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Conversation About Drug Pricing : Dr. Lauwrence Baker talks to Sal about how drug prices are set
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- I am here with Professor Lawerence Baker from Stanford Medical School and I am hoping he can at least
- start to get me to understand something that I have always wondered and worried about a little bit, let's say
- I am some drug company - Pharma Co. A - Let's say I invest 10 years and 100 million dollars in some drug
- I get it through all the clinical trials and it gets approved by the FDA and it is say for the sake of
- simplicity it cures disease x , now once I get to that point. I feel pretty good about myself as a Pharma co.
- What happens next? I am assuming maybe I am going to have to go to the insurance cos, medicaid, medicare and figure out how much .
- they are going to pay for it. How is that conversation going to happen.
- Dr: Yes you are going to have a conversation with a bunch of different folks, in the US we have lots
- of different private insurance plans, we have Government plans and we are actually going to have conversations
- with Europe and with some of the other systems around the world, because each system will have a different way of doing it or similarities they want to talk to you about
- Sal: Does there tend to be a lead system? Does it tend to be the European or does there tend to be a private
- insurers in the US or do you start all those conversations at once, as there is so much money on the table?
- Dr: there is going to be some strategy or business is going to coming to you as it is hard to have
- all the conversations exactly, simultaneously. You will talk to US, you will talk to Europe
- There are some cases in which people have viewed the regulatory processes in Europe as little easier for something, so they may want to start in Europe
- But in other cases you are looking at a drug that some of the national systems in Europe are less likely
- to pay for you may want to start with the US where there is a little more flexibility.
- Sal: But the general rule of thumb is all the money is in Europe and the US mainly right now?
- Dr: A lot of it is, there are other Asian systems, some of them are pretty sophisticated and using a
- lot of advanced drugs too but I think a majority of them are in the US.
- Sal:Right, and between the Europe and the US, I guess, i have always imagined North America is where the bulk of the money was, but is that the case?
- Dr: The US, well I am sorry our health care systems spends more that any other country in the world and that is true for drugs too
- We spend more on drugs her than anywhere else
- Sal: Ok, so if I am Pharma Co. A, I want to make sure I get it right in the US.
- Dr: Yes, eventually probably care a lot.
- Sal: Part of my investment that I made is based on some understanding that if I got all the way that
- I would get some type of return within the US, So, will I necessarily, immediately got to Medicare as they are one
- of the largest players or will I go to like be talked about Blue Cross, Blue Shield
- or Kaiser or some of the other players?
- Dr: Medicare is kind of an interesting one for Drug prices because historically Medicare
- has not been a big cover and still isn't in lot of drugs you hear about - so, medicare does not pay by itself for outpatient drugs, you might take at home.
- Sal:Really, I always assumed - they dont'?
- Dr: They don't, Medicare in its main pieces - it will cover Part A, Part B, Part C - so let us go and start there, Part A and Part B
- they tend not cover but they will cover outpatient drugs if you get a drug in the hospital while you are hospitalized, medicare will pay for those and so you got to have a drug
- primarily used in that setting - you are going to talk to medicare about that, which will be an important piece
- of the conversation - but if you are talking about an outpatient drug you are talking to many.
- Sal: You are saying outpatient, Inpatient is when you are in the hospital, you are sick, you and say you need morphine right now, that is Inpatient drug. Outpatient is you are going back home, take this 3 times a day
- Dr: Yes someone sends you to the pharmacy to pick up the prescription, you take it home with you - that will be an outpatient drug. So, medicare does not cover that in it main Part A and Part B, there is a part Medicare part D which is drug plan in Medicare and that will cover
- a lot of outpatient drugs. You will have conversations with them, but most of the Medicare Part D plans
- are essentially private companies that Medicare contracts with so you are not really talking to the Government
- at that point, you are talking to the Private plans that have contracted with Medicare.
- Sal: I see, so once again going back to the crux of the question, how are these drugs going to be paid
- for? How are we going to determine the price these drugs get paid for, it goes back to the private plans
- again? Because they are going to Contract, Part D is going to say we are going to go to some other plan or whoever it might be
- Dr: whoever is offering those plans. Sal: Whoever has negotiated the Part D plan -So it will ride off what ever the private party has negotiated with the Pharma Co. Dr: Or could be related.
- Sal: let's say I go to, we have some type of insurance - let us call this Insurance co. Y and I go have
- a conversation with Insurance co. Y - now I am going there is a big deal with disease 'x' it has been killing people. I want 1 million
- dollars per bill Dr: Yes, those have been really interesting coversations in the US so there is some bargaining back and forth between the Insurance companies and drug makers.
- Drug makers have spent a lot of money - you have got a hundred million up there.