Life Science Compliance Update

January 09, 2018

HHS OIG Releases Report on Potential Drug Misclassifications


A report recently released by the Department of Health and Human Services (HHS) Office of Inspector General (OIG) found that manufacturers may have misclassified as many as 885 drugs in the Medicaid rebate program in 2016. In September 2016, Congress asked OIG to evaluate the accuracy of manufacturer-reported drug classification data in the Medicaid rebate program, and the extent to which CMS oversees drug classification data submitted by manufacturers. In response to the congressional request, this study evaluates drug classification data submitted to the Medicaid rebate program and CMS’s policies and procedures to ensure appropriate oversight of this data. This report is the result of that request.

Although this number of misclassifications only accounts for three percent of the approximately 30,000 drugs within the program, ten misclassified drugs could have resulted in up to $1.3 billion lost in base and inflation-adjusted rebates for Medicaid over the last four years. The highest total reimbursement came in 2016 from these drugs. Congress had originally asked the OIG to look into drug misclassifications within the Medicaid rebate program due to outcry over rising EpiPen prices and the way Mylan had classified the drug and device as a generic under the program since 1997.

The Centers for Medicare & Medicaid Services (CMS) does not have the legal authority to require manufacturers to change their classification, and therefore must ask manufacturers to change their own data when they determine it may be incorrect, though CMS does work with the manufacturers to assist them in correcting the errors. Additionally, CMS does not track or maintain a central database of potential errors or their resolutions and investigators had no way to determine which drugs CMS had identified as potentially-misclassified or what steps were taken to address the potential errors in data. By classifying their drug as a generic, manufacturers are able to obtain a lower base rebate and are not subject to penalties if their drug’s price increases faster than inflation.

CMS routinely seeks to identify potential misclassifications and takes action when they are identified. To identify potential misclassifications, CMS compares Medicaid drug classifications reported by manufacturers to FDA data on a quarterly basis. If CMS identifies any errors in manufacturer-reported data, CMS stated that it typically contacts the manufacturer to request that the manufacturer correct the reported information. CMS may terminate a manufacturer from participation in the Medicaid rebate program for good cause. 8 If a manufacturer does not correct errors in reported data, CMS could potentially determine that the manufacturer is subject to termination for good cause.

A majority of the identified misclassifications were labeled as Generics under Medicaid, yet classified as brand-name drugs by the United States Food and Drug Administration (FDA). The report found that fifty-four manufacturers may have potential misclassifications, but it was four companies alone that were responsible for more than 50% of the errors in classification.

In conclusion, the report recommended that CMS (1) follow up with manufacturers associated with potentially-misclassified drugs identified in this report to determine whether current classifications are correct, (2) improve its Drug Data Reporting for Medicaid System to minimize inconsistent data submissions and track potential classification errors for follow up, and (3) pursue a means to compel manufacturers to correct inaccurate classification data reported to the Medicaid rebate program. CMS concurred with all three recommendations.

November 21, 2017

ICER Expanding Probe


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.

November 03, 2017

Sharing Negotiated Discounts Could Save Patients Money


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.


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