Life Science Compliance Update

March 03, 2017

Johnson & Johnson Announces Plans to Disclose Average Price Increases

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As America continues to discuss the increase in the cost of prescription drugs, Johnson & Johnson (J&J) has announced that it plans to disclose average price increases of its prescription drugs.

High and rising prices have also infuriated doctors, insurance companies and politicians, and triggered government probes into the industry's practices. The government has no power now to regulate prices, but the industry appears to be starting to move to deflect further scrutiny and avoid price controls.

With annual price tags topping $100,000 for many new drugs for cancer and rare diseases, some patients have been unable to afford their medicines. Huge price hikes on old products with little competition, like Mylan's EpiPen emergency allergy injectors, also have left some patients scrambling.

"We hope that can create a better understanding of the industry and ... ultimately improve patient access to medicines," Joaquin Duato, head of J&J's prescription drug business, said in an interview Tuesday.

Experts say the company's move will help its image more than patients initially, but it could push other drug makers to tame future price increases and be more transparent. The company says it will divulge average list price increases and what middlemen pay for medicines.

Expected to start in February 2017, J&J will issue annual reports listing the average list and net price increases — but not the figures for individual drugs, as the discounts it gives middlemen are competitive information.

Erik Gordon, a professor and pharmaceuticals analyst at University of Michigan's Ross School of Business, called it "opaqueness masquerading as transparency. "They let you look not so bad by camouflaging your big price increases for drugs where you face little competition behind the small increases for drugs where you face strong competition," he said.

Many drug companies and their industry trade groups have been trying to shift public debate away from high prices to the value medicines provide. J&J's move could change that focus. Besides J&J being the world's biggest health care products maker, Duato on Monday became chairman of the Pharmaceutical Research and Manufacturers of America, a lobbying group.

Releasing the averages is "a start" and drug makers should realize "it would be foolish" not to follow J&J's lead, said analyst Steve Brozak, owner of WBB Securities.

J&J will also disclose what it spends on patient assistance, marketing versus research, and payments to physician consultants.

Duato said he doesn't see any impact on revenue and income because J&J has limited list price increases to below 10 percent for several years. About 70 percent of recent revenue growth came from selling more medicines, including a dozen approved since 2011, he said.

February 16, 2017

New York Governor Unveils Plan to “Curb” Drug Pricing

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Mere days before President Donald Trump was sworn into office, when any national action could (or would) be taken on drug pricing, Governor Andrew Cuomo of New York took the matter into his own hands. On January 11, 2017, he presented a three-pronged approach to “protect New Yorkers from the soaring prices of prescription drugs in New York State.”

The three-pronged approach will:

  • Insulate taxpayers by preventing prescription drug price gouging in the Medicaid program;
  • Impose a surcharge on drug manufacturers that charge exorbitant prices and reallocate that money to insurers and businesses to lower premiums for the following year; and
  • Protect ratepayers from abusive business practices by intermediaries that drive up drug prices.

According to Governor Cuomo, “The skyrocketing costs of prescription drugs is an issue that the nation has been grappling with for years and as we have so many times before, New York is prepared to show the path forward. Perpetually rising drug costs hurt the wallets of taxpayers and the bottom lines of businesses, but for those who desperately need lifesaving medicine and cannot afford it, the consequences can be dire. The idea that in 2017 someone who has fallen ill might not have the opportunity to recover simply so someone can line their pockets with a few more dollars is unconscionable and must be stopped immediately.”

Price Ceiling

First, the Governor’s plan would effectively create a price ceiling for certain high cost prescription drugs reimbursed under the Medicaid program by requiring a 100 percent supplemental rebate for any amount that exceeds a benchmark price recommended by the state's Drug Utilization Review Board. 

Surcharges

The second prong of the Governor’s plan imposes a surcharge on any amount by which the price of these high-priced drugs exceeds the benchmark recommended by the Drug Utilization Review Board in the Medicaid context, when these drugs are sold into the state. All proceeds from the surcharge amount will be deposited into a dedicated fund held and administered by the Department of Financial Services. The proceeds collected from surcharges will be reallocated to insurers to lower insurance premiums for New Yorkers the following year.

Protecting Consumers

The third step in the Governor's plan works to protect consumers from unfair business practices by intermediaries known as Pharmacy Benefit Managers, who many believe are contributing to the rising cost of prescription drugs. Pharmacy Benefit Managers are brokers that negotiate the prices of drugs for insurance plans and self-insured employers. Recently, the U.S. Justice Department and others have alleged that this industry is rife with conflicts of interests and undisclosed arrangements entered into at customers’ expense.

Under the Governor's proposal, Pharmacy Benefit Managers will be required to immediately register with the State, and be subject to new regulations requiring disclosure of financial incentives or benefits for promoting the use of certain drugs, as well as other financial arrangements affecting customers. The proposal would also require Pharmacy Benefit Managers to be licensed by the State Department of Financial Services beginning in 2019. The Department of Financial Services will also have the authority to suspend or revoke a Pharmacy Benefit Manager's license for deceptive, unfair, or abusive business practices, or for conduct that violates the standards set by the Department. 

However, just because the Governor has proposed it, it is not guaranteed to become law. First, the New York Legislature must approve it.

Industry Reaction

Priscilla VanderVeer, spokeswoman at PhRMA, noted that Cuomo’s plan seems eerily “similar to previous proposals that were soundly rejected by the Legislature.” VanderVeer further noted that breakthrough medicines continue to save lives daily, while also reducing health costs. She said it is the insurers that are imposing high drug deductibles and other out-of-pocket costs that are limiting access to drug therapies. “Government mandates and interventions that do nothing to help patients access their medicines are not the solution,” she said.

The Pharmaceutical Care Management Association, which represents PBMs, said that the plan, “would increase costs by tying the hands of employers, unions, and public programs that hire PBMs to negotiate discounts on prescription drugs,” also noting that it may be illegal because of a recent Eighth Circuit Court of Appeals ruling that struck down a mandate in Iowa that attempted to limit PBMs.

January 23, 2017

U.S. Senators Collins and McCaskill Release Drug Pricing Investigation Report

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United States Senators Susan Collins (R-ME) and Claire McCaskill (D-MO), the Chairwoman and Ranking Member of the Senate Aging Committee, respectively, released a report on drug pricing titled, “Sudden Price Spikes in Off-Patent Prescription Drugs: The Monopoly Business Model that Harms Patients, Taxpayers, and the U.S. Health Care System. The 131-page report details findings from the Committee’s bipartisan investigation into abrupt and dramatic price increases for prescription drugs whose patents expired long ago.

The bipartisan duo launched the Aging Committee’s investigation in November 2015 after a series of media reports detailing dramatic drug price increases after the acquisition of decades-old, off-patent, and previously affordable drugs. The investigation focused on four companies: Turing Pharmaceuticals, Retrophin, Inc., Valeant Pharmaceuticals International, Inc., and Rodelis Therapeutics. According to the Senators, evidence gathered by the Committee suggests that additional companies have employed the “monopoly business model uncovered in this report.”

During the course of the bipartisan investigation, the Aging Committee held three different hearings; interviewed patients, doctors, hospital administrators, consumer advocates, health experts, and pharmaceutical industry executives/board members; reviewed more than one million pages of documents obtained from the four companies; and deposed or took transcribed interviews of numerous corporate witnesses.

The report examines what it refers to as a “monopoly business model” used by the four aforementioned pharmaceutical companies to exploit market failures: the way companies acquired decades-old, off-patent, and previously affordable drugs, only to suddenly raise the prices “astronomically.” The report provides case studies of the four companies, explores the influence of investors, assesses the impact of price hikes on various stakeholders, and discusses potential policy responses.

Chairwoman Collins noted, “The skyrocketing prices of prescription drugs affect every American family, particularly our seniors. This report is the culmination of the Senate Aging Committee's year-long, bipartisan investigation into the egregious price increases on a number of decades-old drugs acquired by pharmaceutical companies that act more like hedge funds. We must work to stop the bad actors who are driving up the prices of drugs that they did nothing to develop at the expense of patients just because, as one executive essentially said, ‘because I can.’”

Ranking Member McCaskill stated, “The hedge fund model of drug pricing is predatory, and immoral for the patients and taxpayers who ultimately foot the bill—especially for generic drugs that can be made for pennies per dose. We’ve got to find ways to increase competition for medicines and ensure that patients and their families aren’t being gouged.” 

The report identified several potential policy responses, including:

  • Enact the Increasing Competition in Pharmaceuticals Act, introduced by Chairman Collins and Ranking Member McCaskill, to incentivize competition to address regulatory uncertainty, small market size, and other factors that serve as limitations to generic entry;
  • Encourage generic competition by ensuring the right to obtain samples and simplifying Risk Evaluation and Mitigation Strategies;
  • Consider allowing highly targeted, temporary prescription drug importation to provide prompt price relief for major price increases in off-patent drugs;
  • Take steps to prevent the misuse of patient assistance programs and copay coupons;
  • Reinvigorate the Federal Trade Commission to take greater enforcement action on drug company mergers, operations, and drug market dynamics; and
  • Improve transparency in the health care system.

The report noted that “while release of the report does not indicate unanimous support of each of these policy options, we hope that it will help contribute to the ongoing discussion.”

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