mitch mcconnell taking his position as senate majority leader, pope francis' historic address to a joint session of congress, the resignation of house speaker john boehner and the election of paul ryan, the debate over the nuclear deal with iran and reaction from congress on mass shootings here and abroad, gun control, terrorism and the rise of isis. congress, year in review on c-span thursday, december 31st, at 8 p.m. eastern. >> the health and human services department held a forum on pharmaceutical innovation and drug costs. this portion of the event included keynote remarks by centers for medicare and medicaid services' acting administrator andy slav visit and a panel discussion on innovative purchasing strategies for the pharmaceutical industry. this is an hour and 25 minutes. >> enjoyed your lunch and your break. we're now going to move on to our next presentationing, and

i -- presentation, and i have the pleasure of introducing andy slavitt, the acting administrator for the centers for medicare and medicaid services. andy is responsible for cross-cutting policy and operational coordination for medicare, for medicaid, for chip and marketplace programs including expanding health care coverage, to combat health care fraud, to reform the delivery of health care and improve health outcomes. so join me in welcoming now andy slavitt. [applause] >> all right. well, thank you all for being here today. i hope you've enjoyed the meeting so far in the morning and look forward to the afternoon. it's great to see leaders from patient groups, health plans,

providers or and manufacturers all here to come together around the same opportunity; to insure americans have and maintain access to life-changing and life-saving treatments. through innovations and life sciences and genomics, we have unprecedented opportunity to cure and manage disease like never before. so i thank you all for the role you play and your commitment to the discovery and development of these vital treatments and also your growing cognizance of public concerns regarding the accessibility of these medicines. so let me do my best to frame both the challenge and the opportunity and where i believe we most need your input into the challenges that we're discussing today. at cms we start this discussion

the same place we start everything, with the 140 million beneficiaries and consumers we serve. millions of our consumers, whether medicare, medicaid, chip or marketplace, rely on prescription medications to to manage chronic illnesses and to treat acute conditions. the science and innovation engines that are creating the medicines of the future will be an instrumental component of the quality of life of today's and tomorrow's men beneficiaries. -- beneficiaries. surveys also tell us that as costs go up, so does everyone's anxiety about their continued access to their own prescription medication. and because we all plan to use the medicare program one day, it's not just today's

beneficiaries, but all of us have a stake in the long-term accessibility to new therapies. today's discussion is designed to begin a dialogue that allows everyone in the room and beyond to chart a path that continues to encourage scientific discovery and insures those discoveries are accessible to those that need it. as we encourage the development of new generations of highly targeted, permized therapies -- personalized therapies, we need strategies for insuring access to these innovations. it is in all of our interests to find ways to improve affordability and access for patients, support and increase innovation in the industry and, most importantly, make people healthier. in 2014 cms spent $140 billion

on prescription drugs for seniors, the working poor, children and the disabled in the medicare and medicaid programs. that doesn't include prescription drug spending for the children's health insurance program and the marketplaces where monthly premiums are highly influenced by prescription drug costs. spending on medicines increased and % in 2014 -- 13% in 2014 compared to 5% for health care spending growth overall. the highest rate of drug spending since 2001. the drug costs are not just the states' and federal government's fastest growing costs, but through part b and part d premiums, coinsurance and deductibles, our beneficiaries pay approximately 16% of the bill making this a real kitchen table issue for working families

and retirees. per capita part d costs increased by 11% in 2014 driven by increased spending on higher cost drugs in the catastrophic phase of the benefit. given these costs, consumers' access is already under threat. surveys suggest that as many as one in four americans cannot afford and, therefore, do not fill the prescriptions on which their health depends. state medicaid agencies in some cases are in the difficult position of withholding vital therapies for people many need. in need. the reality is cures and improvements in the quality of life are not available to everyone. access isn't a problem of the future, it's a problem of today. and evidence suggests that this trend of diminishing access

could continue if we do not work together on viable solutions. one element of the challenge of specialty drugs, which we've talked about today, which are a small fraction of prescriptions but nearly a third of all costs and growing very rapidly. these therapies are expensive to develop, and for every great cure, there are many failed investments. but we need discussions and solutions that allow us to bear the cost of development fairly and reasonably and not have it threaten access to the very people the drugs are developed for. hepatitis c, as we've talked about today, and the new drugs available to treat the disease shine a light on the issue. we have the potential to cure this disease. however, tight state medicaid budges struggle to provide broad access to this cure.

generic medications have been one element of our affordability strategy. each year the use of fda-approved generics saves the country $200 billion. however, in some instances the prices of generics available for years have increased substantially without any additional benefits for patients. this is a concern across the country but particularly for consumers on fixed incomes. we need better insights and visibility as generic medication prices given to grow. begin to grow. so how do we make sure that our beneficiaries have access to the best quality medications so we can keep them healthier? and how do we do this not only today, but in the future with the convergence of two factors; more people gaining coverage by aging into medicare or under

expanded medicaid and the pipeline of high cost specialty drugs continuing to grow. i've had a number of conversations recently with innovative manufacturers, with health plans, patients and other stakeholders in this room and out of it, and i can report as you're hearing today a great interest in finding a tragedy which gives broader access to the innovations being created today and in the future. the right ideas will in turn create bigger markets for innovators and should serve to create a more predictable climate for investors to support the innovation we need. and as the secretary said, we shouldn't have to choose between innovation and access. as a country, we can work together to find strategies to achieve both. so we approach this understanding of how to approach this challenge beginning with an

open dialogue, a shared set of facts and the search for the best ideas. the different interests may have different views, but we believe there are a common set of objectives we're working towards. so we do believe that patients, manufacturers, providers, insurers and government all share a common goal; to foster a health care system that leads in innovation, delivers affordable, high quality medicines is and does result in healthier people with sustainable access to the care they need. so as we continue to engage with many of you, my hope is that we will continue to hear real, practical ideas and proposals to maintaining innovation while finding ways to improve access. we are particularly interested in continuing to hear your ideas in three important domains. the first is domain of value and

value-based payments. our commitment to our customers and taxpayers can be summed up by the word "value." as a purchaser, a logical question for us to start with is are we getting good value for the consumers' and taxpayers' dollar? over the last year, in fact, we at cms have moved strategically towards rewarding physicians, hospitals and other care providers who deliver better care, spend money more wisely and keep people healthier. we have committed that within two years paying through these alternative payment models will be the dominant way that we reimburse for care. we've done this in close partnership with care providers or, experimenting with new models, taking feedback, improving the models and publishing the results transparently. so just as we pay for quality in care delivery, how should we

create incentives which take the entire health and outcome of an individual into account? how do we create rewards for therapies that reduce disease, keep people in their homes and out of hospitals or other institutions and control chronic diseases while improving outcomes? what's the best way to pay for targeted therapies when they work for some patients but not for others? how do we think in terms of episodes of effective treatment rather than just the cost of a pill? this dialogue on value we are having today represents an important opportunity to understand how to invest in innovation and improve access. we need to learn more. the second domain is in information transparency and availability. we don't have a common understanding of the data and know the drug costs are often

unclear. there are list prices, wholesale prices, average wholesale prices, rebates, supplemental rebates, mark-ups from hospitals, mark-ups from physicians, different costs when drugs are administered outpatient than inpatient. mail order prices, and, of course, patent expirations, compound samples and many other ways that end up obscuring the reality of the price paid, who pays and how it all influences treatment decisions. and most of that information is not available or well understood by the public, making it hard to have confidence that we have a truly functional and transparent market that delivers good value for patients. the truth is we don't have enough public information on the effectiveness of new drugs in the real world or about prices and rebate structures. as a result, anecdotes --

whether about pervasive generic price increases or other things things -- draw significant attention. so in order to avoid reacting to misinformation, we must increase the transparency of the information available about drug pricing and value. how do we make public the information that will allow us to understand prices and value? how do we educate the public on the cost of these medicines? the value chain? the measures of effectiveness? how do we create visibility into price increases? how do we help the public have an informed debate on the size of the federal and state expenditures or the unit costs or patient value created? we want ideas on the best way to take steps to improve transparency. the third domain is incentives and hurdles. we have to understand what has gotten us here in order to make

progress. are there rules and regulations across government that are getting in the way of affordability and access? what should we look at across cms, across other parts of hhs or in other areas that will allow us to improve affordability? what other hurdles are there? also what incentives are are inadvertently driving costs? what could be changed about how incentives are created for physicians, hospitals and pharmacies? in each of these domains, value-based purchasing, transparency and barriers and incentives and others, we are committed to taking in all ideas and working collaboratively. we know everyone won't always agree on every step, but we plan to take these issues on transparency and with public input so that we can move forward, learn and improve.

in an effort to work towards solutions that will address the challenges we all spoke about today and uphold our obligations, we ask everyone in this room to use this forum as a way to better understand the positive role we can all play in this process, consider how we can contribute to constructive solutions over the coming years. i hope today's public dialogue kicks off a commitment to listening and working together to advance ideas that do improve access, affordability and innovation so all americans have access to the breakthroughs ahead. there are no easy answers to these multifaceted challenges, but there's significant benefit to all of us of working together to find a solution. we want to explore the best ideas, and we're committed to making progress because the public is relying on our ability to find solutions. and we look forward to working with you in the coming weeks and

months. thank you. [applause] [inaudible conversations] >> well, we thank andy slavitt so much, and as he said and as others have said over the course of the day, if we're going to keep the engine of science and innovation humming and producing the kinds of treatments and cures that we all very much want and yet keep them affordable and accessible to patients, we're going to need strategies, as andy said. and that will be the focus of the panel i will introduce

shortly. just before i begin, though, a quick refresher course on some of our housekeeping details. the program is, indeed, being webcast. the q&a period will be webcast as well. after each, we wrap up our initial discussion, we're going to invite you once again to come and pose your questions and once more, please, come to the microphone in the center of the room and keep your questions succinct. once more, gives are not permitted to rove around the building alone. if you do need to get to the restroom, cafeteria, make a phone call, please go back to the registration table and request an escort. photographs and cell phone recordings are not permitted. well, with that, going back to andy's word about strategies, our next panel is going to focus on those discussing both purchasing strategies and managing utilization. we're going to be sharing information now on how various purchasing strategies might work

to uncover any of those barriers or challenges that andy referenced and actually implement these new strategies. the goal is that we'll all come away from this discussion with a better understanding of some current models that are evolving, some innovative approaches that we might consider going forward and how we really can get to smarter spending and smarter purchasing on prescription drugs. so we'll be hearing about various pharmacy benefit management approaches, some state and employer approaches to utilization, management and much more. i'm going to introduce each of the panelists and ask each of them to give a quick sketch of their role as a stakeholder in this discussion and particularly address this notion of how we begin to get to some of the new strategies from their particular perspective. so first, i'm very happy to introduce right next to me chip davis can, he's president -- davis, he's the president and ceo of gpha which is the generic

pharmaceutical association. we've been hearing a lot about generics over the course of the day. tell us how you're viewing this need for new purchasing strategies from your perspective. >> sure, thank you. susan, good afternoon. on behalf of gpha, it's a privilege to be here with all of you today. let me join the chorus of the priest panelists who -- previous panelists who thanked secretary burwell who put together this meeting in what i don't think has been referenced yet, such an amazingly short period of time. a thanks to the department and to the secretary. susan, specifically to your question i think that within the construct of this education and focusing on things like utilization management, design, best practices, it's certainly important for us to keep in mind sort of the charge that the secretary put in front of all of us earlier today which is how do we actually go about insuring that in the u.s. market that we can continue to lead in areas of innovation while making sure

that the affordability issues that are there and are real get addressed. and at the same time, driving to better health outcomes, right? so no small task, and there are things particularly in the areas of benefit, design and utilization management that i think we'll be able to talk about today. from the generics point of view, i think doug long covered a good number of the relevant data in terms of the savings that is delivered. i won't reassert all of that, but i do think in terms of, to set some context because there has been a lot of discussion of late around generics, specifically generic pricing and some assertions of excessive generickics pricing. -- generics pricing. in 2014 we saved americans $250 billion. if you add up what the federal government spent in medicare part d, medicare part b, the v.a., tricare and the children's health insurance program both drug and nondrug related for the c.h.i.p. program, that level of

savings would cover all costs for two years, and you'd have $50 billion left over to invest in other health care. the administrator just said something really important that we need to reinforce. there will always be stories about outliers, and many instances -- and i need to underscore some medicines are being portrayed as generic, and they're not -- we have to be mindful that setting policy and making policy decisions based on outliers and anecdotes can drive unintended consequences particularly for a marketplace that while i'm still relatively new be, i can tell you based upon my experience is the most intensely competitive, highly regulated, quasi-commoditized sector of the health care system. the other point i would just make as far as an opening statement is everybody -- there are certainly legitimate concerns around affordability, obviously, we heard a lot of

those passionately on the last panel. and often it is said particularly as we head into an election year and it's highlighted that americans pay the highest price for medicine in the world. per capita that's accurate. it's not accurate for generics. and, actually, if you compare us to europe, if you compare us to our friends to the north in canada, we actually pay less than we do in all of those markets. in fact, that's why just earlier this week in his confirmation hearing in the senate dr. cay live was asked about importing drugs from canada, but he was specifically asked about branded medicine, and generics are more expensive than they are here in the u.s. i look forward to having a discussion around that. >> terrific. thank you very much, chip. next, we're going to hear from andrea grande, vice president of health benefits at aon hewitt. andrea? >> thank you, susan. as we heard today, drug trends are in double digits n. 2014

u.s. prescription costs increased 13.1%, and they are largely driven by specialty costs, unprecedented at 31%. specialty costs only represents 1-2% of the volume, in the next few years its financial impact will be more than 50%. now, specialty drugs actually come with a price, they have been life changers. over the last hundred years, life expectancy has increased from 47 to 78 years. and in only the last 20 years, that's related to hiv has decreased 80%, that's related to cancer has decreased 20%, and hepatitis c is now curable at 95%. and advances in treatments of rheumatoid arthritis and multiple sclerosis has slowed the progression of the disease and in some cases remission.

so there are logical strategies and varying approaches to how we balance the rising cost of health care while still providing access. and some of those opportunities revolve around utilization management strategies, formulary designs, plan designs, narrow networks and managing medications not only from a policy perspective, but from a medical perspective as well. s this is a constant balance of cost and assuring that the right member gets the right drug in the right amount. and we face that balance every day. today need to be prudent financially, but they also want to make sure they bring value to employees. so while cost does matter, employees and their families do as well. >> okay. thank you very much. and we'll look forward to coming back to hear more.

brian leaman is with us, manager of pharmacy benefits and policy at ohio public employees' retirement system. so, brian, give us a greater sense of your role as a stakeholder in this discussion. >> yeah. so i'm involved with the public sector, the active and the retirees, opers is a member of health care round table which has $15 billion in health care spend, and we appreciate the opportunity to share our story here with everyone today. the specialty drugs is an area of considerable concern from from an affordability perspective. we do the best that we can to have affordable prescription co-pays. we have, like, $4 generic co-pays at retail right now, and we even have some value-based insurers with zero dollar co-pays for different disease

states. and we try to keep premiums low, but we're struggling. weaver doing the best -- we're doing the best that we can with regards to contracting for our medicare population. we have an employer group waiver plan contract for that population, and then we have a standard commercial contract. and then with all of the different tools that are available now today, we're using a good majority of those tools. some of those tools i think will be beneficial, you know, to med b and some other areas, and we'll talk about that later. but those tools are helping somewhat keep those co-pays low and keep the premiums low, but we're really looking for these innovations, and we're looking for the value which, again, i think is very important to separate the affordability discussion with the value discussion. and on the value discussion, these value-based contracts, the indications-based contracts are very attractive to someone like

opers in a public retirement system. we think that that could be a potential solution to helping us keep health care costs under control, and also we're encouraged by some of these -- as peter newman's called it, private sector solutions, the what they're doing with regards to drug costs. >> and by that you mean particularly doing analyses of the actual costs compared to -- >> right. >> okay, great. so we're very happy also that justin senior is with us, he's deputy secretary for medicaid at the florida agency for health care administration. so, justin, give us a sense of your perspective as a stakeholder in the medicaid program. >> thank you, yeah. again, i'd like to echo the thanks to the department of health and human services for having me here today to give the state perspective on an issue where really the importance of the issue to the states can't be

overstated. the state medicare programs pay for an enormous amount of pharmacy in our states and have an enormous responsibility with respect to health care and, frankly, also with respect to public health. in our own program, we serve about four million floridians in any given month. our pharmacy spend is approaching $2 billion, and specialty drugs have had an incredible impact really starting in september of 2013 on the cost of our program. last year we built in, and i heard some numbers earlier, but last year we built in about 8% pharmacy trend -- 18% pharmacy trend, and we deliver care through health plans in our state. i don't think that that is out of the ordinary. and the real debate that plays out in the states and that's probably worth mentioning here is that every time there is a massive increase in the cost, including particularly a specialty drug, we spend about $120, $130 million from january

1st of 2014 through august on hepatitis c treatments. that is enough, and i did some back of the envelope calculations, that's enough to fund about 20-25 elementary schools in the state of florida for a year at 600 pupils per school. it's enough, actually, to fund the entire state park system. that's the operating budget in our department of environmental protection. but the education component is really important, because the states really need to be able to make investments in public health, and one of the best investments you can possibly make in public health is an effectively spent education dollar. if you can effectively spend education dollars, you can lower the obesity rates, lower the teen pregnancy rates, lower the std rates, you can just make enormous strides in health as opposed to health care. and we spend an enormous amount of money. our surgeon general gives, has a peach where he likens the public -- a speech where he

likes the public health system to a river, and we spend an enormous amount of money on people after the fact, after they've gone over the waterfall on treatments and cures and not enough money on prevention and making investments there. and when we are compelled or when we have to spend an enormous amount of money on our medicaid program, this plays out year after year in the budgeting for the state of florida and, frankly, in every state. the fact that you're going to have to cut education, that other priorities are really going to be put on the chopping block as a result of this program which is taking up a greater and greater percentage of state budgets. states, they are required to have balanced budgets for the most part, they are -- they do not have a license to print money. in a medicaid program, we actually have a partner that does have a license to print money which creates a very awkward environment, but having to talk about some of the utilization strategies, utilization management strategies, this is just a

critically important issue for the states around the country. >> great. thank you so much. and now we're going to hear from christi shaw who's u.s. country head and president of novartis pharmaceuticals corporation. >> thank you. and thanks for having me here as well. you might say a little bit about i guess i'm the first one in the hot seat from the pharmaceutical industry, if you will. i'm happy to join the dialogue. novartis is a swiss-based company. we are leaders in eye care, leaders in pharmaceuticals and leaders in generics with our sandos division. and right now you heard this morning we're really in a moment of innovation that is really helping people live longer, healthier lives. last year, as you heard from doug this morning, 50 new medicines were approved last year by the fda which is the most and the highest in about 20 years. and so as we look at that, it reminds me we probably, some of us, have seen this actually take

place, the change in our own families. when my mother was 49 years old to, she was diagnosed with breast cancer, and in those days it was the chemotherapies that we know about today and their toxicities. and unfortunately, she passed away the same year the inhibitors were approved. and had she had access to that innovation, my sisters and i would have got another 18 months to five years with her to create more special moments together that we missed. fast forward, when my sister turned the same age, 49, she was diagnosed with bone marrow cancer. very difficult diagnosis, takes a while to get diagnosed. we almost lost her. without treatment, seven months is the life expectancy. and she had been on five innovate i medicines. -- innovative medicines. she went, after her bone marrow transplant, from the first to the second medication, and then she failed after one year. and luckily, we had, were able

to get her on a combo of two novel medications. and every time, every month she went to fill her prescription, she had to wait until she took last dose before she was allowed to be shipped the next dose, and in between that 24 hours had to have a qualitative survey, a hospital blood testing and make sure that the paperwork was faxed from the office to the pdm, and all had to happen right. and when i first noticed this, she said to me, oh, it's okay if i miss a dose, i said, no, you can't miss a dose. she said, i missed six doses last month. and so i see even the cost, but also the struggle of the paperwork that providers and patients deal with. but luckily, after the last treatment she had failed in three months, she was able -- with just that three months not feeling like it's very long, but it bridged her long enough to the new multiple myeloma drug that was approved just a week

ago. so we get to spend another thanksgiving, another holiday together which i'm grateful for. now, i say that knowing it's not just about innovation, but we need to make sure patients can access innovation. people are living longer, healthier lives. we have more people turning 65 and over 65 in the next 25 years, that population's going to double. every single minute seven people are turning 65. and so that means that costs are going up. and as you look at those people, two out of every three of them are living with a chronic illness and sometimes multiple chronic illnesses. two-thirds of our health care dollars are spent on that population. so as we increase the health care costs, we need to actually all come together -- which is why i'm so happy to be a part of this forum -- to say how does one cost affect another? where is the value in the system? what should we be paying for, and what's not of value that we should take out of the system? we at novartis want to be a part

of the solution, and we've embarked on this outcomes-based contracting a couple of years ago, and we've run into some issues. and we've run into some successes. we have many states where we've signed up for outcomes-based contracting where we must prove the value of our product. we have one in multiple sclerosis. but you need to get the value that you saw in our clinical trials, or we give larger rebates. we're on our second year in that one. we have a new product that was approved just this summer for heart failure. it was actually shown versus the current standard of care to reduce death by 20% in heart failure patients, to reduce hospitalization by 20%, to reduce readmissions within 30 days by 44%. it was proven by some of these external bodies to be cost effective, yet when the fda gave accelerated review, approved it this summer and we got it to market in 48 hours, it was blocked for any patient in medicare to get access.

and it was blocked 100% until october 1st, and now 91%. ..

>> to talk about the management strategies that you put in place in florida. 120 to 130 million to the state as a consequence ofa consequence of those drugs in the medicaid program contributed to the 18 percent trend. as we heard earlier, the secretary wrote a letter saying you have an obligation to provide these drugs. we obviously stepped up to the plate. what utilization management strategies did you put in place, and what did they tell us about the strategies that willow will not be effective in the future? >> the hep c drugs are an interesting one. the price pressure creates an interesting dynamic that

a lot of people did not think of. you create the danger of diversion and fraud and waste which was a particular concern. utilization management strategies, they were characterized as rationing. there was something you have to be concerned about in florida or any other state when you hand someone a violent medication with $28,000 and we have seen the drugs that you would think have no possibility of being abused i get diverted to other sources. >> patients are getting the drugs and selling them? we have seen that with high cost pharmaceuticals that are not the type of drug you would expect to be abused. we had real concerns about this particular drug. we wanted to make sure

command when you spend money in a statea state medicaid program everyone wants the dollars to be spent effectively. it's a major black guy. that type of scheme was going on in the miami area. but if that happens, they were only taking every 2nd drug and the other drugs are being diverted. so you want your program to be viewed as effective. you have to have your viral load tested before you start taking the drug and one month then you have to have it tested again. responsive to the drug but the other part is to make sure you are taking it. we have -- it's easy to get

the drug if you are level three or four. >> around viral load. >> that's correct. it was also hard initially because for a brief time period we had one drug we were dealing with. it was not an effective competitor in the marketplace in nearly a year when you go to negotiate you really don't have much negotiating leverage. once additional products came on you are able to negotiate and get one of the products on the deferred drug list. but initially you want to make sure the people getting the drug are effectively getting treated, using the drugs, adhering to the drug and you want to make sure the people you give it to our verified.

what you need are success stories. that is the way taxpayers want their dollars to be spent. >> let's think about the other specialty drugs. coming in the marketplace, howmarketplace, how do you think you will adapt utilization management strategies, getting the right drug to the right patient at the right time and minimizing the untoward effects mac. >> so many variables, but it is drug specific. give it to someone that is asymptomatic.

that really pushed the price.upward. we don't see the danger of abuse around that. you don't see the issues with adherence. it is something we are much more comfortable with. >> let's go to you and talk about employers and what they view as their most effective set of tools, tools,tools, not necessarily there tools but tools that they ask others they work with whether they be pharmacy benefit managers or insurers and others to engage in. they have tried a lot of strategies for mail order to formularies as we move in to the specialties in particular.

most effective purchasing utilization strategies. >> the business strategy, so it varies. >> well, what is available and what i referenced earlier, the program appropriate. so far the guidelines and ensuring safety, there are different formulary options. also different designs and

-- >> to they feel that those are enough or do they want to move more in the direction of some of the types of arrangements that christie was describing where there would be rebates where drug don't prove to be as effective? >> it really does depend on the employer and their strategy. i think one of the areas that we need to remember his medications are available from pharmacy and the medical benefit and we need to focus on how to manage the entire medication. >> that gets back to the point that mark was making earlier. picking about the most effective, referenced a couple. what do you think?

>> we also are using a lot of the same tools. they have helped us realize savings. we saved 9 percent of our total fund because of utilizing those tools. but 22 percent last year. overall drug spending went up 13 percent. it is not enough. and so now it is actually clients pressuring pbm's, health plans to do something different. with express scripts and doctor miller will talk about the indications based contracting. paying for drugs based on value.

increases over a shorter time period. talking with health plans like humana about the value -based contracting, the outcomes based contracting and we want to pay for value and then drug price inflation has been something. when i go down and sit down with leadership and say what's going on i have to say, well, here is inflation there is not much i can do about it. we have to push our vendors like our express scripts to do's, drugs during contracting to help bring the prices down. >> so, i'm going to go to you. one of the domains that andy referenced earlier talking about the three domains and

want to bring some insight. value and value -based payment in the 2nd one he referenced is transparency. you mentioned we have some anecdotes now about what has gone onis gone on with some generic drug price increases and branded generics. as you mentioned, there are some that are not really generics. what would you suggest needs to happen yourself now from the standpoint of more transparency, more information about these drugs, the cost? we know there is a patchwork a patchwork of arrangements under which even generic drugs are purchased around the country drug prices for generics can differ deeply. what do we do and where do we go? >> to me i think one of the most important things that we have to factor in in the collective desire to ensure the affordability across the spectrum, and we pick up on

something that christie said in her opening comment, this is such an amazing time that we are on the early stage of this innovation vis-à-vis the specialty area. it creates huge opportunity and obviously comes a challenge. somewhat argue in that context how reimbursement systems have not actually kept pace with the advancements in scientific development. that is not an easy thing to address. one of the things over the course of today so far that have been made clear is we actually need -- there is increased cost of the system coming with more specialty meds as a higher percentage of those probably the fda, how do we create additional headroom in the current system to ensure that there are affordable alternatives

in those areas where competition can drive lower pricing? and their examples in terms of public policy and medicare you can incentivize greater use of generics both and medicare as well as the healthcare system. trying to move to generics or requiring thatare requiring that to be applied within the area of the deductible.

i think if you combine that in some of these things medicare proposal i shared is over the federal government. that can create some but not all that matter of to create some time to create the new world order an environment, specifically transparency. i think it is important in the patient centric consumer driven healthcare system that obviously is an evolution that we look pretty areas that make the most sense to be completely transparent and balance that against the fact that many are because of the level of hyper competition. all aspects of the negotiations you don't have

a market space system anymore. it is good for our industry, but most importantly is best for patients. >> what do we do about the situations? we have had a few of them arise where older drugs have been purchased, the prices have been marked up a great deal and there is no relationship between the cost of production on the priced and the organizations are feeling the pain of that. what dothat. what do we do and how do we get transparency into that equation that really does help us understand why these prices are where they are? >> in some ways a couple of them have been the most visible, just to put the qualifier out there, these are companies that we don't represent.

i will say this, i actually think that if you look at some of the instances, there has been a level of transparency and scrutiny, if you will in terms of the societal marketplace that has had an enormous impact on some of those companies. and to the extent that there are companies that are outliers that are going to take business decisions that are going to be in the environment where more people are watching more frequently, again a more transparent overall operating environment and greater sensitivity, if you look at some of the particulars around the companies and whether it has changed everything from the business practices or everything up to and including the market valuation, i think the societal marketplace has had a significant impact of late >> judgment imposed in terms of shareholder value. one of the domains that andy

mentioned was incentives and hurdles. what incentives do we need to introduce into the market, andmarket, and we can talk about the role of incentive and purchasing strategies. he mentioned an important one, does the drug worked the way it looked like it did in trial? what is the hurdles, the roadblocks but we need to get over in order to make these arrangements work. let's talk about that for a bit and come back to thinking of new purchasing strategies, the move toward value -based payment comeau what would be incentives and what would be obstacles that we need to get over? >> we started working on this in the last. probably four years ago. come work with the barriers as we have gotten a few contracts up and running.

one of the barriers is the fact that when you run a clinical trial and get approval what is in your label is the basis of the outcome contract. for example, if we studied the reduction in mortality and first-time hospitalization those of the endpoints we are allowed to contract on. if they want to look at total hospitalization, x, y, or z there is no flexibility for us to be able to actually put that in the contract. even though it would make common sense and we may say yes we will put skin in the game. that flexibility around what we measure is one piece. >> what would have to change for you to do that? >> at the fda level. what is consistent, not misleading, not misrepresenting but something that is proving value according to what the health insurance plan needs. so that is one.

another issue is incentives, if you will. if we are trying to talk to a pbm they are only measure is the drug costs. so they have very little interest in talking with us about outcomes -based contracting because they are not responsible for the medical fees. the short-term incentives versus the long-term gain not only is a problem today the becomes a bigger problem later. we have a medication developed at the university of pennsylvania for a form of leukemia where we have patience children, emily is one of them in particular who was dying and she has gone through every other medication. she received immunotherapy where they took her blood, put it back in and she is cured a few years later. and so when you look at that we have many patients

already. it is not yet marketed, not yet available, but it is life-saving. how do you charge for that? the situation where 1st of all we can't talk to payers before we launch the drug. itdrug. it is not legal for us to pre- approve an emotion and talk about this cost is coming. how are we going to manage this for your budget next year. so they then say what are your incentives? if you pay for a cure this year, live to 80, or how can we have a longer-term mortgage like payment and don't make everyone pay immediately. there are all kinds of regulatory policy issues, but if we work together we can get to it and be a benefit. >> let's move into the medicaid program. hurdles and incentives.

what would you see as potentially needing to change that would give you more tools to bring to bear on utilization management or purchasing. >> the line of business in terms of what we cover in healthcare, we are trying to shift toward value -based purchasing, and states are doing that in a variety of different ways. getting in the way of value -based purchasing, can get in the way. >> mentioned that briefly. let's go down a little bit more. >> the best price available, it becomes very difficult to calculate when you are in a value -based purchasing arrangement. what is the price of the drug when you're saying you only get paid if you reach a certain tour level. so then if you as an excuse for getting out of the steps arrangements, that's it if

it works. they don't necessarily approve it saying it works better than things that have previously been approved and that can create some friction when it comes to dealing with providers who seem to want to gravitate toward the newest even if it really doesn't turn out to work any better than some of the alternatives. >> so what is the solution? mark comparative effectiveness information? >> i think the comparative effectiveness would help because you can potentially gets old which populations are going to benefit more from drug a versus drug be our treatment regimen a versus treatment regimen the and can allow the states and the managed care plans depending on how the design the program to target the types of treatment to the

individual. from the state level what we are left with is really using our medical necessity definitions, using prior authorization and then we are trying to develop innovative arrangements around healthy behavior. behavior. he tried to reward adherence and engagement and healthy behaviors and give plans are states the ability to provide economic incentives to individuals for adhering to the drug regiment and making it to their appointments and things like that. when you look at health plans we have so much more data coming in now. you have to try to make sense of it. it. but we can look at the health plans and our program and see how many diabetics are in each program and see what the spend is from the encounter data and try to understand what plans appear to be getting the best value

in the way they treat diabetes patients and hypertension patients trying to incentivize those things and get better care coordination to present to those cost drivers is something that we focus on in addition to the tools that we have. we can't be stripped of flexibility in that respect. the states have to have flexibility to make the investment decisions in their own state. no one wants anyone to be harmed. it is not a decision around trying to hurt someone. it is trying to help as many people as he possibly can with the resources you have which will vary from state to state. we actually have, and it is

worth mentioning, we used to have a disease management program that sat side-by-side for certain disease states with our supplemental rebate program. it was so difficult to get the value command we cannot tell whether we were getting more bang for our buck. getting to quality and cost in this realm you really have to have the right data, and it is difficult to wade through and figure out whether you are getting value are not. >> the important of data, data, transparency around data, sharing of the information becomes important. brian, thinking from your perspective managing benefits for the active employees of the state of ohio, the retirees, what incentives do you think you could avail yourself of if

they existed for you could do an even better job of purchasing utilization, and where the roadblocks in hurdles? >> the plan design is something utilization management programs, something we need to continue to be able to use those tools to,to, you know, help manager make the prescription benefits affordable for retirees. we do really want the outcome based value -based contract to work. i like your point that from my perspective we really want to see these improved medical outcomes. within a health plan type environment you can see entities like humana wanting to do these kind of contracts because they are responsible for managing both sides of things. so there are struggles with that. the infrastructure, the data that they need to get from

providers. so what we can do, all of our voices, you know, the health plans, ifplans, if you don't do this we can move our business someplace else to provide these type of contracts. the contract and purchasing, being able to know the medical diagnosis when they are actually coming to a retail pharmacy and trying to get the claim for one or another. there is no requirement for a diagnosis to be written on the prescription. they are not able to see the medical data. that will be something that would be helpful. the system, as i mentioned

earlier, after the ncc end they really -- >> the oncology society, the national comprehensive cancer network. >> clinical economic research. private sector entity doing the analytic comparisons. >> the challenges with someone in the public sector or even the private sector, using that information for decision-making, you know, can be a challenge. there is a need for support from policymakers. what i do like is that have given a tool and have given it to the doctors and pharmacists and other healthcare professionals are with the patient's and then

they have the discussion at the point of care which helps make that decision. and it takes away some of the barriers of using comparative effectiveness analysis and the formulary decision. >> i want to go to you and talk about incentives and obstacles, but i want to bring in the employee perspective. the employer has done i kind of a dance. they want to do things to get the right treatment to employees when needed. they want to manage this is a benefit for them to essentially offer health coverage to their workers and get the right care to the right person. what are the strategies that employers think are going to help the most in creating this relationship and maintaining this relationship going forward with their workers and get get them to an affordable sustainable --

>> employers need to again bring value to their employees. what they see as a strategy medical and healthcare. so rising currently. i think this is a constant shifting to basically see where the environment is as of today and provide what is best for them. >> the value -based insurance design where

co-pays would be waived for the most effective drugs cost cost effective drugs. potentially be much higher. could you sell that to employees in the current environment? >> again, we work with employers to ensure that we are providing them with what they need. so if that would work for them and that meets their strategy than we would. again, it depends on who the employer is. >> i want to give you a crack at this notion of incentives my additional incentives that would ensure more use. i wanti want to give you

another chance to put ideas on the table. >> i think you know, to take advantage of an increase the level of competition in the generic market place we should be looking at policies that will support that. i mentioned the programmatic changes to co-pays. recently in the budget agreement that congress passed which is good news for the government is staying open, the reality is that there was a rebate provision that applies to generic drugs. to be candid a lot of people on capitol hill before and after or referring to the provision to take care of some of those anecdotes and outliers that have been in the news. it was applied to the generic industry. in one of the ceos publicly said he supported the

provision. so the net effect of it while it is intended to be affliction -- and inflation rate adjuster, the net reality is it will actually impact companies who take no change to the pricing potentially dependent upon a change in the customer mix. and if and when that happens there is no guarantee any individual company will stay in a particular therapeutic area, again highly competitive cause i commoditized market. the net effect of that there may be mess -- less competition and not more and they will be rely more on the original innovator higher-priced product that could have a negative impact on state budgets. so that is one where we actually think while they were understandable intentions going in, and part because this came

together in a matter of 28 hours there unintended consequences. i also just want to say, it is interesting to just in the course of today we have heard numbers like 44 billion which is the ram study or talked about potentially 70+70 plus billion. they put it to hundred or 250 billion. we don't know. we are at the dawning of this. and what i would say from public policy perspective is , if we get the policies right that clearly support a pathway, that increase the playing field in the marketplace as opposed to putting hurdles in the way, whether those hurdles have to do with things like naming or labeling of reimbursement comeau we will be at the lower end of that number. because back to creating the headroom and we need to get

these 1st in class truly innovative drugs to market, allow them the room to grow, allow them the room for the data point's that have been discussed today and then overtime has patents expire we create a pathway and don't put unnecessary hurdles in the way to realize the next wave coming. i will tell you right now come on the generic side we see some concerns about there being more impediments that incentives. >> on the one you mentioned, the naming issue is requirement that it also carries some initials, the name of the producer which may make it harder to make those bio similars interchangeable. >> there is a lot of this, a lot of issues pending before the fda and cms in terms of the approval process in the reimbursement process. we would point to europe, a lot more experience. so little bit converse to

what we are used to in the pharmaceutical market, europe is ahead of us in many ways and we can look to policies that they have adopted, whether they are appropriate here or in many instances, whether it is days abuse or some of the politics five policies. >> i just want to come back. there was a reference in an earlier panel. and the potential generic user fee arrangement pushing for it more. >> we have a user fee arrangement. here in the midst of implementation, just pastor three. so in many ways the industry gets a 20 year head start in terms of user fees.

here is what i would say, it is a very real issue. my sense is that in discussions between the industry and the fda required that the continuous engagement dialogue, my experience 90 days in is that there is recognition by the agency and the industry and that in many ways it sort of feels like driving through homework sonar construction zone and are learning as we go which means my experience to date has been, i'm optimistic that the commitment to take the learning from the 1st into the beginning of discussions around the 2nd which has to be reauthorized by 2017, there are opportunities there. the fda in the office of generic drugs have been extremely committed to try and build resources hiring people.

acknowledge almost a thousand fires earlier this year. in the process of being trained. and actually over the last couple months if you look at the total data, the level of actions being taken on generic applications has gone up. that is a positive trend. at the level where we can look out in the short-term and say we think the backlog will go away anytime soon? probably not, but there are trendlines that we must capitalize on and focus as much on the areas of alignment as much if not more so on the areas where there are things we have to work through. >> we have lots of strategies to consider. wewe once again want to open it up to questions. once more please come to the center aisle, avail

yourselves of the microphone. >> chief pharmacy officer for capitol district division health plan in albany, new york. i wish i could ask you all a question. so it is obvious you want novartis and you want that message to be out there, but two pieces of information that have been published recently, i would like you to respond to or comment on the 1st one surrounding playback published by bloomberg businessweek. between 2007 and 20142014 the price of that drug increased 158 percent. and the 2nd piece is published by randall houston recently command this shows $10 billion spent on r&d

versus 14 billion spent on marketing. so can you please comment on both of those? >> the 1st question, one of the things you heard quoted this morning was that the increase is 13 percent year-over-year. they also looked at the net price. they took all of the pharmaceutical data. i was just published in a recent couple of weeks and so if you look at the transparency piece, what actually is that price, you get two very different stories. >> they have been increased.

in fact probably all. we see how much patients are paying for the medications. the patient's pain over a hundred dollars. >> hundred dollars per. >> in the patient assistance program last year we give away 500,000 free medication to the patients. so when you look at the whole, one piece of it, it is important to look at the whole piece of the healthcare system. nine out of ten prescriptions right now are generically written. so the rate of innovation is just coming back. as you look at one out of ten prescriptions being branded you also have to look at the total amount spent on brands, ten to 12 since we heard today out of

every dollar. that was true for the last 50 years and will be true for the next ten years. the cost of healthcare, dollars spent his $.10-$.12 on the dollar spent on brands. andbrands. and so when you only look at one piece of the healthcare system you have a hard time because you're talking about this price, this price, or this price. if price. if we can get into a discussion about the value of it, there's $450 worth of value. patients don't diet of chronic myeloid leukemia. they lead productive lives for the rest of their life and i have something else. novartis has captured 9 percent of that. i think we need to look at the big picture and not one piece of it. >> profit. >> in terms of what we gained over that period of time. >> just to take the 2nd part of her question which is market expenditures versus r&d expenditures and

the data that has exceeded the r&d cost. speak to that issue, if you would. >> i'm not sure. the data. >> randall s olson 2015. >> again, ii would like to see it over time. novartis is typically ranks number one. i don't know if we are number one or two right now in terms of the amount of money we spend. they are one of the top, the number one pharmaceutical company. we spend more in research and development than in any other. in fact, if you look at google, apple, and you combine them those three combined still spend as much on research and development has the pharmaceutical industry does. he look at what is coming from that, let me give you a

couple ideas of where we spend that money. if you look at patients who have brain disorders, alzheimer's or autism, it used to be that to get embryonic cells he had to do a lot of different things. we now have brain tissue -. --dash. you can take a patient with autism, take their cells from their skin regenerate the cells back to the embryonic stage and regenerate back to brain cells. now we can look at that, see what's wrong with it and find out how to treat it. so we have now been able to do that. if you look at other innovations comeau we have thousands of researchers that only do early exploratory research was bending over a couple billion dollars a year in novartis alone an early research or we don't know

what the drug is. you look at the total price and the transparency command gets a little difficult to say one point in time. >> another area clearly where more information and data would be helpful for everybody. >> right. it's go to the next question. >> my name is elizabeth right, health and science director for citizens against government waste. a lotwaste. a lot of discussion on getting the government more involved in pricing and purchasing strategies. if you look at history when the government utilizes price controls and heavy regulation to lower cost you get shortages. our organization looks to competition the lower drug cost. mr. davis, he did get a little bit into the fda backlog and i was wondering if you can spend more on that and also how groups such as ours to help get the accomplishment speed up.

$2.6 billion to get a drug to the marketplace. create more innovative products, more competition and hopefully get consumers more choices and lower costs. >> i think to reinforce we have to get right. in terms of some of the technology that the agency has been the process of developing and in the early stages of implementing i am optimistic that will reduce the amount of time and increase the level of dialogue.

working as an industry to make sure that we find ways to respond back to the inquiries we get to the agency. i would also say just briefly of the role of the patient voice, the patient and consumer, a little bit about the differences between those two, but the extent that there is a general agreement or consensus the competition is a good thing, the voices are in the ongoing discussions. we can make sure we are accelerating through the system. >> and. >> how do we decrease r&d costs the mac what we saw last year in terms of the number of approval, the

breakthrough strategy for status is a good sign. if we can can work more closely together and collaboratively to see our ability to get medicines to market, the speed of it alone will help reduce cost. the fact that we know more about the science, as you heard today, more precise today, more precise once we know the science i can understand better who would respond it makes it more precise in a clinical trial. if they know that is making the patient better, the masculine therapy type, we had in the past. the 2nd piece that will reduce the cost of research and development is technology. we are seeing technology and some partnerships are trying. if you can write a clinical trials per patients don't have to go to the dr. to get lab test on all the time and they can where watch take their blood while

they are sleeping, monitor them so that they don't have to take a long journey and you can measure the data in real-time to significantly reduce cost. being able to do clinical trials with people who are in the country, could have gotten the clinical trials when she was in iowa, that ability to do it remotely, less costly and get more patients because it is quicker, technology would be a 2nd piece. >> all right. well, i want to thank all of you. we talked about some opportunities and value -based payment type arrangements. we talked about the important role of data and transparency and a great deal about hurdles that need to be overcome. and just to circle back on andy's final point, we have

a lot of stake implementing these ideas because the right ideas will not only get greater access to patients for innovative therapies that expand markets and reward investors. these are not going to be easy changes for many organizations, but they are extremely important ones, and thank you for putting them on the table for us. we will take a 15 minute break and see you back here as we moved our last panel discussion where we will drill down even more. thank you very much.

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