd. After all, Americans pay more for their prescription drugs that anyone else in the world, which is part of the reason why the issue of drug pricing is suddenly receiving a flood of attention in our nation’s capital, with both the U.S. Senate and the House holding hearings on the matter.

Here’s New Jersey Sen. Robert Menendez summarizing the mood for leaders of the seven largest drug companies.

So consider it a friendly warning: It’s time to be proactive, because if you do not make a meaningful action to reduce prescription drug prices, policymakers are inevitably going to do it for you.

Some of the proposals on the table in Washington? Force companies to provide samples of their drug to generic developers looking to enter the market. And use an index or foreign prices in determining the appropriate level of reimbursement here in the United States. For Caffrey, all of this sounds like progress.

I’m definitely more optimistic that something can be done on drug pricing now, and I’m very glad that people are starting to listen.

On this episode of the Deep Dive podcast: Drug Pricing in America, and a conversation between Laura Arnold and David Mitchell. Here’s Laura.

I’m very excited to do this first podcast, where we’ll get to dig more deeply into complex issues of enormous policy relevance. David, I am thrilled to have you here for this kickoff podcast, and I so appreciate you joining us. So David, I’d like to start our discussion by hearing from one of the members of your own organization, Patients for Affordable Drugs. I’d like to hear a brief clip from Lora, who suffers from cystic fibrosis and diabetes. Now she told us that she takes 14 different prescription drugs at a total annual list cost of $492,000 a year.

I feel like the system is broken, you know. I don’t know what the answer is, but greed obviously comes into play. I don’t know what the answer is, but I do feel like something has to change. 

Now for me, what struck me about hearing from Lora is that the frustration in her voice is palpable. So I’d like to kick off the discussion by asking you, David, to talk about your own sense of urgency for this work and why you decided to lead and start Patients for Affordable Drugs.

I have an incurable blood cancer. It’s called multiple myeloma. It’s incurable, but it’s treatable with very expensive drugs — very expensive. My drugs have a price tag of $325,000 a year. Now these drugs are keeping me alive, and I’m very grateful to have them, but being on this journey as a patient, being reliant on these incredibly important, innovative new drugs, taught me that drugs don’t work if people can’t afford them. And for me it’s a little more poignant right now because I’m relapsing for the second time. The reason my cancer is incurable is because it’s smart — unfortunately it finds its way around drugs — so the two-drug combination keeping me alive right now is failing, or I am failing on it. So when I say that innovation is important, I’m not being theoretical. It’s truly life or death for me, and it is for so many other people who are struggling to pay for drugs, whether it’s to handle a dangerous, deadly disease or a chronic condition.

So you are patient number one in the movement in Patients for Affordable Drugs?

That’s correct. And yet the important work that we do — that Arnold Ventures is enabling us to do — is to raise up the voices of patients all over the country. And these are patients who are cutting pills in half, they’re skipping doses, they’re trying to stretch their insulin for type 1 diabetes — which is very dangerous, not taking the required amount. They’re going bankrupt, they’re refinancing their homes. These are not isolated instances. This is happening all over the country today, every day. And it’s because we have a badly broken system. 

I read frequently a commonly cited statistic that a significant portion of the U.S. population could not come up with $400 in an emergency. So certainly if you look at that in the context of prescription drugs, and the high cost of both deductibles and drugs if you don’t have insurance, that becomes a real issue. 

What has always touched me personally and from a policy perspective about the work that you do is that you’re bringing together these voices to humanize the story and to humanize the challenges that we face from a policy perspective.

We believe that patient voices are critical to reform, that in the absence of legitimate, authentic, real people who are raising up their voices to policy makers and elected officials and saying, ​“This is a problem in my life — you need to help fix it,” that reform is much less likely. So we hope that we’re helping patients step in and advocate for themselves, and that’s the power of the work.

And we’ve seen that time and time again in so many legislative proposals and administrative actions that have occurred even in the last six months to a year where the issue really has elevated in importance I think in large part due to your work.

So David, I’d like to get a little more granular now and ask you to explain to us what is it exactly that you think is wrong with the system. 

Well, there are lots of things we could talk about, but I’ll try and summarize it this way: The system we have in our country is really built to serve the people who make money on it — not the people who depend on it for their health. The fact is that drug companies and every player in the system — in the drug supply chain — makes more money when list prices go up. All of the energy leads us to higher list prices. 

Another reason that we have such a problem is that this produces a great imbalance of power. All these wealthy industries — that’s the drug companies, the people who manage drug benefit programs, distributors, hospitals, doctors, insurers, actually, who mark up drugs — they all make so much money on it that it is a fight to reform it because they all want to protect their piece of the pie. And when you have as much money involved as you have here, and so many people deriving benefit from the current structure, it makes reform very challenging.

And this is where you step in to bring a counterforce to the established forces of the status quo: the powerful pharmaceutical company interests, the powerful interests of the industry, that have everything to lose by changing either market delivery and mechanisms or pricing structures or anything about this system that could benefit patients. 

Now, I’d like to talk a bit about some recurrent themes that we see when we talk about from a policy perspective these systemic failures. So one of the things that we hear a lot is a debate on this question of the perceived tension between innovation and accessibility. So you hear a lot of confusion and a lot of talk about what does it mean to hamper the price-setting ability of a pharmaceutical company? Does that mean that that industry will refuse to innovate, will no longer be interested in innovating because the pricing and the reward, if you will, will not be there at the end? So talk about how you think about this balance and how to strike a balance between innovation on the one hand and accessibility and affordability on the other. 

So at the outset of this discussion I mentioned that I need them to invest in new drugs or I’ll die sooner than I want to. The importance of innovation is truly critical for me and for most patients. We want those new drugs for ourselves and our children. Right now, though, we do not have a balance. 

A very smart professor in California said recently that our system is all engines and no brakes. So we have this great engine to make these new drugs, but we have no brakes on the pricing. We give these drug companies truly unfettered monopoly power to set the price wherever they want. In our view, we need to restore balance to the system so that we’re getting that innovation and having it be affordable and accessible. 

Why do we think that’s possible? First of all, taxpayers pay for a lot of the basic science that leads to these wonderful new drugs. The budget for the NIH (National Institutes of Health) this year is $39 billion. The drug companies claim they spend 70 [billion]. So we’re footing the bill for at least 35, 40 percent of the basic science that leads to these drugs. 

Second, the drug companies spend more on advertising and marketing than they do on research and development, so we think there’s plenty of headroom, if you will, to lower the price while ensuring that we get the innovation. And the drug companies get the return they’re entitled to when they bring an innovative drug to market. 

From our perspective, we think about this as a failed market. Monopolies or oligopolies may not necessarily be bad. Maybe as a society we believe that’s the most efficient way of delivering a product. But typically when you have a mechanism like that, there are government controls, there are guardrails, and the issue here is that those guardrails don’t exist. 

You take a drug like Humira, which had a net price of $19,000 a year in 2012, which already seems pretty high to most individuals. Now it’s $38,000 a year — that was the price in 2018 — five times higher than in any other advanced country. And Humira is not an exception. The list price for insulin increased 600 percent since 2002. We have emerging gene therapies whose pricing is expected to be well over a million dollars a year. So we’re seeing many, many drugs whose prices are skyrocketing, and we from a policy perspective are concerned that we’re not having the conversation on value. And there is no infrastructure and no internal guardrail to simply ask the question: Why is the price a million dollars a year? Are we as a society getting value from that drug that is sufficient to justify spending a million dollars a year on a dosage? And so those are conversations that we believe are not occurring. 

And we believe there’s a structural problem in Washington because of the imbalance that you noted earlier where we can’t have that conversation because the political influence isn’t there. So from Arnold Ventures’ perspective, we love the work that you do because you are bringing patients to the table, and you are forcing the conversation about what needs to change, why are we approaching these pricing mechanisms in this way. Are there alternatives that could help patients while at the same time respecting and incentivizing pharmaceutical companies to do what they do best, which is innovate?

The drug companies want us to say, ​“We don’t care what it costs, we have to have it.” And frankly if it’s my child laying on the gurney, I want whatever it is. But we all have to care what it costs, because we don’t have unlimited resources as families or in our society to say regardless of the cost, we’re gonna pay whatever the drug company demands. We have to figure out a way of making sure that that thing that our child needs at that moment is something that we can afford both as individuals and families and as a nation. Right now we’re not balancing that. That’s where the broken market plays out in real life, and it’s happening all the time all across this country.

Let’s talk about your proposed solutions, David. What do you want to see happen? Point to some categories of change that you think are reasonable, feasible, logical and that are your goals in the short term.

Let’s start with the fundamental notion that our government should be able to negotiate directly with the drug companies to use our collective purchasing power to drive down prices. Every other developed country in the world does this — only we don’t — and we pay two to three times what those other countries pay for the exact same drugs in the exact same boxes, oftentimes made in the exact same plant. And the reason this is is because in 2003 when the Medicare prescription drug benefit was enacted, the drug companies got inserted into the law a prohibition on the government negotiating directly. We need to change that because we’re not using our negotiating power to get the best deal possible. So that’s number one. 

The second area would be the abuse of patents. Now patents are important to stimulate new drug development because when we give someone a patent, we give them the opportunity to make a lot of money for an innovation. The first thing is we need to make sure that the patents given are for innovative developments — not for making a small tweak to a drug. Well, as it turns out, many times what they do, the drug companies, is they take an old drug, they change the dosing, or they change the coating, or they actually change the way they manufacture it and then patent that, and they block us from bringing competing generics to market.

There are some shocking statistics here that illustrate these points that you’re making. Over 75 percent of drugs associated with new patents are for drugs that are already on the market. So no innovation, just a tweak if you will, either from a liquid form to a pill form or changing the dosage or something like that. Just to cite an example of how this abuse manifests in real life: Humira, which is a drug that has 247 patent applications that have been filed, with the aim of delaying competition for 39 years. Now AbbVie, the manufacturer of Humira, obviously has done this intentionally and has taken advantage of what I’ll call — I don’t know if I’d call them failures in the patent system — but certainly loopholes in the patent system. 

It’s even more offensive because on investor calls, lawyers for AbbVie have bragged to investors about executing this strategy to keep competition off the market. This is not what our laws intend. This is the opposite of what our laws intend. Our laws intent that you innovate, you bring a great drug to market, you get to make a lot of money on it and then, at a set period of time, competition starts with generics and biosimilars and the price goes down. There are other tactics that they use to abuse the patent system. We need to fix those. Structurally it will help a lot to lower prices over the long haul.

Pharma is a private actor. They’re in the business of maximizing revenues for their shareholders. We could have a separate conversation as to whether pharma is to blame for nefarious behavior — I don’t think that’s the point of the policy discussion. I think that the point of the policy discussion should be that we are creating an environment that allows a private actor, whose goal and mission is to maximize profits, to do so with no guardrails. So we are enabling this behavior. They are doing what they do. They are capitalists, and that is their business. But I think it is incumbent on all of us and the regulatory system to push back and to set limits on what capitalist behavior we are going to accept in light of every other concern that we have. 

As you said, health care spending is skyrocketing, pharmaceutical pricing is skyrocketing. That comes at a price, not just personally for each of us and for each of your members, but also as a society. Every dollar we spend on health care as a society is a dollar that we can’t spend on policing, on criminal justice, on education, on libraries, on parks, on social programs, on homelessness, on so many of the other programs that we need to fund as a society to keep our communities vibrant and safe. 

Let’s finish your list. I asked you about proposed solutions, and you talked about negotiating power, you talked about curbing patent abuse. There are a couple of other things that I know are part of your priority list.

Two more. One is that we really need to fix the way the middlemen work in our drug supply chain. One of the problems that we have is a lack of transparency — secrecy, frankly. There are organizations called pharmacy benefit managers — PBMs — they run our prescription drug insurance programs, and they negotiate with the drug companies. They in fact are charged with negotiating on behalf of Medicare beneficiaries like me in the Medicare drug program. But they do all their business in secret, and they actually can use something called a rebate, which allows them to take what is effectively a kickback, literally, from the drug companies. We don’t know when they get that rebate how much they put in their own pocket, how much they give to an insurer that might be used to lower premiums, if any of it reaches me, as a beneficiary. We think we need to get rid of secrecy in pharmacy benefit managers and that we should have pharmacy benefit managers negotiate transparent, lower prices that we can all see and understand and dispense with rebates. 

The pharmaceutical companies cite PBMs as the source of much of the bad actors and questionable activity. They say that the PBMs keep a lot of the price hikes. They say that really, PBMs are the problem and are the roadblock to patient access. I think PBMs certainly are a problem. As you mentioned, their secrecy, they certainly extract revenues from the system. The reality is that the annual revenues they extract are around $20 billion, which is a huge number. Compare that to the annual revenues the manufacturers extract, which is $320 billion. It’s important — I agree with you that it’s important. It is a piece of a much larger problem, and we cannot lose sight of the fact that much of the problem relates to the pharmaceutical companies. They’re the ultimate price-setters, they’re the manufacturers, they are the ones who are dictating this behavior. 

By the way I couldn’t agree with you more on all of that. I would also add one little piece. I was in a meeting with a Republican Congressional office a couple of weeks ago and they said, ​‘You know, one of the problems is we can’t see inside the PBMs so we don’t know how to set policy. We can’t figure out what’s going on, so we can’t figure out how to fix it.’ That’s a big problem. Markets work best when there is transparency. And so that’s another reason we think it’s important to try and get at that.

David, let’s quickly talk about pricing. I know that’s something that you are very much focused on. Talk about what your perspective is on pricing strategies, and specifically talk about reference pricing and how you view that as fitting within a strategy for change. 

There are a couple of ways to think about reference pricing. One is to reference new drugs to old drugs and talk about how much better they are — or to alternative treatments. That is a mechanism that helps us get at one analysis of the value of a drug to patients, and that’s important. There’s another kind of reference pricing that is being proposed in Washington right now that suggests we should price our drugs in this country referenced to the prices that are paid in other developed nations. That’s another form of reference pricing. And then there’s something called outcomes pricing where drug companies want to be paid based on how well a drug works on an individual. 

And we should talk about each of those, but unfortunately I know that we’re short on time so I’d love to focus our discussion on the international reference pricing discussion that is now happening in Washington. The underlying theory or argument of the Trump administration and many reformers, frankly, is that the rest of the world free rides on U.S.-funded research. That the United States government through the NIH and other avenues funds a disproportionate amount of R&D (research and development), which then it passes on to pharmaceutical companies, which then develop these drugs. The pricing in the United States does not reflect that investment, so there’s a very strong argument that that needs to be equalized. 

Why are we paying a disproportionate amount in the United States of the R&D, but paying dramatically higher prices than any other country? And that’s the impetus behind the international reference pricing discussion and the proposal by the Trump administration to reference U.S. prices to some kind of average of what other countries are paying for these drugs. 

That’s correct. Their reasons for advocating for reference pricing are different from our reasons for advocating for reference pricing. Let’s start with the idea that we should raise the prices of drugs in other countries. I’m a patient. I am not at all in agreement with the idea that a child in England with cystic fibrosis should have to pay more for her drugs so that I can have cheaper drugs for my cancer. That’s just wrong-headed.

But let me stop you there. Isn’t that a logical result of any reference pricing strategy? Many economists believe that that is exactly what’s going to happen if — just from a market perspective — we adopt the international reference pricing proposals. And we’re seeing this in England right now. You talked about the cystic fibrosis drug for a child. I assume that’s not coincidental. You’re aware of the fight between Vertex, the pharmaceutical company, and the NHS (National Health Service) in the U.K. regarding the cystic fibrosis drug orkambi where the pharmaceutical company simply said ​‘No, we are not willing to lower our price to the level that the NHS is demanding so that drug will not be available.’ And now they’re in litigation or some sort of regulatory arbitration to try to resolve that issue. 

I would flip it over and look at it from a slightly different perspective. Number one, the reason we pay more is because we do not negotiate, and they do. Politically, there is not the will in Washington right now to allow Medicare to negotiate directly. This is a way of getting around that and import negotiated prices. 

Second, the countries in that reference pricing basket are not going to stop negotiating aggressively because they all have to work within global budgets. In other words, their nations have an amount of money they can afford to spend on health care, and they’re not going to suddenly start spending more. We believe that they will continue to negotiate aggressively. Now, we could be wrong, and pharma could dig in and exercise its market power more effectively there, but the drug companies don’t enjoy the same market power in those countries that they have here because of the way our patents are abused in this country and because we don’t negotiate directly. So our feeling is that the reference pricing will lower prices in this country, with very little impact abroad. Now, I’m not an economist, so I have to say we could be wrong. 

Who knows. That’s right. And this is where I think that the federalist system in the United States is extraordinarily helpful. It’s not only a laboratory for democracy, but it also is a laboratory for market testing. Some states might adopt something akin to an international reference pricing model; some states ideally would look to someone like ICER (Institute for Clinical and Economic Review) or some sort of value-based determinant to determine what they’re willing to pay, so instead of looking at what somebody else pays determining an independent view of what the correct price valuation is for a certain drug. And some sort of hybrid among those hopefully will help us arrive at a more accurate valuation. 

David, I know we are short on time, but I would be remiss if I did not spend just a couple of minutes playing one of our favorite games, which is ​“Pharma Would Say.” You are a seasoned debater of pharma, and not often do we get to have a lightning speed round of rebuttals to pharma’s most common allegations. So we are going to go quickly. I’m going to shoot them at you, and you just give me your responses. 

Pharma would say that the pharmaceutical companies need to charge high prices because drug development is expensive, innovation will stop if we lower the prices. What’s your response?

The fact of the matter is that taxpayers are paying a lot of cost of the expensive early science that leads to these drugs — not the drug companies. They are sweeping in to buy up the intellectual property after a drug shows promise. Second, they overestimate the cost to develop a drug. They say it’s $2.6 billion, but they will not reveal the underlying data for those numbers, so we think there’s plenty of room to lower prices and keep innovation. 

Pharma says that all patients care about is how much they spend out of pocket, so that we should shift the entirety of the discussion toward developing models where patients are covered from high deductibles, from high co-pays, etc., and that that’s the value of things like pharmaceutical coupons and rebates and that kind of thing. What is your answer?

Drug pricing is like a balloon, and if you cap my out-of-pocket at zero, it’s gonna be paid for in another way. So take my out-of-pocket to zero, and I’ll wind up paying higher premiums for my drug coverage, and we will wind up paying higher taxes for the government programs that provide drug coverage. There’s no free lunch, and the fact of the matter is we know that patients care about their out-of-pocket at the pharmacy counter, but they also care about their premiums, and they also care about their taxes, and they get it. 

Absolutely, and as I said, health care, we from a policy perspective, all of us, as voters and as members of communities, need to look at health care spending holistically. But I’ll continue with my lightning round. Pharma says that pharma prices are a tiny fraction of health care spending, so why are you picking on us? Go pick on hospitals, go pick on health delivery, go pick on inflated prices. 

It’s not a tiny sliver to start with, and by the way, everybody has a role to play in fixing this. But pharmaceutical spending accounts for 15 percent of the total health care spend in this country, and that’s not chicken feed. 

That’s three and a half trillion dollars a year. 

That’s correct. And it is the fastest-growing sector of health care spending in this country. We have to address it. 

Absolutely. And by the way we — and I know you at P4AD (Patients for Affordable Drugs) — but certainly we at Arnold Ventures care a great deal about overall health care spending. We don’t just focus on drug prices. The entire system needs reform. From payment and delivery mechanisms to contractual relationships to transparency to effectiveness to value, there is a plethora of interventions that need to be implemented and thought through, lots of policy change that needs to happen in this space, so certainly pharma is not the only culprit, but it is not an insignificant culprit. 

My last lightning round question for you: Pharma says that government bureaucrats are going to control your health care if you pursue this path of increased government regulation. What is your answer?

In the ​’60s, when Medicare was enacted into law, the same charges were leveled: This is going to be socialized medicine, government bureaucrats are going to control your health care, this is going to be a disaster, you’re all going to die. Well Medicare is now one of the most popular programs in the country. Why? Because it takes care of people’s needs, and it helped make available care that people required, especially those who could least afford it. That’s what we’re trying to do with drug pricing. And so when they pull out that stuff, I just say, ​‘Do you like Medicare?’ Because it’s the same thing they said about Medicare. 

And for us, the conversation has to shift to value. At some point we have to ask the tough question. And we don’t dispute the fact that the question is tough. We will face circumstances where a new drug will have incremental value, and society, for many reasons, should not pay for that drug. Maybe you pay for it out of pocket if that’s something that is favorable to you and you’re able to, but we as a society have to make determinations as to where we draw the line. And we can’t be scared of doing that because unfortunately, we live in a world of finite resources, where every dollar that we spend as a society, as a government, is a trade-off.

Let me bring that home on a personal level if I may as we wrap up here. There’s a new kind of drug called CAR T therapy where they take your T‑cells your of your body, reengineer them and give them back. The new cell is trained to go find the cancer and kill it. There’s a possibility that it could produce durable responses in people like me — 10 years. Well, if it produces a durable response of 10 years, it has a lot of value. Then maybe there should be a high price. But if it produces a response that’s two weeks, does it deserve the same high price? This is what you’re getting at, and we want our money directed to the places where we get value for patients, not where a drug company can charge a lot for a drug with little value. Yes, it requires thoughtful judgements to figure out which are which, but we can do it.

At Arnold Ventures, our mission is to improve people’s lives. We do that by fixing broken systems. We look for market inefficiencies, areas where we perceive there to be an imbalance of resources, political power, some sort of market imbalance that yields bad results for our country. We view this as a broken system, and not just from a theoretical perspective, but from a human perspective. We see this as a crisis in our nation. People can’t afford their drugs, and the consequences, for all of us, both personally and from a societal perspective, are dire.

David Mitchell, it’s been a pleasure to have you on this podcast, and I look forward to many more conversations as the issues evolve and as P4AD continues its enormous success. Thank you.

Thanks for having us.

You’ve been listening to Deep Dive [with Laura Arnold], an issues-based podcast produced by the Arnold Ventures philanthropy. Arnold Ventures is the eighth-largest philanthropy in the United States, with offices in Houston, New York, and Washington, D.C. To learn more, visit Arnold​Ven​tures​.org. Thanks again for listening everybody. We’ll see you next time, on Deep Dive [with Laura Arnold].