Life Science Compliance Update

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.

October 04, 2017

New Research Published on Generic Competition


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.

October 02, 2017

California Enacts Legislation on Reporting of Prescription Drug Costs


California’s Senate and Assembly have both passed legislation on publishing prescription drug prices (SB-17) and presented the legislation to California Governor Jerry Brown on September 19, 2017. Under California law, the Governor has twelve days to sign or veto the legislation before it becomes law automatically. For SB-17, those twelve days were up yesterday, October 1, 2017, and the legislation automatically became law.

What does the new legislation mean for pharmaceutical companies with sales in California? The law requires health plans and insurers that report rate information through the existing large and small group rate review process to also report specified information related to prescription drug pricing to Department of Managed Health Care (DMHC) and California Department of Insurance (CDI). DHMC and CDI must then compile specified information into a consumer-friendly report that demonstrates the overall impact of drug costs on health care premiums.

The law also requires drug manufacturers to notify specified purchasers (in writing at least ninety days prior to the planned effective date) if it is increasing the wholesale acquisition cost (WAC) of a prescription drug by specified amounts. This bill requires drug manufacturers to notify Office of Statewide Health Planning and Development (OSHPD) three days after federal Food and Drug Administration (FDA) approval when introducing a new drug to market at a WAC that exceeds the Medicare Part D specialty drug threshold.

The new law will require health plans and insurers that report rate information in the small and large group markets to annually report to regulators the following information about all covered drugs (categorized by generic drugs, brand name drugs, and specialty drugs):

  • The 25 most frequently prescribed drugs;
  • The 25 most costly drugs by total annual spending; and,
  • The 25 drugs with the highest year-over-year increase in total annual spending.

The regulators must then put the information into a report that is posted online starting January 1, 2019, demonstrating the overall impact of drug costs on healthcare premiums. Interestingly, the legislation also requires the regulators to keep the information confidential that was provided to them, and that the information also be protected from public disclosure.

The new law also requires manufacturers to notify the office in writing if it is introducing a new prescription drug to market at a wholesale acquisition cost that exceeds the threshold set for a specialty drug under the Medicare Part D program. The notice shall be provided in writing within three days after the release of the drug in the commercial market. A manufacturer may make this notification pending approval by the federal Food and Drug Administration, if commercial availability is expected within three days of approval.

The information that shall be reported by the manufacturer includes the following:

  • A description of the marketing and pricing plans used in the launch of the new drug in the United States and internationally.
  • The estimated volume of patients that may be prescribed the drug.
  • If the drug was granted breakthrough therapy designation or priority review by the federal Food and Drug Administration prior to final approval.
  • The date and price of acquisition if the drug was not developed by the manufacturer.

Any manufacturers that do not report the information required pursuant to this section is liable for a civil penalty of one thousand dollars per day for every day after the notification period described in this section that the required information is not reported.


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