In recent times, there has been renewed debate on the pricing of drugs. The current model of charging high prices per pill consumption is increasingly unsustainable for the long term, not just for consumers, but for governments, as well as pharmaceutical companies. The proposed solution? Pegging the benefits and efficacy of a drug to the cost proportionally.

In the United States, both presidential candidates Hillary Clinton and Donald Trump have promised sweeping healthcare reforms, albeit in differing directions on the spectrum. In Europe, as growth stalls, so has the budget allocation towards the healthcare sector, and with it, a push towards more affordable healthcare pricing.

High cost of Singapore’s current model

Likewise, in China and in Asian markets, governments are getting tougher with suppliers. In Singapore, the government has enforced a private-public funding system based on an integrated care model, which has safeguards for the lower and lowest social strata in place, in tandem with decreasing subsidies for those with better economic ability for payments.

Singapore’s model will mean that households would be paying more for healthcare, and in the case of catastrophic illnesses, this could end up wiping out the household’s financial reserves. The report on the household expenditure survey by SingStat for FY 2012/3 noted that households spend from 11.8% to 14.5% of their annual incomes on healthcare. For the median household, this means that they spent a whopping S$10,700 on healthcare per annum (in 2012).
In 2015, Singapore’s Government responded by introducing universal healthcare coverage, dubbed Medishield Life (ML), which it says will prevent bill shocks from catastrophic illnesses. The deductible for ML would be set at 3% for claims that amount to S$10,000 or more, with coverage up to S$100,000 per policy year. Despite such reforms, some fear that it will still be insufficient.

Proposed proportional efficacy model

With limited resources, to price the drugs based on clinical outcomes would bring about the most benefits to consumers and taxpayers. In fact, this model has already been tested by the US. Medicare (the US healthcare model) will first earmark drugs with similar mechanisms and set a benchmark for all similar drugs in that category. The drug set to be earmarked would be the drug that is considered to be the most effective in its category, and doing so aims to eliminate the wide price variability of similar drug options.

However, as efficacy is a relative standard of measure, transitioning to such a model would take a long time, and would possibly be fraught with legal battles.
Already, Novartis has inked a deal with two United States insurers for its new heart drug, the Entresto pill, to be calculated in future based on the proven reduction of proportion of the insurers’ patients admitted to hospital for heart failure, and not on the basis of quantity of drugs consumed.
In the past, the government has reallocated budgets for newer drugs, as older drugs’ patents expire and new generic versions, which a significantly cheaper, gets introduced. However, generics now account for 9 out of 10 prescriptions and fewer big name drugs have patents that are going to expire. Adding to that, new drugs to treat cancer and hard-to-treat diseases (like haemophilia) would cost upwards of hundreds of thousands of dollars up to one million dollars per patient.

Profit warning

Novartis, the world’s largest diabetes firm, has issued a profit warning following increasingly challenging market conditions in the US, and in response, investors wiped USD10 billion off their market capitalisation. Diabetes accounts for 12% of total pharma spending, and the US accounts for 40% of global drug sales.
Not only Novartis is affected; Eli Lilly and GlaxoSmithKline have also issued such profit warnings based on predictions of challenging pricings across the board. In the US, both presidential nominees have proposed to allow imports of drugs from other countries. States, starting with Vermont, are working on legislation to make transparent costs as a justification towards higher drug prices.

The future, though fraught with difficulties, would be moving in the direction of ‘Pay for Performance’. Such pricings would warrant the setting up of databases to track the patient’s progress, and to prove the medication’s clinical value. This would ensure that taxpayers are given value for money deals, consumers are given access to more affordable drugs, and also that medication is produced with greater efficacy in the future. One should never have to go bankrupt as a result of their illness. MIMS