Combating high drug prices is a contentious issue. It is not easy to see how prices can be capped but over the last few months, politicians and campaigners across the globe have become more vociferous about the need for transparency in the pharmaceutical industry. Historically, the cost to research, develop and manufacture drugs has been shrouded in mystery but as healthcare systems creak under the pressure of treating ever growing and ageing populations, questions are being asked as to why certain drugs cost so much and also why prices vary so widely.
Pressure building on pharma companies worldwide
In 2017, more than 30 American states proposed bills on drug pricing. Vermont, one of the first states to pass a transparency law, now issues an annual “Drug Price Hall of Shame” and highlights ten drugs whose wholesale price has risen 50 per cent or more over the previous five years. Other states have attempted to limit price increases through fines. In Maryland, the attorney general can issue a fine to any manufacturer that raises the price of a generic drug 50 per cent or more in a year.
Some of these initiatives are having an impact – a number of big pharma companies recently cancelled planned price hikes in response to new legislation in California. However, many commentators are sceptical and believe that getting companies to actually lower prices is a lot more complex than just naming or shaming.
In May, President Trump announced his ‘American Patients First’ initiative, which aims to reduce the high costs of prescription drugs at a federal level by increasing competition, improving negotiation and creating incentives to lower prices.
In the UK, we have seen national headlines calling for Vertex to lower the price of its Orkambi drug which helps patients with cystic fibrosis. Campaigners were encouraging the firm to make the drug more affordable so it can be readily available on the NHS. This follows comments from Jeremy Hunt, the former UK Health Secretary, who previously called for drug manufacturers to stop monopolising medicines and hiking prices.
One development that many believe will have a massive impact on the industry is the rumoured arrival of Amazon on to the pharmaceutical scene. As with most new markets that Amazon moves into, if it does establish itself within the sector, costs will inevitably be driven down. According to Goldman Sachs, Amazon could shed light on the pricing strategies of pharma companies, providing insight into the profit margins which can be made, in turn creating further transparency within the industry.
Strengthening the supply chain
As pressure mounts for greater transparency, pharma companies should see it as an opportunity to innovate and streamline costs wherever possible. This will help them prepare for whatever legislation comes their way and to remain competitive and agile in the face of new market entrants such as Amazon.
While the costs associated with each stage of the drug development and manufacturing process are revealed and scrutinised, finance teams can also use that data to forensically analyse their supply chains, ensuring a competitive price is achieved with the companies they do business with. Promoting transparency will make it easier for everyone in the supply chain to get a good deal.
The first step is for Accounts Payable and Accounts Receivable departments to ensure back office processes are automated so that everyone can have greater visibility of the supply chain and finances. Not only can going digital reduce the costs of handling invoices by more than 50 per cent, but it is an exceptionally efficient way for a business to reduce friction along the supply chain. It also gives businesses real-time data which they can use to optimise spending and negotiate better prices. This information means teams are more able to have honest conversations with their suppliers, building trust on both sides of the transaction in the process and creating closer communication channels.
The push for greater transparency should not be feared – it will require a big shift in mindset and approach but it may bring unexpected benefits. By working with specialists in digitising accounts payable and receivable processes, businesses will be able to make the changes while suffering the minimum possible transitional cost. This enables them to follow best practice methods to achieve a more transparent and efficient supply chain, and make smarter, more informed, procurement decisions.