Life Science Compliance Update

December 08, 2017

Drug Pricing Report Released by NASEM

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The most recent example of drug marketing being caught in the crossfire of the drug pricing debate can be found in a report by the National Academies of Sciences, Engineering and Medicine, which included suppression of consumer marketing in a set of recommendations on how to lower the cost of prescription drugs for patients. One recommendation was that advertising costs should no longer be considered tax deductible as a business expense.

The report offers eight recommendations with twenty-seven different actions for their implementation (a sample of actions in each area appears below) to improve the affordability of prescription drugs without discouraging the development of new and more effective drugs for the future.

“Over the past several decades, the biopharmaceutical sector in the United States has been successful in developing and delivering effective drugs for improving health and fighting disease, and many medical conditions that were long deemed untreatable can now be cured or managed effectively,” said Norman Augustine, former chairman and CEO of Lockheed Martin Corp., former chairman of the National Academy of Engineering, and chair of the committee that conducted the study and wrote the report. “However, high and increasing costs of prescription drugs coupled with the broader trends in overall medical expenditures, which now equals 18 percent of the nation’s gross domestic product, are unsustainable to society as  whole. Our report seeks to address the market failures that currently permeate the biopharmaceutical sector, such as lack of competition due to distortions in the application of the patent protection process, the imbalance between the negotiating power of suppliers and purchasers, and the convoluted structure of the supply chain. Although changes within the current system will be demanding, they are likely to better serve the nation.”

One recommendation was that governmental purchasing power should be consolidated and applied to strengthen formulary design and improve drug valuation methods. The report recommends that to achieve that end, Congress modify current legislation to allow the United States Department of Health and Human Services (HHS) to directly negotiate prices with producers and suppliers of medicines, including acting on behalf of any relevant state agency that chooses to participate in the process. The report also recommends that Congress authorize HHS, related federal agencies, and associated private payers to expand flexibility in formulary design, including very selective exclusion of drugs, such as when less costly drugs provide similar clinical benefit.

As alluded to above, the report recommends that actions be taken with respect to marketing, including promoting the adoption of industry codes of conduct and discouraging direct-to-consumer advertising of prescription drugs as well as direct financial incentives for patients.

The report recommends,

Congress should disallow direct-to-consumer advertising of prescription drugs as a tax-deductible business expense. In addition, manufacturers and suppliers should adopt industry codes of conduct that reduce or eliminate direct-to-consumer advertising of prescription drugs and should increasingly support efforts to enhance public awareness of disease prevention and management. Clinicians, medical practices, and hospitals also should substantially tighten restrictions on pharmaceutical companies’ direct visits to clinicians, the acceptance and use of free drug samples, special payments, and other inducements paid by biopharmaceutical companies.

According to the New York Times, the “report is significant for several reasons,” including that a “respected national organization” has given a “searing critique of the way drugs are bought and sold.”

Two members of the panel that created the report filed dissents, including Dr. Michael Rosenblatt, who opined, “Allowing all government health plans to negotiate as a single block would establish a near monopoly” and could have a “devastating effect on long-term, high-risk investment” in drug research and development.”

November 21, 2017

ICER Expanding Probe

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A nonprofit group, the Institute for Clinical and Economic Review (ICER), recently received a three-year $13.9 million grant from the Laura and John Arnold Foundation to expand its ongoing investigative scope on drug pricing to include all new medicines and price increases on existing treatments.

Up until now, ICER hasn’t had the resources to review all new medicines. The additional funding “puts us on a new trajectory,” according to Steven D. Pearson, president of ICER. “Now we’re going to be able to cover the landscape.”

ICER was essentially founded with a $5.3 million grant from the Arnold Foundation in 2015 and since then has published a series of reviews of new prescription drugs that treat conditions ranging from high cholesterol to congestive heart failure. While companies have typically agreed to participate in the reviews, ICER has found in most cases that the drugs have been priced above what it has deemed a fair value range.

Going forward, Pearson said, ICER will try to begin its reviews about 7½ months before the date the Food and Drug Administration (FDA) is anticipated to rule on a drug candidate. The reviews would be made public around the time a company sets the price of a newly approved medicine and health insurers decide whether to cover it.

While drug companies aren’t bound by the reviews, insurers and consumer groups are increasingly citing ICER’s “value frameworks” in negotiating how much they will pay.

According to Pearson, ICER staff also will begin examining the rationale drug companies use in determining whether to raise the price of drugs already on the market. Drug makers will be invited to take part in the review process.

ICER has previously issued reports outlining what it believes to be an appropriate cost for new medicines to treat high cholesterol, lung cancer, hepatitis C and other conditions, typically suggesting a value to patients that is a fraction of prices set by drug makers.

Rather than working from list prices as it did initially, ICER now attempts to “come up with a more precise estimate incorporating average net prices, taking rebates into account, to determine what it considers fair value-based pricing,” Pearson said.

Pharmacy benefit managers, insurers and government agencies have all used ICER reports in negotiating pricing and preferred formulary placements with manufacturers, ICER President Steven Pearson said in an interview, mentioning Express Scripts, CVS Health, the U.S. Department of Veterans Affairs and others.

Pearson said he had been informed by Express Scripts that it used ICER’s report in aggressively negotiating discounts on prices for new curative hepatitis C drugs with Gilead Sciences. “Veterans Affairs have used our reports to inform their thinking and price negotiations,” Pearson added.

The new funding comes at a time of increased scrutiny among politicians and insurers over the high cost of new prescription medicines in the United States, especially in comparison with other countries, and steep price hikes of some older generic medicines faced with little competition.

November 14, 2017

Changes to 340B Program Reduces Hospital Reimbursement for Pharmaceutical Products by 28.5%

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Recently, the Centers for Medicare & Medicaid Services (CMS) issued the Calendar Year (CY) 2018 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System final rule with comment period (CMS-1678-FC), which includes updates to the 2018 rates and quality provisions, and other policy changes. CMS adopted many policies that will support care delivery; reduce burdens for health care providers, especially in rural areas; lower beneficiary out of pocket drug costs for certain drugs; enhance the patient-doctor relationship; and promote flexibility in healthcare. This final rule puts forth a change to the reimbursement rate for Part B medicines purchased by 340B hospitals.

OPPS will adjust payment for drugs purchased through the 340B program to the average sales price (ASP) minus 22.5%, a change from the current rate of ASP plus 6% constituting a 28.5% change of reduced reimbursement for some clinics and health systems. Rural sole community hospitals, certain cancer hospitals, and children’s hospitals will, however, be exempt from the reductions. A provision of the ruling will reduce some administrative burdens that rural providers face.  

Mixed statements have been issued by the healthcare community since the release of this news. A sampling of the responses are included below.

CMS Stance

According to CMS, the rule will help lower the cost of prescription drugs for seniors and other Medicare beneficiaries by reducing the payment rate for certain Medicare Part B drugs purchased through the 340B program. The savings from this will be redistributed equally to hospitals covered under the OPPS. A provision of the OPPS will alleviate some burden rural hospitals face by placing a 2-year moratorium on the direct physician supervision requirements for rural hospitals and critical access hospitals.

Community Oncology Alliance

The Community Oncology Alliance (COA) commended CMS for the reform, saying it is good for both patients and taxpayers and represents an important first step in stopping abuse of the program by certain hospitals.

“COA strongly supports this new policy because it will reduce drug costs for seniors by an estimated $320 million on copayments for drugs in 2018 alone; help to curb outrageous abuse of the 340B program by some large hospitals; and, hopefully, start to reverse the profit incentives that dismantled our nation’s community cancer system,” the statement says.

The reform will also follow COA’s initial recommendation that CMS should allocate funds from the program to support rural hospitals and providers.

Hospital Associations

The nation’s leading hospital associations have joined together to sue CMS over the payment cuts. America’s Essential Hospitals, the American Hospital Association, and the Association of American Medical Colleges said that they believe CMS has overstepped its authority by cutting the drug payments.

“CMS’ decision in today’s rule to cut Medicare payments to hospitals for drugs covered under the 340B program will dramatically threaten access to healthcare for many patients, including uninsured and other vulnerable populations,” Tom Nickels, executive vice president of the American Hospital Association, said in a statement yesterday. “It is not based on sound policy and punishes hospitals and patients for participation in a program outside of CMS’ jurisdiction.”

PhRMA

PhRMA also released on statement on the news,

The announcement from the Administration regarding changes to the Hospital Outpatient Prospective Payment System aims to improve the payment policy for Part B medicines purchased by certain 340B facilities and used by Medicare beneficiaries. There is growing evidence that in certain instances Medicare is vastly over-paying for medicines used at some 340B facilities, and moreover patients are not always seeing any benefit. This rule corrects the overpayment problem, and Medicare patients will also see a reduction in their costs.

There is still more work to be done to fix the 340B program so that patients do in fact benefit and it no longer drives up health care costs. We encourage Congress and the Administration to build on this momentum and continue to push for changes to the program.

According to PhRMA, there is growing evidence that the 340B program is structured in a way that benefits hospitals at the expense of patients. With that in mind, the group created a new resource that outlines flaws with the 340B program and suggested reform.

The changes to the 340B program will begin on January 1, 2018.

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