Featured Health Business Daily Story, June 8, 2017

Pharma Prices Are Prompting Some Pushback in Midst of ‘Perfect Storm’

Reprinted from DRUG BENEFIT NEWS, biweekly news and proven cost management strategies for health plans, PBMs, pharma companies and employers. Subscribe today!

By Angela Maas, Managing Editor
May 19, 2017Volume 18Issue 10

High drug prices have dominated headlines over the past couple of years, with a variety of factors contributing to the attention. All the hubbub has helped lead to some pushback on the state level, as well as by commercial plans, and such responses are likely to continue, according to Avalere Health speakers at an April 26 webinar titled Drug Pricing: Where’s the Future Headed?

According to Caroline Pearson, senior vice president of policy and strategy at Avalere, there are “three main areas that are prompting a focus on drug pricing today”:

(1) Innovation: “The growth in the quality of the pharmaceutical pipeline and the products that are being approved have been tremendous,” maintained Pearson. For example, drugs are now available for conditions that previously didn’t have any treatments, and some newer drugs in other classes are causing fewer side effects, producing better patient outcomes and offering “easier modes of administration.” And advances in personalized medicine and companion diagnostics are narrowing down appropriate patient populations, making it easier “to target the right drug to the right patient.…It’s really this innovation and, in fact, patient demand for access to these innovative products, that’s prompting a lot of the attention and the concern about both prices and spending on pharmaceuticals overall and also the way they’re being covered.”

(2) Distinction between launch prices and their list prices vs. net prices: “We’ve seen a variety of trends here,” Pearson said, but “generally we’ve seen growing launch prices with some particular attention to a few products that have launched at very high prices. The incentives in the reimbursement system today really encourage this sort of steady march towards increasing list prices with higher rebates coming off of that.” List prices are “where we have a tremendous amount of transparency,” and as they go up, “the story may be a little bit different for net prices.” She also noted that the last few years had seen some “extreme” pricing situations that were not indicative of the entire pharma industry.

(3) Benefit design: “As we’ve seen insurance coverage expand, particularly under the Affordable Care Act, we have seen a real transformation of benefit design, including higher deductibles and copays that are both shifting costs onto the patient and also increasing consumer awareness about the specific price that they’re paying for drugs, particularly with the growth of coinsurance.” However, while patients have more insight into drugs’ list prices, their negotiated net prices remain more of a black box.

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Coinsurance Has Grown in Use

Patient out-of-pocket costs have seen “a tremendous transformation over the last five years,” said Pearson. For instance, within health insurance exchanges, “there has been a real shift to the consumer in terms of out-of-pocket costs, particularly early in the benefit design.” Management of the drug benefit also has changed, in particular with the growth of specialty tiers and the use of coinsurance for products in those tiers. She noted that “in Silver plans in 2017, 84%…are using coinsurance as the mode of covering their specialty drugs,” a trend that Avalere has seen start to “spill over into the employer market in a very significant way.” When members are paying a percentage of a drug’s cost as opposed to a copay, this also gives them greater insight into drug prices.

Those three areas, she asserted, have resulted in a “perfect storm” that has resulted in “very heated debate” and the idea that drug prices “should be a focus for policymakers.” Policy areas that the Trump administration has focused most on are some kind of Medicare negotiation, importation and international parity, and FDA approvals. “But the administration has not been the only voice in this discussion,” said Pearson, pointing to pharma manufacturers “proactively responding to attention on drug prices” by making statements about limiting their price increases and explaining their pricing practices (see story, p. 1).

“I think we’re at a moment where we’ve got lots of interest and stakeholders at the table, but really sort of a need to think about what does all of this attention really mean and what sorts of proposals from either a policy perspective or a market-driven solution might be…worth paying more attention to, to really effect change here.”

According to Elizabeth Carpenter, a senior vice president at Avalere who leads the firm’s policy practice, policy proposals “span the process of commercialization” for a drug. For example, there has been discussion around an expedited review process in order to get products onto the market sooner, spurring competition. And plenty of legislation has focused specifically on drugs’ prices, while outcomes-based contracts have become more popular. And other proposed legislation has focused on impacting patients’ access, including capping out-of-pocket payments. While some of the proposals “have been talked about for a long time,” with “some people viewing them as old news,” they “are evolving to reflect the current dialogue and environment.” And other proposals “are newer to the debate.”

That “the debate is happening simultaneously both at the state and federal level” is “unique to some degree but not necessarily to health care issues,” she contended, noting that “significant” changes were easier to enact on the state level. “Not all drug pricing legislation is created equal, and there are various buckets” that state initiatives fall into.

For example, 17 states and Puerto Rico are considering some sort of transparency legislation. Three states have forms of this legislation in place, including Vermont, which in June 2016 enacted legislation requiring manufacturers to justify price increases by “disclosing select information to the state.” An additional 11 states are “focusing on true price controls,” an example of which can be seen in New York, which has enacted legislation that caps Medicaid drug spending, noted Carpenter. If the threshold is breached, the state could negotiate supplemental rebates for manufacturers, and if that’s not enough, other processes are available. And three states are considering bills that prohibit patient-assistance programs such as copay cards and coupons “where therapeutic alternatives are available.”

At the federal level, actions most likely to occur include some form of transparency and FDA reform to speed products to market. Government price regulation is “unlikely,” and proposals that fall in the middle of the spectrum for potential actions include drug importation, Medicare price negotiation and Medicare Part B reform. Pricing pressure could also come from “indirect public scrutiny,” following, for example, President Trump calling out a drug and/or manufacturer on social media.

Focus Now Is on Value

As specialty drugs continue to increase in price for various payers, as well as for members responsible for coinsurance, “we’re seeing reports that 50% of specialty spend is on the medical benefit side, and we’ve got 750-plus products that are in late-stage development that may get an orphan designation and be deemed a specialty or high-cost product. It brings a lot of pressure on various business models,” noted Rujul Desai, vice president at Avalere. The value that a model provides will determine its longevity, and various value-based frameworks are being developed to help “find a more objective way to define value,” which includes not only a focus on costs but also one on patient experiences. But “more commercial adoption” is needed to support these frameworks as being “a valid metric or scale [by] which to inform the conversation.”

Discussions around value-based or outcomes-based contracting have “taken place on a higher plane than your traditional rebates and discounts,” Desai said. The reason for this is that value-based contracts focus the conversation around the notion of identifying the overall cost on the patient: “the medical spend in addition to the cost of the drug, and how is the cost of the drug impacting to lower that medical spend?” These contracts require “a more robust set of data, tools and platforms than a traditional conversation around what should a rebate or discount be on a particular product,” he maintained. “There’s a gap that needs to be filled around those data, tools and platforms.” In addition, “some concerns” exist around “regulatory barriers” — mainly anti-kickback and price-reporting issues — preventing these contracts from becoming more widely adopted and leading to more of these arrangements among commercial plans.

“We need to look at the stakeholders and the payments that are happening in the delta between the list price and the net price,” said Desai. Stakeholders include patients, physicians, payers, pharmacies, wholesalers, PBMs and drugmakers, while payments consist of copays, discounts, chargebacks, rebates, administrative fees, access and network fees, and service fees. “All of these activities are benchmarked off of a percentage of the list price of a pharmaceutical product. Even a 1% or 2% amount in each of these areas can have a significant overall impact on what the net cost is,” he noted.

PBMs “are one key party in the system,” Desai pointed out, noting that they “have expanded their business model towards greater impact on access and pricing of drugs.…Rebates in total have doubled to $130 billion over the last four years,” which is a “significant accomplishment.” This expansion of services is important within the drug pricing discussion because “these services more and more have moved from a flat-fee cost to a percentage of the overall list price of products.”

Overall, state activity around drug pricing “is ongoing,” and states passing some kind of legislation is “very likely,” said Pearson. On the federal level, “there are many additional pieces [besides repealing/replacing the Affordable Care Act] of must-pass health care legislation, which is going to create further legislative opportunities for drug pricing to get swept into the discussion.” And “on the regulatory side, the timing is quite uncertain at this point.” Commercial activities, such as outcomes-based contracting, will continue. “We anticipate no abatement in that progress,” she said.

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