Life Science Compliance Update

April 12, 2018

How Can We Increase Value and Monitor / Lower Costs?

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Health Affairs and the National Pharmaceutical Council held a briefing focused on efforts to increase value and monitor costs on February 1, 2018. Alan Weil, JD, editor of Health Affairs highlighted the importance of continuing to publicly speak about the issue and look for solutions. "As hard as it is to talk about health costs and as hard as it is to do something and to reach consensus, the consequences of not doing so are really profound," he said.

National health spending reached $3.3 trillion in 2016, a 4.3% growth rate compared to a 5.8% growth rate in 2015. In response to the growing costs of healthcare, the American Board of Internal Medicine (ABIM) started an initiative, “Choosing Wisely,” in 2012, in an attempt to address low-value care by identifying unnecessary interventions early. Results from the Choosing Wisely campaign, however, have been lackluster. Recent research on the effectiveness of the effort suggests only a 3-5% reduction in the use of the low-value services surveyed.

Corinna Sorenson, PhD, MPH, is currently at Duke University researching possible barriers to reducing low-value care, including abstract challenges (i.e., cultural attitudes, lack of political will) and more obvious challenges (i.e., complications inherent in the fee-for-service system). Sorenson and her team are delving into scientific literature and interviewing thought leaders in the world to come to some conclusions.

Another intervention – hospital value-based purchasing (VBP) arrangements – has not shown a substantial impact, either, unfortunately. Ashish Jha, MD, MPH, of the Harvard T.H. Chan School of Public Health, notes that mortality rates have been falling since before VBP and that “basically nothing has happened.”

Other well-intended efforts have fallen flat to say the least, and may even have had some unintended consequences. The Hospital Readmissions Reduction Program, an initiative introduced by the Affordable Care Act (ACA) has been somewhat successful in reducing unnecessary admissions; however, Jha noted that it is possible the reductions may not be due to the program, but instead due to changes in coding. Jha also noted (morbidly) that other research shows that mortality rates increased when readmission rates decreased.

Positive Approaches

As for other value-based approaches, Jha suggested that accountable care organizations, whose numbers have grown -- from about 220 in 2013 to 561 in 2018 -- may represent one bright spot in the healthcare system. ACOs should include financial incentives on the patient side that dovetail with incentives on the provider side.

According to Katherine Baicker, PhD, "If we have both of these together [patient and provider incentives] ... then we can get higher value care that may not be cheaper. I'm perfectly fine spending as much money as we are on healthcare, if we were getting more health for it."

Jha also highlighted bundled payments, noting that most well-designed studies on such bundles show a 2%-3% reduction in costs. Most of the savings are due to reducing post-acute care costs, he said.

Conclusions

Insurance plans should be mindful of the impact of cost-sharing because, as Baicker notes, "There is ample evidence that when patients have to pay more for care, they consume less of it.” This can, however, result in patients not paying for lower-value care and skimping on necessary services and treatments. Financial incentives on both sides of the equation may be the key to increasing value while monitoring increasing healthcare costs.

May 09, 2017

Biotechnology Investors Beware?

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One thing the pharmaceutical stock industry has seen over many decades is price sensitivity to small statements and comments made by those in the public eye. Recently, Jim Greenwood, President and CEO of the Biotechnology Innovation Organization (BIO), authored an article on Medium about why those working and investing in the biotechnology industry should not be concerned, industry is on a successful path forward.

Greenwood noted that while investors do not do well with uncertainty, there is now more stability and less of a likelihood that biotech markets will radically move with a just one press conference or interview.

Greenwood also refreshed our memories about the BIO “Value Campaign,” which has two goals: (1) to cultivate political allies and (2) to change the conversation on price to a conversation on value. BIO wants “people to understand that biotech companies do more than manufacture pills and biologics. They offer the most precious thing of all: more time to spend with our loved ones.”

The fact that Donald Trump wants to bring down drug prices has been made evident. However, Greenwood notes that the biopharmaceutical industry shares that goal, but believes that rather than add restrictions and regulation, a greater emphasis needs to be placed on the free market. He has seen the success of diverse CEOs who spend their time gathering information, from a variety of sources, and the correct calls they wind up making.

Greenwood notes,

For instance, some counseled the President to put at the helm of the Food & Drug Administration a leader who might take a radically different approach to drug approvals. Others advised him that it’s critical for patients and innovators for the FDA to remain the global, gold standard. The President has since nominated Scott Gottlieb, who believes we can have meaningful regulatory reform without compromising on safety or efficacy. President Trump has chosen known entities and strong free-market reformers to lead FDA and the Department of Health and Human Services. This is actionable intelligence for investors, far more so than any single Tweet or quote. There’s a saying in Washington that “personnel is policy.” Savvy investors who’ve studied the positions and credentials of President Trump’s key personnel choices are rightly confident about placing bold bets on biotechnology stocks.

Just the Facts, Ma’am

Greenwood goes on to discuss the PR gambit insurance companies and the media have partaken in, wherein they unleashed a torrent of media attacks against drug makers, enlisting universities and think tanks to help them. Patients, unfortunately, have fallen for this nonsense. They pin the fact that the insurance company is refusing to cover their medicine, thereby increasing co-pays, on the drug company instead of the insurer.

However, the national share of health care spending on medicines remains the same today as it was fifty years ago – roughly ten to fourteen percent. Greenwood notes that insurers spend a lot of time pointing the finger at industry for rising premiums, but that is not true. About 75% of insurance premium growth is driven by increasing payments to hospitals and doctors – only 17.7% of premium increases in the ACA market come from prescription drug costs.

This degree of cost-shifting is not happening in other sectors of health care. Patients have to pay just four percent of their hospital bill, on average, but insurers make them pay a cost-sharing percentage five times greater for their medicines.

Greenwood then attempts to set the record straight, noting:

First, drug companies don’t set patients’ out-of-pocket costs. Insurers do. Second, rising drug prices are not the real driver of health care costs. Medicine keeps people out of hospitals and doctor’s offices, which are the primary cost drivers.

Greenwood concludes by mentioning the roll out of www.drugcostfacts.org, a portal filled with facts (each with multiple sources), with information changing regularly, depending on what is being debated in Congress.

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.

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