Governments will struggle to pay for high-tech drugs

Can the Government ever say no to a new high-tech drug? Probably not, given the entirely understandable demands from those who will benefit. This week, after a long period of negotiations, a deal was struck to allow sufferers from cystic fibrosis (CF) to have access to two drugs, Orkambi and Kalydeco. The cost has not been disclosed, but given that the original estimate was €400 million over five years, it will be a big bill, quiet likely in excess of €250 million.

The drugs will be provided to about 600 CF sufferers. It will not work for all, but when it does it will improve lung function and cut hospital visits. As Minister for Health Simon Harris said when the deal was done, the hugely drawn-out negotiations over more than 10 months must have been terribly difficult for patients and their families.

Like his counterparts across the developed world, Harris is faced with the ultimate political dilemma when negotiating about such drugs. The pharma companies, know that ministers – in whatever country they are in – cannot just walk away. Unless the cost is simply completely unaffordable, or the efficacy of the drug is unproven, the demand on governments to eventually approve and pay for such drugs will almost always win out.

General taxation

But as more and more of these drugs come on the market, where is the cash to pay for them to come from? The days when taxes were coming in hundreds of millions over budget each year, paying for health overruns and other demands, are over.We can’t just keep saying that the money for everything – from water investment to social housing to high-tech drugs – can come from general taxation – that we are “already paying for it”. And the overall amount of money now being spent on high-tech drugs is significant, increasing from just €170 million a year in 2005 to more than €590 million in 2016 and probably more than €650 million this year, with more than 140,000 people benefiting.

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Ministers here and elsewhere face the almost impossible dilemma of judging how much is too much when paying for these drugs. In the case of the more expensive high-tech drugs , the cost can be as much as €100,000 per patient per year, well above the €45,000 used as a maximum threshold by the National Centre for Pharmacoeconomics (NCPE), which assesses new drugs before they come on the market.

The most expensive drug cost the State €87 million in 2015. That is about €50 per annum for every PAYE employee in the State

A number of health academics and commentators have argued that it is often impossible to judge value for money and that the opportunity cost – what else could have been done with the cash – is often given insufficient consideration. To give some context, the most expensive drug cost the State €87 million in 2015. That is about €50 per annum for every PAYE employee in the State. The overall budget for high-tech drugs is now around the same as the annual cost of all day-to-day spending in the Department of Defence. These are fast becoming big numbers.

There are suspicions that for many years Irish governments went easy on the pharma companies, based on their massive presence and investment here, leading to stories of huge savings when people brought drugs on the continent, or even when they crossed the Border. There have been more recent attempts to cut costs. The State did a 2016 deal with the main drug manufacturers, involving significant savings, and has been trying to promote the use of generic drugs and so-called biosimilars, drugs which are designed to attack the same conditions as branded equivalents but have a slightly different make-up. New high-tech drugs are subject to a detailed analysis by the NCPE.

Vulnerable

All this will help, but the problem is that the State is still vulnerable in negotiations, when the next big cure comes along. No details have been released on the deal with Vertex, but it is likely to be the most expensive per patient to date – and presumably is well above the price recommended by the NCPE.

The problem for the State is that the costs are just going to keep rising. In a speech last year, Harris said the cost of drugs then under assessment by the NCPE would, if they were all approved, reach €1 billion over five years. With an annual drugs budget of €2 billion, the pressure is thus intense.

It is a dilemma being faced across the developed world. Harris has tried to push international efforts for collaboration in dealing with drug companies, which could range from information-sharing on pricing to common purchasing. This is worth pursuing and could certainly lessen the risk of countries being picked off in individual deals.

It would help if pharma companies realised that they can’t keep pricing on the basis of just trying to get as much as they can. National budgets will simply run out of firepower. Drug pricing is a murky area, and the companies argue that they need to reimburse not only the cost of the drugs involved but also research programmes which yield many more failures than successes.

If your customer base – national governments – can’t afford to keep paying for your new products, then the system is, sooner or later, going to break down. But as they chase quarterly earning targets, the companies are more likely to simply drive on and many – though not all – will keep looking for the maximum from each deal.

Harris and his successors will continue to be faced with the question of how much is too much. And saying “no” when a drug can make extend or save lives is never going to get any easier.