Unless you have multiple myeloma, a rare and vicious cancer of the blood, chances are you haven’t heard of Revlimid. The immunomodulatory drug slows the growth of new blood vessels, and it’s a product of the kind of ingenuity and daring that once made the pharmaceutical industry among the most respected in America. It’s also a handy stand-in for everything that’s wrong with the business today.
In the early 1990s, researchers at Boston Children’s Hospital stumbled on an old sedative that appeared to slow the progress of myeloma. The drug, thalidomide, was infamous. It had been prescribed widely for morning sickness in the 1950s, but caused thousands of horrific birth defects. Still, nothing had ever been as effective against multiple myeloma, so a biotechnology company called Celgene took a risk and spent millions of dollars developing an analogue of the compound, transforming thalidomide into a more potent cancer drug.
It worked: When the FDA approved Revlimid to treat meyloma in 2006, it revolutionized the cancer’s treatment. Average survival time jumped from three or four years in the late ’90s to almost a decade today. “There’s not one other disease where you can say we tripled survival in that period of time,” says Mohamad Hussein, Celgene’s head of scientific affairs. Through calculated risk and dedicated bench work, Celgene had turned poison into gold.
The story of Revlimid’s development is unique, even uplifting. But the story of what it costs is all too familiar. In the past decade, the drug’s price jumped from $78,000 a year to $156,000. Last year, the median myeloma patient on Medicare—a person supposedly shielded from extortionate drug prices—paid $11,538 out of pocket each year for the medication. (A majority of American families have less than $5,000 in savings.)
Revlimid has produced at least $20 billion in revenues since its release, but Celgene, and all pharmaceutical companies, say they need high prices to continue developing lifesaving medications. “You get what you pay for,” Hussein says.
The 25-milligram pill encapsulates everything that’s great and everything that’s terrible about the US pharmaceutical industry. In the past five years, the price of brand-name prescription drugs has doubled; cancer drugs, specifically, have gone up by a multiple of six since 2000.
Several promising new myeloma drugs have recently been released, including a new and improved follow-up treatment to Revlimid called Pomalyst. Each drug costs more than $150,000, and Pomalyst comes in over $195,000. “This is not a sustainable model,” says Brian Bolwell, chairman of the Taussig Cancer Institute at the Cleveland Clinic.
Many doctors and patients across the country would agree. So, at a moment when Congress and the Trump administration are grappling with revamping the entire health care economy, we should ask ourselves: How much should a drug actually cost, anyway?
It’s a strangely subversive question and one that Steve Pearson, an unassuming internist turned Harvard lecturer turned nonprofit chief, thinks he can answer. Pearson is one of the few people in this country who’ve had any luck getting the prices for individual drugs under control. The nonprofit he founded, the Institute for Clinical and Economic Review (known as ICER), has one purpose—to figure out whether a new drug is worth the price tag or if Big Pharma is taking us for a ride.
For the most part, Pearson says, Americans have no idea what they should be paying for medication. We don’t how much it costs to actually develop a drug; the FDA doesn’t require comparative effectiveness studies, so we don’t know if new drugs work better than existing competitors; and we have little information about how much other consumers are paying for the same products. “Patients in America are getting great value for drugs—and we’re getting ripped off,” Pearson says. “The problem is we’ve had little way of knowing when it’s one or the other.”
President Donald Trump has said that the pharmaceutical industry is “getting away with murder” and that he wants to let Medicare negotiate with drug companies over the prices we pay—something that was forbidden in 2003, part of a compromise with the politically potent industry to get the Medicare drug expansion plan passed. (Since 1998, Big Pharma has spent more on lobbying than any other industry.)
In The Art of the Deal, Trump says that you have to “know when to walk away from the table.” But Medicare—which covers some 57 million people—essentially can’t decline any drug the FDA approves, at least for serious diseases like cancer. It can’t walk away from the table. Furthermore, the agency doesn’t have any more comparative data than you or I do. When one party in a deal knows more about the goods than the other, economists call it information asymmetry. It’s a classic recipe for market failure and, as any seasoned negotiator knows, a great way to get a bad deal.
Pearson, with ICER, has taken it upon himself to fix this information imbalance, to generate the missing data and calculate a “fair price” for drugs. The team’s efforts involve a forensic approach to dozens of scientific studies and a Vulcan-eyed look at how we value human life and decide to allocate resources. It is straightforward yet radical work—a missing puzzle piece in the effort to solve our drug-pricing crisis.
The Centers for Medicare and Medicaid Services recognized this last spring, when they floated the idea of using ICER’s calculations if Congress ever let them negotiate prices. Pharma-backed groups acknowledged this when they launched a blitz to discredit the group last year. And so far, Pearson’s method has successfully checked the prices of a handful of drugs—something very few people can say they’ve done.
But as sensible as the exercise may look in a PowerPoint presentation, some of the people Pearson is trying to help aren’t buying in. “The new drugs are awesome,” says Matt Goldman, a myeloma patient in Long Beach, California, but if ICER were to decide his meds are overpriced, “our insurance company is going to read this and they’re going to start denying benefits—these are life and death decisions.”
Nick Van Dyk, a patient who credits Revlimid with keeping him alive, is more succinct. “I’m talking to you instead of pushing up dirt because of Big Pharma,” he says. “The ICER guy is a smug, rotten scumbag.”
Figuring out if a drug is priced fairly is not a simple process. One of the first things you have to do is put a value on human life.
Kind of. A quality-adjusted life year, or QALY (pronounced “kwaly”), is the metric that health economists use to measure the value of medical treatments over time. One QALY is a year of perfect health thanks to a med; zero QALYs means you’re dead. Three extra months of life in great health, Pearson says, gets a higher QALY value than three months with terrible side effects.
So what’s a year of feeling healthy worth? Based on data from the World Health Organization and other sources, ICER puts the value of a quality-adjusted life year in the United States at between $100,000 and $150,000. (If it unnerves you that the health care system has decided a year of your health is worth the price of a tacky speedboat, know that QALYs are used everywhere life is taken into consideration; the Department of Transportation uses them when it decides how much it should spend on expensive safety features, like extra lanes or guardrails along freeways.)
Any drug that provides significant health benefits at under $100,000 per QALY is golden and ICER rates it as “high value.” Ones that cost more than $150,000 per QALY get “low value” or, at best, “intermediate value” if the drug provides a legitimate benefit to patients.
Cold-blooded as they may be, QALYs aren’t controversial for health economists, but the very idea of quantifying life upsets plenty of people—the approach carries a whiff of “death panels,” after all. Still, Pearson says, controversy is no reason to shy away from a useful metric. “The QALY just helps us compare apples to apples when we want to consider the gains we make with good new treatments,” he says.
For Pearson, paying too much for drugs matters not just because pharmaceuticals eat up a growing chunk of our total health spending—17 percent at last check—but because the money we spend on overpriced pills is money we could spend better somewhere else. “Health is a very important—perhaps the most important goal for us as individuals, and for our society,” Pearson says. “But it’s not the only goal. We also want good jobs, great schools, a safe environment.”
The money you spend on overpriced drugs, he argues, is money that doesn’t go to your kid’s school or the ambulance driver or fire department. “There are choices within the health care system: Should we get this machine or pay another doctor?” he says. “Then, step back and it’s: Another hospital or 10,000 more teachers?”
Pearson’s office in ICER’s downtown Boston headquarters is spare and unlived-in when we meet in August. He spends most of his time in DC; his family lives there, and he’s a visiting scientist at the National Institutes of Health. But Boston is ICER’s home, he says, across the river from Harvard, where Pearson is a lecturer and where he founded the institute back in 2007.
In conversation, Pearson is even-keeled and reassuring—like a doctor walking you through a mixed prognosis. Goateed and with tortoiseshell, geek-chic glasses, he’s wearing cufflinks embossed with the crest of the Royal College of Physicians, where he’s an honorary fellow. (His CV is a grab bag of elite institutions and includes a Stanford undergraduate degree, a master’s from Harvard, and an MD from UC San Francisco.) With his staff of 24 doctors and policy wonks, he aims to put out about nine reports a year, covering dozens of treatments.
That day, the ICER staff was meeting to try to figure out a fair price for a new batch of lung cancer medications. The first step is to look at how each of the new drugs rank against the others, which for the most part has never been done. To do it, the team collects clinical trial data and calls up pharmaceutical companies, patients, and doctors.
Then it evaluates all of the published data on each drug under consideration—including findings that sometimes contradict each other—and sticky variables, like study size and design and quality. The staffers rank the magnitude of each drug’s benefits versus its competitors. It’s a rigorous, systemic process, and one that requires the team to make judgment calls about the quality of the data and evidence they’re diving into. “We are trying to fill a real gap in our health care system,” Pearson says.
In nearly every other industrialized nation, assessments like these are handled by a government agency. In Britain, where I sat in on an evaluation meeting, it’s done by the National Institute for Health and Care Excellence, known by its more Orwellian acronym, NICE. NICE is a leading boogeyman for opponents of nationalized health care, but its existence is critical to keeping drug costs down in the UK. The agency does all the work ICER does—the work the US government declines to do—but unlike ICER, NICE heavily influences the selection and purchasing of the medications Britons can receive.
Pearson spent a year as a NICE fellow in 2005 and found their work inspiring. At the evaluation meeting I observed, drug manufacturers pled the case for their treatments, and commissioners grilled them over efficacy and price. This kind of official bargaining results in good deals: Europeans pay about half as much for drugs as Americans.
But the negotiations only work because regulators are willing to walk away and say no to treatments. For certain patients in the UK, for instance, NICE delayed for years the approval of Revlimid, that lifesaving myeloma drug, because of cost. “What the Brits acknowledged is that there is a price of life,” Amanda Adler, a Cambridge physician who chaired the NICE meeting, told me afterward. “The government has an obligation to the taxpayer to only pay for stuff that actually works. It also has an obligation to the taxpayer to only pay for stuff that reflects good value for the money.”
For everyone’s sake, Adler says, NICE must make that call—even when British headline writers routinely blast the agency for denying access to new drugs. “NICE might see a new treatment that’s twice as good as anything we have, but we might say no if the company wants to charge ten times what already exits,” she says.
Pearson doesn’t think America will ever be home to an agency with as much power as NICE, but tackling these profoundly difficult ethical issues has, he believes, “a nobility and a grandeur.”
The first time ICER recommended a price for a drug was in 2014. The pharmaceutical company Gilead had come out with a new treatment for Hepatitis C, an expensive, grueling ailment that beats down its victims for decades and eventually causes liver failure. The new drug, called Sovaldi, was a 12-week daily course of pills—and it cured the infection. It was one of the most exciting new medications to come around in a generation. Gilead’s list price was $1,000 per pill, or $84,000 for a full course. (Though they did give discounts to Medicaid and the VA.)
Gilead’s drug, and a follow-up treatment from the company called Harvoni that cost $94,500 and was even more effective, got excellent QALY ratings. (Spending less than $100,000 for another 15 years of life is a pretty solid deal.) But staff at ICER also calculates whether a new drug’s price would make it difficult for insurance companies and Medicare—which, remember, is essentially mandated to pay for all drugs approved by the FDA—to provide the treatment to everybody who needs it.
As reasonable as $84,000 or even $94,500 might seem, there are 3.3 million Hepatitis C patients in the US, and insurers and Medicare didn’t have a spare $277 billion sitting around to cure them all. There was no way the country’s free-market health care system could ensure that everyone who needed the drug would get it. For society to be able to absorb the costs without cutting back on other health care spending, ICER said, Gilead would have to cut the price of its newest pill, Harvoni, by half to two-thirds. It was the first time ICER had recommended a specific price for a treatment. “It blew people’s minds,” Pearson says.
The next year, after intense pressure, Gilead took 46 percent off the list price for Sovaldi and Harvoni. The price drop was stunning. Steve Miller, the chief medical officer of Express Scripts, the largest of the middleman firms that buy drugs wholesale for insurance companies, said ICER’s work had given him the ammo he needed to negotiate with Gilead. Overnight, the tiny nonprofit became an implausible power player in the national conversation about drug pricing.
Pharma is not happy about this. And if your business model was based on information asymmetry, you wouldn’t be either.
Big Pharma, Big Bets
“It’s so easy to vilify Pharma,” Diana Brainard says on the day I stopped by to hear Big Pharma’s side of the Solvadi story. “It’s like shooting fish in a barrel.” A physician by training, Brainard is the vice president of clinical research at Gilead. We’re at the company’s campus in Foster City, California, about 20 miles south of San Francisco, where the grounds sprawl over several acres; the upper floors of Gilead’s 30-plus buildings have views of the ugly brown mudflats that line the South Bay. The place is a maze of construction and new buildings.
The people at Gilead and Celgene and other pharmaceutical companies know how we feel about them. America’s relationship with one of its most successful industries is, well, complicated: We distrust their motivations, even as we demand they save our lives. Pharma has a paltry 28 percent favorability rating right now, the same as the federal government. But the scorn isn’t always merited, Brainard says. Gilead, after all, has spent nearly 30 years trying to find treatments for HIV, and more recently for Hepatitis C. Its success with that disease came from a combination of in-house research and a daring gamble.
In 2011 Gilead spent $11 billion acquiring a tiny biotech outfit called Pharmasset. The company had a compound that showed signs of stopping one type of Hepatitis C in Stage II clinical trials. Gilead’s scientists were thrilled by the acquisition. Outside analysts were not. Spending that much money on an “unproven asset” was ridiculous, one financial analyst wrote. “Our stock plummeted,” says Brainard, who led the company’s clinical trials on its Hepatitis C drugs. “There were clips of Jim Cramer saying, ‘Gilead is filled with fucking morons.’ People thought this was the stupidest decision ever.”
But the bet paid off. Gilead’s chemists combined Pharmasset’s molecule with one they had been developing, and the results were stunning. “Most chemists don’t ever get to be a part of something like this,” John Link, the company’s vice president for medicinal chemistry, says as he shows me around one of the company’s labs. Link, who is balding and clean cut from the front but maintains a six-inch-long patch of hair in the back, like a very neat mullet in miniature, led the effort to develop the in-house molecule. In total, his team tested thousands of different molecules before they found ones that worked. “As a chemist in medicine, our intent is to do something good,” Link says. “We’ve done that here.”
Gilead had indeed created something momentous. Previous treatments for Hep C were ineffective, cost more than $70,000 per course and came with awful side effects. “You had to take it for a year and it could kill you and it was horrible and it didn’t work,” Brainard says. “Well, let’s price ours the same as that—and it actually works. And it has no side effects. That’s not evil. That’s very different from somebody taking a generic and jacking it up.”
True, though Solvaldi was originally supposed to cost much less. As its release date neared, according to a Senate investigation into the drug’s costs, Gilead executives pushed the number higher and higher until it had more than doubled. (Gilead disputes that investigation’s findings.)
The company’s rationale, according to emails disclosed during the investigation, was that if they priced their first Hep C drug super high, they could price their next two Hep C drugs—which were already far along in the pipeline, and looked to be more effective—even higher. From a business perspective, it made no sense for Gilead to charge less for a drug if there was, in fact, a higher price that the market would bear.
Gilead would stick with a $1,000 per pill price “whatever the headlines,” one VP wrote in an email. Senate investigators say the company was fully aware its pricing would put the drug out of reach for many patients. Not coincidentally, that price sent Gilead’s share price soaring.
Furthermore, every pharmaceutical company would argue that high prices drive innovation—that these prices are a necessary and worthy way to spend our limited dollars. Drug company executives like to cite the industry-funded Tufts Center for the Study of Drug Development, which determined in 2014 that it costs, on average, $2.6 billion to bring a single new drug to market.
The industry needs resources to pour back into research and development, proponents say. Plenty of people push back on this—advocacy groups and academics question the Tufts Center number and Harvard’s Aaron Kessielheim says the industry devotes 10 to 20 percent on R&D, and 20 to 40 percent of revenue to advertising. “There’s no connection between R&D spending and prices,” he says. But it’s undeniable that, though there are hundreds of biotechnology and pharmaceutical companies in the US, each trying to make new products, nine out of 10 drugs in development fail and only 22 made it to market last year.
I ask Brainard what she thinks of Gilead’s pricing for its cure and the subsequent outcry. “It can be frustrating,” she says. “People can call us evil, that’s fine,” she adds, pointing out that the company’s medication could potentially eradicate a global public health problem. She says what they’ve done is incredible, and, scientifically, she’s right. “I think we’ll be on the right side of history.”
“Put the word Gilead up and it’s like a Rorschach test,” Pearson says. “You either see lifesaving innovators, tremendous scientists and businessmen, or blood-thirsty corporate greed.” Or, perhaps, all of the above.
The Impatience of Patients
Prove that a greedy pharmaceutical company has deliberately overpriced its drug and you’re a hero. Suggest to desperate patients that the drugs they need to stay alive are too expensive (and thus might be taken away) and you’re a villain, a bureaucrat consigning people to death over line items on a budget. This is the dilemma that the scientists at ICER face.
Last year the institute held a meeting with a group of pharmaceutical economists and myeloma experts to decide whether Revlimid’s follow-up, Pomalyst, and four other new myeloma drugs were priced fairly. At this point, no head-to-head studies had been carried out on any of the cancer drugs; doctors on the front line were seeing results, they told me, but nobody could say with certainty that Pomalyst—or any other new treatment—was better than its competitors.
Along with the economists and doctors in the room were people who don’t normally take much of an interest in incremental cost-effectiveness ratios or comparative p-values: dozens of patients and family members. Many more were tuned in to the livestream. ICER had, apparently become a known entity after years of quietly gaining influence behind the scenes.
In front of the crowd, ICER’s panel determined that four of the newly approved myeloma drugs indeed work, but they’re all dramatically overpriced and don’t represent “high value.” Pharma is overcharging cancer patients for their livesaving meds, the quants found.
When the floor opened to public comments, things got emotional. The first speaker was Robin Tuohy, who runs patient support groups at the International Myeloma Foundation. Her husband, Michael, was diagnosed with the disease 17 years ago. Without Revlimid, he wouldn’t be alive today. ICER’s reports are a “slippery slope” that could give insurers “leverage to limit or deny access to treatment,” she says. “Your decision will certainly affect lives,” she told Pearson. Other attendees erupted into applause. One after another, patients, caregivers, and Pharma reps stood up and cut into the nonprofit.
ICER likes to think it’s above the fray and apolitical, that it provides “an objective review of evidence and the public forum in which to debate it,” as Pearson says.
But Pharma disagrees. For the past year, nonprofits with names like the Alliance for the Adoption of Innovations in Medicine and the Center for Medicine in the Public Interest (which take money from Big Pharma) have been putting out whitepapers suggesting, among other things, that ICER’s methods are flawed (that by comparing the cost of new drugs to the price of an older treatment, say, the institute is intentionally making new treatments appear expensive) or that ICER also gets all its money from insurance companies. (ICER does receive some funding from insurance companies, but the vast majority of its funding comes from a former hedge fund billionaire’s private foundation; he’s interested in market efficiency, his staff says. See “Waging War on Bad Science,” WIRED issue 25.02.)
One of ICER’s main antagonists is an advocacy group called Patients Rising formed, per their website, “to stand up for patients.” But Patients Rising was co-founded by a communications professional and is funded by Celgene, Amgen, and PhRMA, the pharmaceutical industry’s lobbying arm. Last year Patients Rising started ICER Watch, a blog dedicated to exposing what they consider to be the evils of ICER. Some of the same companies that fund Patients Rising also support the International Myeloma Foundation, a leading patient advocacy group and another fierce critic of ICER.
Pearson likes to joke that “we’re the mouse and there are all of these 800-pound elephants stomping around, very afraid of our little reports.” But it’s not very hard for an elephant to crush a mouse. And whatever Pharma’s goal is in attacking ICER’s credibility, it’s not helping the cancer patients who can’t afford their meds. Getting cancer now costs an average patient $5,000 a year out of pocket, and cancer patients are almost three times as likely to declare bankruptcy as healthy Americans. Cancer patients who go bankrupt have a 79 percent higher mortality rate. Drugs that happen to be expensive can save some people—but drugs that are too expensive can end up killing others.
Heather Block, who recently volunteered to help ICER improve its relationship with patients, is sick of this debate. She has stage IV cancer and paying for Faslodex, a drug that kept her alive for four years, made her fear bankruptcy. The patients opposing ICER have been bamboozled, she says, tricked by Big Pharma into becoming pawns in the industry’s fight to control its pricing power. Block has insurance, but the co-pays she owes are ruinously high. “My big fear, it sounds kind of funny, is every time I get a good cancer report I get afraid I’m going to run out of money,” she says. “That’s my Catch-22. We shouldn’t live in a society where it works that way.”
Prescription for Compromise
In spite of the turmoil among patients and the opposition from drug companies, there are signs of a possible détente. Late last year, ICER got an email from Regeneron, a pharmaceutical company that was preparing to release a new potential blockbuster drug called Dupixent. It would be the first and only treatment for a rare skin condition that causes constant itching, and Regeneron had a question: “What’s our price recommendation going to be,” Pearson recalls. “Because they wanted to meet it.”
Nothing was stopping Regeneron from charging as much it wanted for Dupixent, but for the next few months they worked closely with the ICER team. Their CEO, Leonard Schleifer, personally slashed red tape to get ICER some finer grade data. In fact, in the past year Schleifer has become a surprising critic of his own industry. “It’s ridiculous. I hate us also when I see all this stuff,” he told an audience of his peers at a health summit in December. His competitors have been raising prices instead of making innovative drugs, he says. “The attitude can’t be that this is an impossibly hard business, so any price is a fair price.”
Regeneron said it wanted to hit the lower end of ICER’s QALY rating—to come in at the “high value” end of the scoring—and wanted to be able to tell pharmacy benefits managers this during negotiations. In late March, the company announced that Dupixent would carry a $37,000 list price, right in the middle of ICER’s affordability rating. But with some negotiated rebates, it’d come in at around $31,000—right at the golden end of ICER’s scale. “Pretty damned responsible,” in Shleifer’s words.
Regeneron got glowing press for its fair pricing. Insurers and payers were content, and “we were pinching our cheeks,” Pearson says. (Regeneron’s shareholders were less thrilled.) “I was hoping we might get to this point five years from now,” Pearson says—the point when drug companies decide that coming to market with a “fair price” can benefit them and patients.
Of course, the Dupixent example could be a fluke. It’s just one drug and one company. Still, it suggests that ICER’s band of data geeks are onto something. Pharma’s price-gouging has sent its reputation into the gutter, and the cries for punishing regulations are getting louder. A little information symmetry may be just what the industry needs to save itself.
David Ferry (@ferryin140) is a freelance writer whose work has been nominated for a National Magazine Award in reporting.