Life Science Compliance Update

November 03, 2017

Sharing Negotiated Discounts Could Save Patients Money

Cost-of-prescriptions

Providing access to discounted medicine prices at the point of sale (i.e., at the pharmacy directly) could save certain commercially insured patients with high deductibles and coinsurance anywhere between $145 to more than $800 annually, according to a new analysis from Milliman that was commissioned by the Pharmaceutical Research and Manufacturers of America (PhRMA). The data also show sharing negotiated rebates with patients would have a minimal impact on premiums because it would only increase health plan costs on average 1 percent or less.

“Shifting costs to the sickest patients by requiring higher rates of cost-sharing undermines the very purpose of insurance,” said Stephen J. Ubl, president and CEO of PhRMA, who cited recent Kaiser Family Foundation data showing patients’ out-of-pocket spending is growing faster than underlying medical costs. “This analysis demonstrates that sharing negotiated rebates with patients can lower their out-of-pocket costs with a minimal impact on premiums.”

Negotiations between biopharmaceutical companies and health plans often result in significant rebates. 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. These rebates totaled more than $100 billion in 2015 and are growing every year.

A little known (and not frequently mentioned) fact is that for patients with high deductibles or coinsurance, their out-of-pocket spending on medicines is based on the full list price, even if their insurer receives a steep discount. In fact, an analysis from Amundsen Consulting found more than half of commercially insured patients’ out-of-pocket spending for brand medicines is based on the full list price.

According to the aforementioned Milliman analysis, these patients would benefit from receiving access to discounted prices at the point of sale. Depending on factors like plan design and medical out-of-pocket spend, some patients may see their annual out-of-pocket spending reduced. Other patients would pay less each month and could have their costs spread throughout the year, so it would take longer to hit their out-of-pocket maximum and resulting in lower monthly costs.

Hypothetical examples to illustrate the data include:

  • Mary has diabetes and is enrolled in a high-deductible health plan with a copay. She spends $1,000 annually out of pocket on her medical and pharmacy expenses. She would save approximately $359 annually if negotiated discounts were shared. 
  • Kevin has diabetes along with several other health conditions and is enrolled in a high-deductible health plan with coinsurance. He spends $5,000 annually out of pocket on his medical and pharmacy expenses. He would save about $800 annually if negotiated discounts were shared.
  • Joe has chronic respiratory disease and is enrolled in a high-deductible health plan with coinsurance. He always reaches his maximum out-of-pocket limit on his medical and pharmacy expenses early in the year. He would save $204 per month until he meets his deductible and then $41 per month until he reaches his out-out-pocket maximum, allowing him to spread his costs throughout the year.

Many often say that industry is not doing enough to help the patients. While we have continued to note the untruthfulness behind that statement, PhRMA has continued to work on behalf of patients all over the country, with their advocacy campaign – Let’s Talk About Cost. Feel free to visit the link to learn more about this campaign and to see how you can get involved – and spread the news about the good work Industry is doing.

October 04, 2017

New Research Published on Generic Competition

Competition_is_good_-1043x1065

As the FDA looks to boost generic competition, a new working paper published by the National Bureau of Economic Research (NBER) suggests that competition among generic drugmakers slows over time, potentially leading to higher prices for older treatments and drug shortages. The analysis authored by Ernst Berndt and Stephen Murphy of the Massachusetts Institute of Technology, and Rena Conti from the University of Chicago, reveals that generic drug prices have risen by a statistically significant margin over time as the rate of new entrants to the market has slowed and the number of firms competing for individual drugs has fallen over time. After 2007, the authors say the median number of competitors for an individual generic dropped from between two and three to just two through 2016, with 40% of generics being made by a sole manufacturer.

Implications of the Research

The findings of this paper have several implications. First, the research indicates that the generic drug markets in the U.S. are supplied by monopolists. Some therapeutic classes and molecule formulations appear to be long characterized by this market structure. With such limited suppliers of generic drugs observed over the study’s time frame and high levels of concentration, the researchers wonder why prices of generic drugs and associated revenues have not risen more dramatically over the time they have observed.

Another implication of the paper’s findings is that while the Waxman-Hatch Act is founded on the assumption of the desirability of establishing competition through lowering initial entry costs, less policy focus has been placed on the long-term maintenance of competition in generic prescription drug markets. Over time, several forces may act to erode the latter. Alleged anticompetitive activities among generic manufacturers and between generic and branded firms include raising entry barriers by, for example, “pay for delay” agreements. The paper’s evidence suggests that federal policies in pursuit of worthy goals, including ACA and GDUFA I, might have inadvertently eroded generic competition through increased user fees that increased entry barriers and incentives to exit.

Future Research

The paper’s authors note their results are preliminary and their limitations suggest potentially fruitful areas for future research. One such area involves further analyzing of manufacturer “type” by identifying annual revenue, country of incorporation, year of incorporation, organizational structure, and the existence and timing of mergers and acquisitions among manufacturers using the databases on companies registered in the U.S. This could provide information on the roles of consolidations and merger and acquisitions on measures of concentration, and ultimately on price levels, price changes and revenues.

Finally, future research might explore use of semi-structural and structural models to relate cross-sectional and dynamic market structure to observed pricing and revenue trends among generic drugs under conditions of imperfect competition. To circumvent issues of endogeneity, one could limit the sample to triopolies, and examine the price and aggregate output effects of exits that result in a duopoly, or entrants that result in a four-firm market.

September 21, 2017

MedPAC Discusses Pharmacy Benefit Managers

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During September 7th’s Medicare Payment Advisory Commission (MedPAC) public meeting, its commissioners discussed issues related to pharmacy benefit managers (PBMs). The slides during the presentation can be found here and an issue brief here as well. The Commission discussed issues related to the conflicts of interest between PBMs and PBM-owned specialty pharmacies, the role for exclusive specialty pharmacy networks in Part D, whether CMS should mandate PBMs’ disclosure of data to plan sponsors, among other topics. The following discussion between the commissioners broke along two lines: those supporting PBMs and others critical of them.

Commissioners Supporting PBMs

Commissioner Bricker (of Express Scripts) made several remarks about PBMs. First, they are required to meet discounts and provide rebates to plan sponsors. Second, they accept financial risk for generating agreed-upon levels of discounts from drug manufacturers. Third, PBMs are required to pass direct and indirect remuneration (DIR) information onto plan sponsors, and she is not aware of any widespread lack of disclosure among PBMs. The commissioner was open to exploring exclusive pharmacy networks in Part D but pushed back against the conflict of interest in PBM-owned specialty pharmacists, suggesting that the competitiveness in the industry forces PBMs to focus on negotiating low prices. Finally, she expressed support for allowing MA-PDs to manage Part B drugs similarly to Part D drugs.

Commissioner Nerenz is quoted as saying, “conflicts-of-interest run throughout the health care system, in some instances, we encourage it.” He said that if conflicts-of-interest are going to be addressed as a concern, it should also be made clear “why it’s a problem here more than elsewhere.” Also, regarding transparency, he said that PBMs work as a consultant to the plan sponsor, and that “in general, we don’t require consultants to disclose elements of their own internal finances.”

Commissioners Critical of PBMs

Commissioner Jack Hoadley raised concerns about the “maze of financial entanglements,” saying it is “unclear where the system saves money and where it adds costs.” He suggested MedPAC should look at where prices go up even as new competitors enter the market and how rebate savings should be shared with beneficiaries. Commissioner Rita Redberg criticized PBMs’ secrecy, fees, and unknown rebates.

Other Comments

Commissioner Warner Thomas acknowledged that “one could have the view that it is so complicated it must be a problem,” adding that, “we don’t really know.” Commissioner DeBusk suggested that it “is complicated enough and there is enough money that singling out a PBM is not the solution to our problem.”

Despite some of the concerns cited with PBMs, several commissioners suggested that the high cost of specialty drugs should be more of a concern than the supply chain. Commissioner Kathy Buto, a former CMS and CBO official, asked, “How big a difference do PBMs make in the value and the reduction in overall cost? Probably not a huge amount,” she said. “It’s probably the manufacture costs and utilization.” Commissioner Buto suggested that “structural changes in Part D” could help address pricing issues, and added expressed support for allowing MA-PDs to manage drugs that under Part B. Commissioner Pat Wang noted she is “not opposed to the recommendations around PBMs, they won’t change the cost of specialty drugs.” Finally, Commissioner Thomas agreed that “this pricing cascade starts with the manufacturer who sets their own price.”

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