Life Science Compliance Update

May 02, 2017

New Analysis Shows Out-of-Pocket Spending Based on List Price

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New analysis from Amundsen Consulting, a division of QuintilesIMS, shows that more than half of commercially insured patients’ out-of-pocket spending for brand medicines is based on full list prices. Even though rebates paid by biopharmaceutical companies can substantially reduce the prices insurers and pharmacy benefit managers (PBMs) pay for brand medicines, insurers use list prices—rather than discounted prices—to determine how much to charge patients with deductibles and coinsurance. The newly released data show cost sharing for nearly one in five brand prescriptions filled in the commercial market is based on the list price.

Robust negotiations between biopharmaceutical companies and health plans result in significant rebates and discounts. According to a recent study from the Berkeley Research Group, more than one-third of the list price for brand medicines is rebated back to payers and the supply chain. Private payers are also reportedly receiving rebates of between 30 percent and 55 percent for medicines to treat a number of conditions, including diabetes, asthma, high cholesterol and hepatitis C. 

Unlike care received at an in-network hospital or physician’s office, negotiated discounts for medicines are not shared with patients with high deductibles or coinsurance. Providing access to discounted prices at the point-of-sale could dramatically lower patients’ out-of-pocket costs. For example, a patient in a high-deductible health plan who pays $350 each month for insulin, an amount calculated based on the list price of the medicine, may be paying hundreds—or even thousands—more annually than their insurer.

According to the Amundsen analysis, prescriptions that were subject to a deductible were more than twice as likely to be abandoned at the pharmacy and never picked up by the patient. Patients with higher deductibles or coinsurance are less likely to take medicines as prescribed, putting them at higher risk for expensive emergency room visits, avoidable hospitalizations, and poor health outcomes.

Basing deductibles and coinsurance for medicines on undiscounted list prices effectively shifts more of the cost of care to the patient, unfairly penalizing sicker patients with high spending. This is at odds with the traditional notion of insurance, which is to spread the high costs of a small share of individuals across all members of the health plan. Payers have begun to recognize that using the undiscounted list price of a medicine to set cost-sharing is problematic for patients: recent statements from the two largest PBMs note that high deductibles for medicines put patients in a “very difficult position” and indicate that sharing rebate savings directly with patients should be considered as a “best practice.”

Ensuring patients have access to the medicines they need is the top priority for America’s biopharmaceutical industry. We need to make sure insurance benefits encourage and promote health – not prevent patients from accessing health care treatments. Copay coupon programs offered by biopharmaceutical companies can provide a valuable source of assistance for many commercially insured patients to afford out-of-pocket costs associated with insurance coverage for their medications. 

In many respects, our current marketplace for medicines works for patients, but basing deductibles and coinsurance for medicines on undiscounted list prices unfairly penalizes sick patients with high spending.  

May 01, 2017

Drug Shortages, Pricing, and Regulatory Activity

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In a paper titled Drug Shortages, Pricing, and Regulatory Activity, Christopher Stromberg of Bates White Economic Consulting examined “the patterns and causes of shortages in generic non-injectable drugs (e.g., tablets and topicals) in the United States.” The paper explores factors such as regulatory oversight, possible market failures in pricing/reimbursement, and competition. Interestingly, a regression model run using FDA data on inspections and citations indicates a statistically significant relationship between these activities and drug shortage rates.

Drug Shortages, Pricing, and Regulatory Activity

Stromberg notes there is a distinctive and similar pattern “in the average length of ongoing drug shortages over time for both injectable and non-injectable drugs.” He also notes, “Theories that rely on Medicare reimbursement policies — such as ASP-based Medicare Part-B reimbursement — may serve to explain level differences in shortage rates, but simply don’t apply to noninjectable drugs and aren’t likely to explain the consistent pattern of change over time. Similarly, theories that rely on the specifics of generic injectable production don’t apply to non-injectables.”

Stromberg’s study looks at other explanations that have an influence on both markets. Section 3 of his article explores whether changes in quality monitoring by the FDA can be connected with shortages. He notes this “has not been given rigorous empirical treatment in the past.” But does note that there’s unlikely to be one singular cause of drug shortages, even though they mainly impact generic medications.

Effects of FDA Inspections

Later in the article, Stromberg investigates the link between FDA inspection and detection rates on shortage rates. In his previous section, Stromberg outlines changes in regulatory activity as one of the elements that is expected to have an impact on shortage rages. This is especially true in the short run because manufacturers are expected to adjust to “a new equilibrium.” Stromberg concludes that the models “presented in this section suggest a connection between FDA inspection and citation rates and drug shortages that cuts across both parenteral and non-parenteral drugs.”

FDA inspection and citation data comes from publicly-available databases on the FDA website. Specifically for this study, the database of inspections includes information on 102,160 FDA inspections. The Center for Drug Evaluation and Research (CDER) accounts for 11,410 inspections. 55%, a majority of the inspections, involves the food safety center of the FDA (CFSAN). The majority of CDER’s inspections (8,348, 73% of the 11,410 total) are listed in the “Drug Quality Assurance” (DQA) project area. The next most prevalent project area is “Bioresearch Monitoring”, which accounts for about 21% of CDER’s inspections.

“Within CDER’s DQA inspections it is worth noting that over 50% result in some kind of regulatory action. Although only 4.8% (401) of these inspections result in an ‘Official Action Indicated’ outcome, another 48% (4,011) result in ‘Voluntary Action Indicated’ — suggesting some kind of corrective action is needed, according to the FDA,” notes Stromberg.

Data was then combined with parenteral and non-parenteral shortage data, then pooled into a dataset with 300 total observations. Ultimately, the model suggests a potential effect for the relationship between FDA activity and drug shortages. Stromberg explains the “models are designed to be predictive in nature, and are used to determine if current and past FDA activity has an effect on new drug shortage reports.”

Conclusion

Stromberg offers three possibilities are offered as potentially cross-cutting explanations for shortages: market structure, regulatory activity, and pricing. One of these, regulatory activity, is explored empirically. The regression models presented in this paper identified a consistent and statistically significant predictive relationship between FDA regulatory activity in the drug market (i.e. drug quality inspections and citations) and the incidence of new drug shortages. The models tested indicate that the pattern of this relationship is generally shared across both parenteral and non-parenteral drugs. This result suggests that changes in regulatory activity may be one of the cross-cutting factors contributing to the ongoing wave of drug shortages.

Stromberg does caution against over-interpreting the results. For example, some of the models show only modest correlations. It suggests that the models may be predictive, but there is a fair amount of variation in new shortage starts which remains unexplainable by one single factor. Also, because other factors that may be important are not accounted for in these models, caution is advisable when interpreting the results presented. It is also important to recognize the economic and regulatory context of this result. Changes in FDA oversight activity may signal attempts to reestablish quality thresholds that may have eroded or that have been applied unevenly as the industry has evolved.

April 17, 2017

Maryland Sends Bill to Governor on Drug Prices

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The Maryland House recently passed a bill – House Bill 631 – with the goal of “prohibiting a manufacturer or wholesale distributor from engaging in price gouging in the sale of an essential off-patent or generic drug.”

Under the legislation, the Maryland Medical Assistance Program is instructed to notify Maryland Attorney General if a generic drug’s price spikes by 50% or more in one year, or if its price increases while there are three (or less) companies making the prescription. Once the Attorney General Receives that notice, he or she is able to request a report from manufacturers, detailing production costs, rationale for the price hike, and efforts made to expand access.

If the Attorney General determines that the company violated the pricing law, he or she can request that a local circuit court force it to roll back the price and return money to consumers. That court can also impose a fine of up to $10,000.00 for each violation under the law.

Chester Davis, Jr., President and CEO of the Association for Affordable Medicines, has issued a statement asking for a veto of the bill, stating, “it is threatening the savings patients and taxpayers receive from affordable generic drugs.” He further notes, “in 2015 generic drugs delivered $227 billion in savings to the U.S. healthcare system, and $1.6 trillion in savings over the last decade. For that same calendar year, generic drugs comprised 89% of all prescriptions written in the United States, but accounted for only 27% of total prescription drug costs.”

Davis expresses concern about unintended consequences, “While the desire to take action against bad actors in the industry is understandable, what has been utterly lost in the debate over prescription drug costs in Maryland this session is the law of unintended consequences; namely, that by giving the Attorney General this unbounded and unprecedented level of authority to control pricing in a competitive free market, generic companies will be exposed to a level of risk in Maryland that will require them to evaluate whether they want to continue to market affordable medicines within the state.”

The current Maryland Attorney General, Brian Frosh, applauded the legislation. In a statement released by his office, he stated that the legislation gives Maryland a “necessary tool to combat unjustified and extreme price increases for medicines that have long been on the market and that are essential to our health and well-being.”

Maryland Governor Larry Hogan has not yet signed the bill.

Other State Actions

In New York, Governor Andrew Cuomo has proposed the idea of creating a board to control the costs of drug by allowing that board to determine a “fair price.” This idea has been introduced several times before the Legislature, each time soundly defeated.

Last year, California voters turned down a ballot initiative that would have limited industry’s power to create their own pricing. Now, industry is preparing for a fight in Nevada. A state senator recently introduced a measure to control prices on certain drugs, and the industry is enlisting lobbyists for the fight, according to the publication.

At the national level, President Donald Trump has repeatedly pledged to lower costs through increasing “competition,” while Congress considers proposals for drug importation and Medicare price negotiations. Rep. Elijah Cummings, an influential congressman from Maryland, has been involved in those talks and met with Trump to share his importation proposal earlier this year.

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