Life Science Compliance Update

December 15, 2017

PhRMA Releases Report on Financial Flow in Pharmaceutical Industry

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In late November, the Pharmaceutical Research and Manufacturers Association (PhRMA) released a new report examining how money flows through the supply chain and how that impacts what patients pay at the pharmacy. According to the report, this system often creates incentives for pharmacy benefit managers (PBMs) to opt for medicines with higher list prices and higher rebates.

The report provides illustrative examples for three patients to not only provide answers, but also to highlight the fact that there is no one price for medicine. This is because prices paid by wholesalers, pharmacies, pharmacy benefit managers (PBMs), and health plan sponsors all vary and are determined by negotiations between stakeholders.

Many manufacturers are offering larger rebates on medicines every year. However, patients - facing larger deductibles and higher coinsurances than ever before - are increasingly facing cost-sharing that is based on the full undiscounted price. As the examples in the report show, patients often do not benefit from discounts and rebates negotiated between manufacturers and payers and may end up paying more than their insurer for their medicine. Such an arrangement leads to the insurer making money off of the patient’s prescriptions.

The report also notes that as the market moves in the direction of a system that better aligns the price of prescription medicines with their value, biopharmaceutical companies are working with private health insurers to implement new payment arrangements for a variety of diseases. In addition, biopharmaceutical companies and health plans are considering new ways to pay for treatment when a patient needs multiple high-priced, innovative medicines and experimenting with money-back guarantees if a medicine does not work as intended. These new types of arrangements offer the potential to increase the choice of therapy, ensure that patients have affordable access to the newest medicines, and enable our health care system to achieve better outcomes at even more affordable prices

By reading and understanding this report, patients and policymakers alike may find answers to their questions and concerns about the affordability of, and access to, medicines. While many things today are politicized and your opinion depends on your political affiliation, one thing most Americans can agree on is that patients should benefit more from negotiated rates in the form of lower out-of-pocket costs at the pharmacy, just like they do for other types of health care services.

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.

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