Life Science Compliance Update

October 04, 2017

New Research Published on Generic Competition

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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.”

March 27, 2017

Arizona Enacts Law: Pharmaceutical Companies to Legally Communicate Off-Label Treatment to Medical Professionals

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As many of our readers know all too well, pharmaceutical companies are not permitted to discuss off-label, legal, alternative uses for an approved drug with physicians and other healthcare professionals as regulated by the FDA. However, a bill in Arizona, HB 2382 that passed unanimously (The Free Speech in Medicine Act) has changed that in Arizona. On March 21, 2017, Governor Doug Ducey signed the bill into law, lifting the aforementioned off-label promotion restriction and allowing drug companies to communicate with doctors and other healthcare providers about safe and effective alternative uses for approved prescription drugs.

The law, effective in ninety days, safeguards the free speech rights of pharmaceutical industry members to share truthful research and information about FDA-approved medicines.

“Curbing the exchange of information about off-label treatments by those with the most knowledge about the drug’s uses, risks, and side effects not only prevents patients from receiving the best possible care; it violates the constitutional right to free speech,” said Christina Sandefur, the executive vice president of the Goldwater Institute, and author of the model language upon which HB 2382 is based.

The Goldwater Institute has campaigned for “Right to Try” laws and the Free Speech in Medicine Act follows on the heels of the campaign, with thirty-three states adopting “Right to Try” laws.

“With HB 2382, Arizona is leading the way in protecting free speech in medicine. When doctors are fully informed about the lawful treatment options available to them, they can best serve their patients’ individual needs,” said Sandefur.

Roughly twenty percent of written prescriptions are “off-label,” meaning that the medicine is FDA-approved, but is prescribed for a use or dosage different from the FDA-approval. While doctors can already legally prescribe off-label, federal law prohibits pharmaceutical companies from sharing information about off-label uses with doctors. As a result, doctors and patients may be unaware of alternative treatment options lawfully available them.

The off-label use of cancer drugs is even more common than typical prescriptions. A recent study found that among the ten most prescribed cancer drugs in 2010, approximately thirty percent were prescribed off-label. Even with those facts and statistics, pharmaceutical companies face criminal penalties (and have been prosecuted) for communicating information about lawful off-label uses for approved treatments to doctors and other healthcare professionals. 

HB 2382 is a relatively modest reform. It only protects the sharing of information that is “not misleading, not contrary to fact, and consistent with generally accepted scientific principles;” and it only applies to communication between pharmaceutical manufacturers and licensed healthcare professionals. The bill does not permit pharmaceutical manufacturers to advertise off-label uses directly to the public.

Since Arizona enacted this protection for industry, it is likely to expand options in doctors’ toolkits, enhance patient autonomy, and increase access to healthcare. It will be interesting to see if any other states will follow suit and implement similar laws.   We will watch carefully to see if this law, which aligns with several recent legal cases, prompts the FDA to finally adjusts their guidance on off-label communications.

The Goldwater Institute is pursuing other healthcare policies, all in an attempt to remove barriers that prevent healthcare professionals from providing the care they are trained to give.

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