Life Science Compliance Update

June 02, 2017

Maryland Law to Restrict Generic Drug Price Increases

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Late last week, Maryland Governor Larry Hogan allowed a law targeted at preventing generic drug prices from increasing by too much. The law imposes fines on generic drug makers who raise the wholesale acquisition cost (WAC) of their products by 50% or more in one year, or if the WAC is more than $80, or if three or fewer drug makers are actively manufacturing and marketing the drug. The Maryland legislation is the first of its kind in the United States.

While Governor Hogan did not sign the bill into law, he did not veto it, thereby effectively allowing it to become law. However, Governor Hogan has concerns about “unintended consequences” as a result of the bill. He wrote a letter to the Maryland Speaker of the House, Michael E. Busch, noting that "this legislation raises legal and constitutional concerns. Also, this legislation only addresses the pricing of generic and off-patent pharmaceuticals, and does nothing to address the cost of patented products and medical devices which may be associated with drug delivery.”

In his letter, Governor Hogan further noted,

[T]his legislation only addresses the pricing of generic and off-patent pharmaceuticals, and does nothing to address the cost of patented products and medical devices which may be associated with drug delivery. This oversight, whether inadvertent or deliberate, is troubling since the patented or brand-name pharmaceuticals make up a significant amount of the market and are often times the most expensive and essential pharmaceuticals.

He went on to say

I am not convinced that this legislation is truly a solution to ensuring Marylanders have access to essential prescription drugs, and may even have the unintended consequence of harming citizens by restricting their access to these drugs. The legislation does have a laudable goal, to combat price-gouging of consumers for life-saving drugs, and I am supportive of that goal.

One group that is against the legislation is the Association for Accessible Medicines. They have argued that average generic drug prices have actually declined and that overall, they help save money for the United States healthcare system. A spokesman for the group said the law was unconstitutional and will “have the unintended consequence of driving away generic manufacturers” from the state.

Maryland Attorney General Brian Frosh, is on record as supporting the measure and stating,

When a drug company doubles or triples - or multiplies by 50 - the price of medication, it imperils the health and finances of patients and their families, and it threatens public health. The new law gives Maryland a necessary tool to combat unjustified and extreme price increases for medicines that have long been on the market and that are essential to our health and well-being.

Lawmakers have introduced bills in about 30 state legislatures this year, seeking to regulate drug prices, require manufacturers to justify price increases and form purchasing groups with other states to negotiate lower prices, according to the National Academy for State Health Policy, a nonprofit policy group that has drafted model drug-pricing bills for states.

The legislation becomes effective October 1, 2017.

Thank you again to our colleague Nicodemo Fiorentino for keeping us up-to-date on the most recent state actions.

May 11, 2017

MedPAC Approves Part B Payment Recommendations

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In early April, during the first session of the Medicare Payment Advisory Commission’s (MedPAC’s) public meeting, the Commission discussed Medicare Part B drug payment policy issues. During the meeting, the Commission unanimously approved several draft recommendations that are expected to be part of the Commission’s June Report to Congress.

MedPAC staff outlined the policy approach to Part B drug reform that would mirror the approach to Part B physician payment reform enacted under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Under the recommendations, there would be two tracks for Part B drug reimbursement: a re-vamped version of the current average sales price (ASP) plus six percent payment, or an updated version of Medicare’s competitive acquisition program (CAP), known as the Drug Value Program (DVP). The basic idea behind this is that, over time, the ASP add-on payment would be reduced to incentivize physician participation in the DVP.

The DVP program would take lessons learned from the CAP program and give the Department of Health and Human Services (HHS) Secretary the authority to use private vendors to negotiate prices and offer providers shared savings opportunities. MedPAC staff noted that DVP would: be voluntary, include multiple vendors, and allow providers to share in savings that Medicare received on the drug’s purchase price. The vendors who negotiated the prices would be paid a fixed administrative fee. Additionally, the DVP would differ from the CAP because vendors would be able to utilize a formulary with an exceptions and appeals process.

Specifically, MedPAC made several recommendations that Congress should change Medicare’s payment for Part B drugs and biologicals. Some of those recommendations are laid out below.  

First, they agreed that the ASP system should be modified in 2018 to: (1) require all manufacturers to submit ASP data, and impose penalties for failure to report; (2) reduce wholesale acquisition cost (WAC)-based payment to WAC plus 3 percent; (3) require manufacturers to pay Medicare a rebate when the ASP for their product reaches an inflation benchmark, and tie beneficiary cost sharing and the ASP add-on to the inflation adjusted ASP; and (4) require the HHS Secretary to use a common billing code to pay for a reference biologic and its biosimilars.

They also agreed to create and phase in a voluntary Drug Value Program (DVP) with the following mandatory elements (no later than 2022): (1) Medicare contracts with a small number of private vendors to negotiate prices for Part B products; providers purchase all DVP products at the price negotiated by their selected DVP vendor; (3) Medicare pays providers the DVP-negotiated price and pays vendors an administrative fee, with opportunities for shared savings; (4) beneficiaries pay lower cost-sharing; (5) Medicare payments under the DVP cannot exceed 100 percent of ASP; and (6) vendors use tools including a formulary and, for products meeting selected criteria, binding arbitration.

While MedPAC Commissioners voted in favor of the reforms discussed above, the stability of pricing within the Part B drug marketplace remained a concern. The Commissioners also pressed MedPAC staff for specific numbers regarding inflation caps, DVP incentives, and penalties for failing to report ASP data. Chairman Jay Crosson and Commissioner Paul Ginsburg of the Brookings Institution called the reforms a step in the right direction, noting that the proposals strengthen the market dynamics for Part B Drugs. Commissioner Ginsburg also praised inflation adjustment caps as a means for suppressing the continuing price increases for Part B drugs.

Commissioner Amy Bricker of Express Scripts noted that she supports “roughly 80%” of the draft recommendations, but expressed three concerns with provisions put forward by the Commission. Commissioner Bricker strongly opposed the arbitration provision of the DVP, noting that it’s “contradictory to the free market emphasis” MedPAC aims to achieve through these reforms, as well as disagreeing with other Commissioners regarding inflation caps and consolidated billing codes for biosimilars. Commissioner Bricker and Commissioner Alice Coombs of South Shore Hospital also questioned MedPAC staff about administrative costs for drug administration, stressing the importance of minimizing the burdens of these costs.

May 02, 2017

New Analysis Shows Out-of-Pocket Spending Based on List Price

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New analysis from Amundsen Consulting, a division of QuintilesIMS, shows that more than half of commercially insured patients’ out-of-pocket spending for brand medicines is based on full list prices. Even though rebates paid by biopharmaceutical companies can substantially reduce the prices insurers and pharmacy benefit managers (PBMs) pay for brand medicines, insurers use list prices—rather than discounted prices—to determine how much to charge patients with deductibles and coinsurance. The newly released data show cost sharing for nearly one in five brand prescriptions filled in the commercial market is based on the list price.

Robust negotiations between biopharmaceutical companies and health plans result in significant rebates and discounts. 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. Private payers are also reportedly receiving rebates of between 30 percent and 55 percent for medicines to treat a number of conditions, including diabetes, asthma, high cholesterol and hepatitis C. 

Unlike care received at an in-network hospital or physician’s office, negotiated discounts for medicines are not shared with patients with high deductibles or coinsurance. Providing access to discounted prices at the point-of-sale could dramatically lower patients’ out-of-pocket costs. For example, a patient in a high-deductible health plan who pays $350 each month for insulin, an amount calculated based on the list price of the medicine, may be paying hundreds—or even thousands—more annually than their insurer.

According to the Amundsen analysis, prescriptions that were subject to a deductible were more than twice as likely to be abandoned at the pharmacy and never picked up by the patient. Patients with higher deductibles or coinsurance are less likely to take medicines as prescribed, putting them at higher risk for expensive emergency room visits, avoidable hospitalizations, and poor health outcomes.

Basing deductibles and coinsurance for medicines on undiscounted list prices effectively shifts more of the cost of care to the patient, unfairly penalizing sicker patients with high spending. This is at odds with the traditional notion of insurance, which is to spread the high costs of a small share of individuals across all members of the health plan. Payers have begun to recognize that using the undiscounted list price of a medicine to set cost-sharing is problematic for patients: recent statements from the two largest PBMs note that high deductibles for medicines put patients in a “very difficult position” and indicate that sharing rebate savings directly with patients should be considered as a “best practice.”

Ensuring patients have access to the medicines they need is the top priority for America’s biopharmaceutical industry. We need to make sure insurance benefits encourage and promote health – not prevent patients from accessing health care treatments. Copay coupon programs offered by biopharmaceutical companies can provide a valuable source of assistance for many commercially insured patients to afford out-of-pocket costs associated with insurance coverage for their medications. 

In many respects, our current marketplace for medicines works for patients, but basing deductibles and coinsurance for medicines on undiscounted list prices unfairly penalizes sick patients with high spending.  

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