Yet another major drug maker is pledging to limit price hikes.
In an open letter discussing the cost of medicines, Novo Nordisk (NVO) President Jakob Riis promised not to raise the list price of any medicine by more than single-digit percentages annually. “This is one action we are taking immediately,” he wrote on the company web site. The message was actually posted last Wednesday, but not immediately publicized by the company, which specializes in diabetes drugs.
“We hear from more and more people living with diabetes about the challenges they face affording healthcare, including the medicines we make. We take this issue seriously and have been thinking about what we can do to better support patients,” Riis explained. “This has become a responsibility that needs to be shared among all those involved in healthcare and we’re going to do our part.”
In doing so, Novo Nordisk is following a suggestion made publicly by Allergan (AGN) chief executive Brent Saunders, who three months ago issued a “social contract” with the same goal, although he conceded some exceptions may occur. Since then, Saunders has repeatedly maintained that the idea will not become meaningful if other large drug makers do not take the same step. In a statement today, he urged more companies to take “pro-active steps to self-regulate pricing.”
The move comes as the rising cost of prescription drugs is a topic of increasing concern.
The issue has been accelerating for some time, starting with the cost of new hepatitis C treatments three years ago and reaching a feverish pitch after companies such Valeant Pharmaceuticals and Turing Pharmaceuticals, which had been led by Martin Shkreli, bought old drugs and quickly jacked up the prices to sky-high levels. More recently, Mylan Pharmaceuticals was skewered for raising the price of EpiPen.
These episodes have increasingly placed drug makers on the defensive as poll after poll shows Americans want the government to take action and some lawmakers have responded by launching investigations. Pharmaceutical prices were subsequently a talking point in the recent presidential campaign, particularly as Bernie Sanders and Hillary Clinton repeatedly criticized certain pricing actions.
And the incoming Trump administration, which rode a wave of populist sentiment, has already signaled interest in addressing the topic, although specifics are lacking. But fearing that Washington may make moves they find unpleasant, some drug makers are trying to pivot, which may help explain the timing of the Novo Nordisk announcement.
Even so, the vast majority of drug makers have not committed to limiting price hikes. However, KaloBios Pharmaceuticals last spring vowed not to take “arbitrary price increases,” and would limit any increase to no more than the rate of inflation or Consumer Price Index. The company, which was briefly headed by Shkreli, does not yet market any medicines, though.
Meanwhile, the tension over the issue took a dramatic turn last week at an industry conference, where Regeneron Pharmaceuticals (REGN) chief executive Dr. Len Schleifer criticized Pfizer (PFE) chief executive Ian Read for taking two double-digit price hikes this calendar year. Saunders also spoke at the conference, but no other drug maker executive pledged to limit increases.
Increasingly, though, drug makers are trying to turn attention toward the overall pricing system and, in particular, pharmacy benefit managers, which are middlemen that negotiate placement for medicines on preferred coverage lists used by health plans. Drug makers regularly pay rebates and other discounts for better placement and argue that such givebacks are not always passed along to consumers.
In his post, Riis acknowledged that Novo has raised list prices and argued that his company did so to keep up with changes in the health care system, which he did not specify, and inflation, which has been low. But he maintained that increases in list prices have not kept up with rising rebates and discounts, which have acted to limit the so-called net price increases that companies need to fuel operations.
“As the rebates, discounts and price concessions got steeper, we were losing considerable revenue— revenue we use for R&D, sales and marketing, education, disease awareness activities and medical information support. So, we would continue to increase the list in an attempt to offset the increased rebates, discounts and price concessions to maintain a profitable and sustainable business,” he wrote.
Riis also contended that high-deductible health insurance plans are partly to blame, since consumers absorb more upfront costs. These plans “are becoming a greater part of the affordability issue,” he added. Mylan Pharmaceutical chief executive Heather Bresch attempted to make the same argument when she testified last September before a Congressional committee.
As for pharmacy benefit managers, a trade group last week tried to fight back by releasing an analysis showing these companies save each patient $669 per year by negotiating lower costs and reduce the average cost of a brand prescription from $350 to $268. The report, which was sponsored by the trade group, also argued that PBMs save money by promoting programs designed to bolster adherence and reduce medication errors.