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In: Opinions & Features

6.6.16 | The Star Ledger

By Steve Brozak

To read the entire article on The Star Ledger, please click here.

The U.S. healthcare system isn’t sustainable in its current form with increasing prices, and the disparate approaches to care across states, hospitals, doctors, insurance companies, and income. Americans receive relatively poor care for their billions of dollars spent, as judged by several metrics comparing our nation with others.

The high cost of health care is such a threat to the future economy that it has united our three radically different candidates for president. Donald Trump, Hillary Clinton and Bernie Sanders all agree on one strategy to help fix it: they want to allow the government — specifically the Centers for Medicare & Medicaid — to directly negotiate drug prices with pharmaceutical companies.

The Medicare Modernization Act of 2003 was supposed to save Americans money and advance healthcare. Instead, we got the spectacle of Martin Shkreli and Valeant, synonymous with pharma greed.

By prohibiting the government from directly negotiating drug prices, that act created a form of corporate welfare that no one could have envisioned. In 2015, Medicare Part D, which covers prescription drugs for some 39 million people, cost about $88 billion according to recent reports.

Drug pricing is a hot topic. The New England Journal of Medicine recently asked if prescription price regulators can influence affordability. Healthcare policy analysts are publicly talking about raising Medicare rebates to the level of Medicaid rebates. Economists are estimating the possible impact of direct negotiations on Big Pharma in the billions of dollars.

The industry is worried; their largest investors recently demanded that pharma “take control” of the pricing debate before it is taken out of their hands.

If the pharmaceutical industry can’t sit at a negotiating table with the federal government, perhaps it should rethink its model.

While it is true that novel pharmaceutical research must be fostered, it is also true that all private insurers and pharmacy benefit managers (PBMs) negotiate drug prices with drugmakers. It is unacceptable that the federal government — with the exception of the Veterans Administration — cannot do the same.

We should think about using the VA as a template for Centers for Medicare & Medicaid Services negotiation and for the cost-efficient use of these drugs. Although the VA does not make its negotiated prices public, its track record in purchasing and dispensing drugs can serve as a model for the rest of government.

The VA has taken many hits recently for long waiting times for medical appointments, and the enormous difficulty for veterans trying to qualify for VA treatment. Its bureaucracy is a Dickensian nightmare; it has too few doctors and specialists are not easily accessible.

But the VA has developed several innovative, cost-effective healthcare programs. Since 2003, numerous independent studies in major medical publications such as the NEJM and British Medical Journal show that the VA provides the same — and often, better care — than private providers.

That is in no small part due to the ability to negotiate prices.

For instance, price negotiation helps the VA cover expensive biologics such as anti-anemia drugs used for kidney dialysis patients.

The VA has produced quantifiable accomplishments in the treatment of many diseases, according to 2016 compendium of studies of VA healthcare quality. Improved outcomes in treatment of chronic conditions such as diabetes, and heart disease including high blood pressure have been achieved partly because patients have a better record of taking their medication. For VA patients the cost of those drugs is relatively low while their accessibility remains relatively high.

I’ve spent my career thinking about these issues on Wall Street. My recently completed doctoral dissertation for Drew University focused on drug pricing and the American health care system.

It came down to a simple fact, in my 30 years in the industry, I have never seen a situation in which a drug price was based on what it cost to develop. Instead, most pricing is based on the money the drug would ostensibly save on a patient’s outcome.

It is time for Medicare to get the right to negotiate drug prices directly with drug makers, so it can not only get the best patient outcomes but also pay the same prices as the private sector, and finally be part of the free market.

Steve Brozak, DMH is president of New Jersey based WBB Securities, an independent research and investment bank, that specializes in the pharmaceutical, biotechnology and the medical-device business segments.