by Dan Kistner
Vice President, Pharmacy Solutions

In my experience on the contracting side of pharmacy, I have yet to see an industry landscape quite as volatile and intriguing as the one we currently find ourselves navigating. As such, Vizient goes to great lengths to predict what’s coming down the pike in terms of trends, marketplace fluctuations and pricing variations, not just for our own organization, but to illuminate the landscape for our members as well.

One of the more exciting trends we’re seeing today is an increase in competitive opportunities. For example, some substantial cost savings will occur with the launch of Inflectra™ (infliximab-dyyb), the first biosimilar competitor to Remicade®. The annual total spend on Remicade in the United States is $4 billion. Given this volume, even a five percent decrease represents $200 million in savings.

An additional example worth noting is last year’s approval and launch of the generic daptomycin, which initially resulted in approximate aggregate savings of $67 million across all Vizient membership compared to the originator’s product price.   

Another trend occurring across the landscape is an overall increase in prices. In some cases, suppliers implemented extraordinary price increases. No better example of this exists than the situation last year with Mylan’s price hike of its allergy shot EpiPen® (epinephrine auto-injector).

This illustrates the nature of sharp fluctuations that have come to typify the marketplace today. In 2015 and 2016, the U.S. Senate Special Committee on Aging conducted several hearings as part of an investigation into “dramatic drug price increases — often on older, off-patent drugs.” Several supplier representatives testified as to why these increases were justified. While any direct congressional action related to these hearings has yet to materialize, the negative publicity generated from the hearings elicited some small behavioral changes from suppliers. A few suppliers, formerly reluctant to contract with GPOs, now have visited the negotiating table. In addition three suppliers have publicly stated their intent to restrict price increases to the single digit % annually.

Many other factors contributed to this environment where pricing can change so dramatically for legacy, long-utilized medications. Industrywide mergers and acquisitions created consolidated drug portfolios and manufacturing facilities, limiting the number of competitors available to produce medications. Given this narrowing of the supply chain, health systems frequently experience one of two outcomes: significant price increases or even worse, drug shortages.

Also, as more high-cost biologic and specialty drugs receive approval, pressure will increase on health care providers to ensure access to medications in spite of these pricing implications. As such, health care organizations (and in particular, hospitals) must adjust to the increasingly difficult challenge of managing drug expenditures.

Price changes may grab all the proverbial headlines, but other factors to consider such as volume changes and new product introductions exist.

An example of this is the increase in approval of innovative and highly expensive specialty treatments for conditions that previously had limited or no treatment options. Examples of expanding categories of new agents include oncology, multiple sclerosis and hepatitis C.

The 2014 introduction of hepatitis C products with cure rates of more than 95 percent and treatment costs in the neighborhood of $84,000 per patient caused an immediate spike in medication spend of $12 billion. The manufacturers of these products justified the pricing by comparing the medication cost with the alternative: expenses associated with a liver transplant and lifelong transplant drugs. The new drugs, while giving patients an amazing boost in treating this disease, have pushed the treatment costs from medical benefit to the pharmacy benefit and moved a lifetime of spend into just a few weeks.

Given all of the expense associated with medications and the increasing need for analyzing the value of pharmaceuticals, pharmacy must be considered an essential component of any organization’s strategic plan. Prices are likely to continue to increase for medications (both old and new). As a result, the ability to assess and discern the value of medications in relation to the total cost of patient care will be a critical skill for the success of any health care institution.

Therefore, executive leaders must ensure they have routine interaction with their pharmacist executives to ensure the pharmacy department has the resources to advance strategies related to specialty pharmacy, use of biosimilars, managed care and increased collaboration with physicians. Health care systems can succeed even within this environment of higher pharmaceutical costs, but only if pharmacy is included as an essential element of its strategic initiatives.

For more information on how to optimize your pharmacy program, click here.

About the author. As vice president, pharmacy solutions for Vizient, Dan Kistner oversees pharmacy contract analytics, a dedicated pharmacy field team, contracting and clinical solutions while setting the strategic direction to ensure that members maximize value by utilizing the industry’s leading GPO pharmacy program. Kistner has a diverse background in the pharmaceutical industry with experience in retail, hospital, specialty, pharmacy benefits management, supply chain management and mail order. Regardless of the pharmacy environment, one concept has rung true throughout Dan’s career: understanding and being able to manipulate “big data” as the key to building calculated savings opportunities in a health care industry that is dominated by expense increases.


Published: March 28, 2017