Healthcare reform through ... xenophobia?

10/26/2018 07:09 AM | Peter Pitts

What did the President propose?
 
Lowering the price that Medicare pays for the prescription drugs it purchases.
 
The President couched his remarks as part of an effort to battle “unfair foreign prices.” But none of his proposals addressed any change in the pricing policies of any other country. It was only a political talking point for public consumption as we come down the home stretch of the 2018 midterm election cycle.
 
The villain wasn’t the pharmaceutical industry, but “unfair foreign nations who free load off of American drug development."
 
How will this be accomplished?
 
The President wants CMS to negotiate directly with manufacturers to achieve price parity with a basket of reference countries. By 2025, the target price decrease would (assuming all things work out according to a yet undeveloped plan) average around 30%.
 
BUT – it does not address whether or not this decrease in spending would reduce premiums for seniors on Medicare Part B or D or Medicare Advantage plans, although in one scenario (per HHS):
 
“A senior who receives an eye medicine that currently costs Medicare $1,800 a month but other countries just $300, would see their co-insurance drop from $4,400 a year to $900 a year after full implementation of the proposal.”
 
How soon will this happen?
 
These new strategies would be rolled out post 2020 via a pilot program that will be gradually phased-in (and has not yet been developed).
 
Initially, this will take place via CMMI (Center for Medicare and Medicaid Innovation pilot programs). Specific CMMI pilots would each address a specific product.) For the plan to roll out across the entire spectrum would require federal legislation to revoke the existing non-interference clause which prohibits direct federal negotiations. This is why the President spoke about his desire for “bipartisan support.” Political response from Democratic leaders has been tepid.
 
The non-interference clause was written by Senators Ted Kennedy and Tom Daschle. Nobody doubts that Trump and his team are shrewd negotiators. But the sorts of "negotiations" that Trump refers to have nothing in common with haggling over a real estate deal. Instead, the action that Trump has proposed — repealing the non-interference clause would result in Medicare drug prices going up and patient choice going down.
 
Through their own negotiations with drug makers, private insurers that offer Part D plans have had great success in keeping pharmaceutical prices down. In fact, the Congressional Budget Office observed that Part D plans have "secured rebates somewhat larger than the average rebates observed in commercial health plans." The non-interference clause prohibits government officials from intruding in these negotiations.

Doing away with the non-interference clause, on the other hand, "would have a negligible effect on federal spending." In a report from 2009, the CBO reiterated this view, explaining that such a reform would "have little, if any, effect on [drug] prices."

In fact, allowing the feds to negotiate drug prices under Part D likely would have a negative effect on the program. The CBO explains that to achieve any significant savings, the government would have to follow through on its threats of "not allowing [certain] drug[s] to be prescribed."

In other words, the government might drop some drugs from Medicare's coverage. Patients who need those drugs would then be forced to pay for them out-of-pocket, which would make medicines vastly more expensive for the seniors the President wants to help.

This clause has been the key to Medicare's success. Between 2004 and 2013, the Medicare "Part D" prescription drug benefit program cost an extraordinary 45 percent less than initial estimates. Premiums for the program also are roughly half of the government's original projections. These unprecedented results are largely due to Part D's market-based structure. Beneficiaries are free to choose from a slate of private drug coverage plans, forcing insurers to compete to offer the best options to American seniors.

What about Part B drugs?
 
Per Part B, the President announced a move from physician “buy and bill” payments based on the price of a product to a flat fee-for-service platform. This was previously tried during the Obama Administration as a CMMI pilot program and worked pretty well. It would, among other things, remove the incentive for physicians to prescribe a more expensive product when less expensive options are available. This will be particularly important for biosimilars. Such a change would require changes in both the strategies and tactics manufacturers use to incentive physician prescribing. A "target price" will be set for Part B drugs, but even when the pilot program goes live, it will be slowly phased in (and we don't get to the new target price of drugs until 2025 at the earliest).
 
Per the HHS plan, initial CMMI “negotiation” pilots will focus on “single source drugs and biologicals, as they encompass a high percentage of Part B drug spending and are frequently used by physicians that bill under Medicare Part B.”
 
These Part B changes reinforce the absence of any real ties to “foreign prices” since a drug approved in the US before Europe would be priced via domestic negotiation.
 
The focus of Part B drugs “in the line of fire” are largely drugs oncology-related medicines that represent the highest gross cost to CMS.
 
The new HHS document (Comparison of U.S. and International Prices for Top Medicare Part B Drugs by Total Expenditures ) also notes that prices cited in the study, ”may not accurately reflect the actual amount paid in the US or abroad,” because they generally do not show  the effects of rebates offered by  drug manufacturers.” A key question is how the President’s plan will insert more market-based forces into Part B while retaining existing price transparency.
 
HHS is requesting comment in an Advance Notice of Proposed Rulemaking (ANPRM).

What's next?
 
The President’s proposals do not address the “other 90%” of healthcare costs in the U.S. Those that have nothing to do with pharmaceuticals. Are we really willing to risk investment for development of innovative medicines by slicing and dicing 10% of healthcare costs but ignore the middlemen, insurers, PBMs, hospitals and other entities that consume the lion’s share of healthcare spending in the US?
 
Bottom line, nothing is going to happen quickly and nothing will happen comprehensively at least until 2020 at the earliest.

Stay tuned.  Read More & Comment...

The Laura and John Arnold Foundation and the New Eugenics

10/24/2018 11:57 AM | Robert Goldberg

The WSJ article on John Arnold and Laura and John Arnold Foundation campaign to reduce spending on new drugs portrays John Arnold as a really rich guy who just wants to reduce the price of drugs.  If only. 

The focus of the Arnold initiative is limiting the development of and access to the new medicines, particularly those for ultra-orphan conditions, by gaining control over the clinical research process, the measurement of health outcomes and the development of institutions to arrive at and enforce clinical decisions.  There is little room for the kind of democratic decision-making and deliberation that characterizes medicine, at least for now. 

It is using ICER, funded by Arnold, (and also funded by insurance companies/PBMs) and the Center for Evidence-Based Decision Making at Oregon Health & Science University, to take control of the coverage decisions of Medicaid, Medicare and of course, health plans. Through these entities, Arnold is increasing the power of PBMs and government agencies to limit access to new medicines, guided of course, by ICER recommendations of the value of these treatments (to PBMs and plans).  They provide a short window for public input, but there is no mechanism for allowing different communities with different traditions to choose treatments based on what they value. 

Value is defined as limiting total drug spending to an arbitrary level.  And that level is in turn based on Arnold’s erroneous belief that new drug spending will drive health plans, families and our economy into bankruptcy.  But it is a fact, based on evidence that Arnold ignores and would never fund, that new drug spending overall reduces the total cost of treating disease.  New drugs do not just compete with old medicines or similar products.  They are substitutes for less effective and more efficient forms of treatment.  The trend in cancer and other disease is towards less hospitalization, more productivity, better health as we spend more on medicines.  As I have noted before, nearly 90 percent of spending on childhood infectious diseases is on medicines.   Would we want to turn back to a time when we didn’t?  Societies have avoided financial and existential catastrophes by using new medicines to stem the progression and incidence of disease. 

This is a calculus that Arnold, with his billions, has purposely rejected.  Instead, he has funded sloppy and misleading research about the cost of drug development and the value of medicines. And he  spent millions funding a network of groups that are using this twisted evidence to take control over drug coverage decisions 

Across the country, ICER and other Arnold funded organizations are packing health technology assessment panels, which are often funded by Arnold or supported by Arnold funded entities to restrict access to new medicines and diagnostics.  And they are doing so by justifying these decisions using the same sloppy and misleading research Arnold funds. 

In Oregon, a panel tasked by the state’s Medicaid program initially rejected coverage for Foundation One genetic testing to determine which drugs work in treating cancer.   The panel was run by the Center for Evidence-Based Decision Making funded by the Arnold Foundation and chaired by Vinay Prasad who is also funded by Arnold.  The Center relied on upon input from ICER, Cochrane Library (Wiley Online Library, Medicaid Evidence-based Decisions Project (MED), and the Washington State Health Technology Assessment Program which contracts with ICER to determine the value of new technologies.  All of these experts receive Arnold funding. 

The Prasad chaired HERC voted against paying for the genetic test and reversed itself only after Brian Druker, who discovered the first truly targeted cancer drug, accused the panel of discriminating against poor people with cancer.  The Center has conducted similar evaluations for 23 state health programs. 

Last year’s National Academy of Science study on making medicines affordable was underwritten in large part by the Arnold Foundation.  In addition, 3 members of the NAS committee guiding the recommendations receive funding from the Arnold Foundation.  The key proposals: limiting patient access to new medicines and forcing them to try cheaper drugs first to save insurers money.

And all these efforts, as well as the Arnold funded researchers that sustain them, are reported in Kaiser Health News, ProPublica and HealthNewsReview.org, all with Arnold funding.  In addition, all these outlets ensure Arnold funded articles are widely syndicated.  

Finally, Arnold is spending nearly $10 million on negative, misleading political ads in New Jersey attacking the Republican candidate for US Senate, former Celgene CEO Bob Hugin.  The actual ad buys are being made by Patients for Affordable Drugs Now, a group fully funded by the Arnold Foundation and, when it is not running malicious ads, attacks real patient organizations as pharma mouthpieces in an effort to reduce their influence. 

For all the talk about lowering drug prices, the Arnold program focuses on reducing incentives for innovation to reduce the number of new medicines, reducing prices by enriching insurers and PBMs by jacking up rebates and most important, deny the poor, minority communities and people with the deadliest and debilitating illnesses states access to the kind of advances wealthier and more entitled groups will get.  Ultimately, the guiding impulse of the Arnold enterpise is that the sickest and most vulnerable people in society aren’t worth spending money on because it comes at the expense of healthier and wealthier people.  

In this regard, the Arnold project is similar in approach and purpose used by earlier philanthropic efforts to address the financial burden of spending more and more money on individuals with hard to treat or intractable conditions.   In 1930, well-intentioned billionaires supported eugenics to solve the rising cost of health care and social services, arguing that reducing the number of such ‘defectives’ was a better strategy.

Today, the Arnold Foundation, without malice and with the same sense of noblesse oblige, supports reducing the development of, access to and spending on new medicines for people with the greatest health risks.   The Arnold Foundation is hell-bent on giving a handful of well-paid elites in academia, business, politics and the media control over technologies that not only determine if we live or die but how we live or die to ensure the economic sustainability of society.   This enterprise, like the eugenics movement it has replaced,  is more dangerous precisely because it is well-intentioned.   Read More & Comment...

ICER Set to Establish Pharma Protection Racket

10/18/2018 01:12 PM | Robert Goldberg

From the Regulatory Focus online publication comes this bit of good news for pharma companies worrying about ICER: 

ICER Plots Early Scientific Advice Program for Biopharma 

The Institute for Clinical and Economic Review (ICER) is looking to help the biopharma industry with earlier reviews of clinical work, adding to their current independent evaluations of the clinical and economic value of prescription drugs, medical tests and other health innovations.
 
“For some time, ICER has been receiving requests from life sciences companies to help them rethink clinical trial design, so that the trials more adequately measure the types of outcomes that matter most to patients and their families,” David Whitrap, ICER VP of Communications and Outreach told Focus.
 
The idea floated is that biopharma companies pay a fee for such a pre-market or pre-clinical review, though it’s unclear at this stage what that fee would be or how such a review would be conducted.
 
“Some international health technology organizations, such as NICE and CADTH, have offered this ‘early scientific advice’ to industry for many years with general success. We are therefore evaluating the options to provide a similar service but have not made any definitive plans,” Whitrap said. 

Translation:  Nice drug you got there, it would be a shame if something happened to it. 

This is a protection racket plain and simple.   Moreover, as Regeneron found out, working with ICER only guarantees deeper rebates, not broader uptake of products. 

Any company that plays ball with ICER deserves what they will get.   Read More & Comment...

A Kick-Back by Any Other Name

09/21/2018 03:37 PM | Peter Pitts

In their recent op-ed, Drug Rebates Aren’t Kickbacks, Joe Antos and Jim Capretta claim that rebates are incentives because drug companies charge less when more of their drugs are sold to patients. The facts speak otherwise. Rebates create an environment where higher list prices drugs are favored providing zero incentives for pharma companies to introduce lower priced medicines in competitive therapeutic classes.
 
Over the last five years, according to the Department of Health and Human Services, pharmaceutical spending has increased by 38% while the average individual health insurance premium has increased by 107%. During the same time period, rebates, discounts and fees paid by the biopharmaceutical industry to insurers and PBMs have risen from $74 billion to $153 billion - an increase of 107%. Not only are rebates, discounts and fees outpacing the increase in spending on drugs but they haven’t slowed precipitous premium increases.
 
Because PBMs retain a portion of negotiated rebates and other price concessions as compensation for their services, list prices are rising rapidly even as net prices have held steady. A key unintended consequence of this dynamic is that patients do not directly benefit from significant price negotiations in the market today.  Unsurprisingly, manufacturers are willing to raise prices and transfer the greatest list-price-based rebate value to middlemen to secure preferred formulary position at the expense of real free-market competition while also limiting the therapeutic options of physicians and patients.
   Read More & Comment...

CVS Plan to Use ICER To Screw Patients Elicits Silence From HHS and Health Media

09/14/2018 02:15 PM | Robert Goldberg

 
Yesterday the Partnership to Improve Patient Care along with nearly 100 other patient organizations sent a letter to CVS demanding that it abandon the plan to deny patients access to drugs that a private organization has deemed not worth it.
 
CVS is using the Institute for Clinical and Economic Review’s estimate of the value of life ($100K) to determine whether to cover all existing drugs.  Those that are priced above the $100K threshold will not be covered by CVS because, according to ICER, at that price the drugs are not cost effective.
 
The letter notes: ”This type of cost-effectiveness analysis discriminates against people with disabilities and other vulnerable groups like the elderly because it assigns higher value to people in “perfect health” than people in less-than-perfect health.  As the letter states, "policy decisions based on cost-effectiveness ignore important differences among patients and instead rely on a single, one-size-fits-all assessment. Further, cost-effectiveness analysis discriminates against the chronically ill, the elderly and people with disabilities, using algorithms that calculate their lives as 'worth less' than people who are younger or non-disabled."
 
Moreover, the ICER threshold is used to cap total spending on new drugs at a fixed amount ($940 million) each year   If a new drug can cure a disease that’s too bad.  You can’t spend more than that $940 million.  That’s another form of rationing. 
 
According to a BiopharmaDive article, in response a “CVS Health spokesperson described the QALY-based decision plan as non-discriminatory and said it would help patients get treatments "at a price they and the health care system can afford."
 
"We like ICER because it's very transparent," CVS Health Chief Medical Officer Troyen Brennan said in a recent interview with STAT News.
 
"They undertake this activity voluntarily, they're supported largely by philanthropy, and when combined with market pressure, their analysis is every bit as powerful as government regulation might be," Brennan added.
 
In fact, CVS will use get companies to cut their prices to ICER thereby increasing rebates.  CVS will pocket, not pass, those additional rebates based on the ICER price to patients in order to increase access or reduce out of pocket costs. CVS will use ICER guided rationing and cost sharing to ratchet up policies that discriminate against the sickest patients.
 
And Brennan must have forgotten that CVS funds ICER along with Laura and John Arnold Foundation which by the way has invested $9.7 million in the CVS Pass Through Trusts (“created to finance the purchase of, or refinance existing financing, on drugstores. The Trust's drugstores will be leased, subleased, or sub-subleased.”)

There are not many organizations who did not sign the letter.  One notable exception is Patients for Affordable Drugs which is also funded by the Arnold Foundation and has come out in favor of the proposal to use step therapy and cost-sharing tiers to limit access to medicines under Medicare part B.    Perhaps the group and its founder, advertising tycoon David Mitchell, were too busy funneling Arnold dough to run attack ads against Bob Hugin in the NJ senate race.
 
Curiously, the journalists, editorial writers, and news outlets that cover drug cost issues have written nothing.  I could only find the BiopharmaDive article I quoted as well as a great article in Biocentury that provides insight into the impact of applying ICER to formulary access: "ICER has found only one of 14 MS drugs and zero of nine rheumatoid arthritis treatments to be cost-effective. Although the two treatments for tardive dyskinesia, a side effect of antipsychotic treatment, that ICER has reviewed were each deemed not cost-effective, both compounds have breakthrough therapy designation from FDA and would not be eligible for exclusion from the formulary."



  As of this writing STAT and Kaiser Health News have not reported on this controversy.  Ditto, Jayne O’ Donnell at USA Today, Max Nisen at Bloomberg, Carolyn Johnson at the Washington Post, Matt Herper at Forbes or Peter Loftus at WSJ. 
 
I guess the fact that CVS which will soon acquire Aetna and could use the extra cash squeezed out of the sickest patients to boost net revenues and the stock price of the new company is of no interest to these reporters.  Neither is the fact that CVS is outsourcing life and death decisions to an unelected and unaccountable private organization which it also funds. 
 
If health journalism has a pulse, I can’t find it. 
 
Finally, you would think that the CVS assault on patients would get the attention of HHS Secretary Azar.  Not even a tweet.  So much for the administration’s concern about patient access.  Something tells me that the blueprint to reduce drug costs is now being written to facilitate the very shenanigans HHS once condemned.   Read More & Comment...

(Out of) Pocket Change

09/13/2018 10:22 AM | Peter Pitts

When it comes to healthcare reform, a key goal is to reduce what patients pay for their medicines. And that means what comes out of their pocket. This is particularly important for seniors and timely, since Congress now has the opportunity to address the so-called “donut hole.”
 
Because of language in the Bipartisan Budget Act of 2018 (BBA), seniors in the Part D donut hole will soon pay five times more than insurers for the brand medicines they rely on. In 2020, the BBA will increase a patient’s cost-sharing costs by $1250, raising out-of-pocket costs for the most vulnerable seniors. Why? Well, among other things, when Congress passed the BBA in February, it made changes to Medicare Part D that threaten the program’s successful competitive structure -- and leaving seniors mired even deeper in the donut hole.
 
Now is the time to aggressively address this issue. When people say, “my drugs are too expensive,” what they mean is “my out-of-pocket costs are too high.” Congress can help. And they can help now.     
 
Congress has the opportunity to make two small fixes that will protect seniors in the Medicare Part D donut hole and save them money on out-of-pocket costs for their medicines.  These fixes would leave seniors with high drug spending better off while stabilizing the program for the long-term. Together these two policy fixes would reduce out-of-pocket costs for seniors with high drug spending them better off and, in 2020, saving them up to 7% on their out-of-pocket costs. 
 
While these changes closed the donut hole a year early, they went much further by lowering insurers’ payment responsibility to just five percent of costs in the donut hole for brand medications. This undermines Part D’s market-based structure by reducing insurance plans’ stake in the program and therefore reducing their incentive to manage program costs, while also creating a significant imbalance in payment responsibility. 
 
When Part D was created, it included a catastrophic phase of coverage where seniors’ out-of-pocket costs would be reduced once their total medicine costs reached a certain amount. Each year the amount of spending required to move into the catastrophic phase increases slightly. A measure originally included in the Affordable Care Act temporarily slowed the growth rate of this increase. But now that measure is set to expire at the end of 2019, reverting back to pre-ACA levels overnight. This will result in a sudden increase in out-of-pocket costs for seniors in the donut hole who will have to reach a much higher spending threshold to get into catastrophic coverage.
 
Congress should take this opportunity to fix the donut hole "cliff" by enacting legislative language that restores balance to payment responsibility. They can act right now to both protect seniors and save them money on out-of-pocket costs.  Read More & Comment...

John Arnold: ICER Can Make PBMs Great Again

08/27/2018 01:35 PM | Robert Goldberg

Here's the key phrase in John Arnold's article on how to make PBMs great again: "The Laura and John Arnold Foundation has supported the development of value-based pricing through the Institute for Clinical and Economic Review, which can be used by pharmacy benefit managers to select drugs that maximize patient value rather than the size of the rebate. CVS recently announced it would use ICER pricing in establishing its formulary."

Translation: Let a handful of experts decide for millions of Americans about patient access by setting prices based on some abstract estimate of human worth and then enforcing those prices by excluding drugs, step therapy, prior authorization, clinical pathways and cost sharing (albeit at net prices).

Arnold and his foundation cast his effort as an effort to use the best scientific evidence developed by the most expert experts to achieve the greatest good in an era of scarce resources.  Indeed, his investment is part of a long tradition of wealthy individuals funding as Thomas Leonard wrote in "Illiberal Reformers", "scientific experts (who) should be in society’s saddle, determining the “human hierarchy” and appropriate social policies." Indeed, Arnold's entire philanthropic program is based on the belief that a better future would derive from the beneficent activities of expert social engineers (armed with evidence from randomized clinical trials) who would bring to the service of social ideals all the technical resources which research could discover and ingenuity could devise.”

At that time, the progressive solution was eugenics.  And in addition to making the case for experts making decisions about selective breeding and whether or not to spend money on helping the sickest based on randomized controlled trial data.  

And here is the statement of Margaret Sanger, a eugenics proponent: 

"Every single case of inherited defect, every malformed child, every congenitally tainted human being brought into this world is of infinite importance to that poor individual; but it is of scarcely less importance to the rest of us and to all of our children who must pay in one way or another for these biological and racial mistakes." 

Here's the Steve Pearson, the President of ICER:

 “The opportunity cost of supporting the use of ultra-orphan drugs necessitates that patients with a more common disease, for which a cost-effective treatment is available, are denied treatment.”    To reduce that cost we must restrain “society’s desire to help those weakest among us, especially when their small numbers allow us to see them as unique individuals.” In that way, we can “ensure that an undue burden is not placed on others for the sake of a few.”

ICER is part of an enduring feature of progressivism in its prior and current incarnations.  As Leonard points out, "this last Progressive belief—that modern conditions of industrial capitalism no longer permitted a quaint liberal individualism, but demanded wise government by expert elites— is what we can call technocratic paternalism. The idea is that benignly motivated experts should interpose themselves, in the name of the greater good, to better represent the interests of the industrial poor, for whom many reformers felt contempt as much as pity. "

ICER’s assault on people with rare diseases is rooted in such technocratic paternalism.  As Leonard noted: "Progressives believed that modern conditions required the state to assume control of human reproduction."

Today, as articulated and calculated by ICER, they require expert elites to assume control of the human condition.  And instead of eugenics, ICER and John Arnold want to turn an evidence-based approach to Munchausen syndrome by proxy to control drug costs. 

History is scarred with the accounts of societies and governments that deployed the solutions of expert technologists to empower to apply their wisdom to improve humankind.  We know better and have chosen better. Civilization is enriched when people who are marginalized – or have been eliminated -- because of their medical condition are freed from despair. 




 


   Read More & Comment...

Bloomberg’s Max Nisen: CVS Should Use ICER Pricing to Exclude Drugs for Sickest Patients

08/21/2018 11:50 AM | Robert Goldberg

Bloomberg opinion writer Max Nisen believes that CVS should use ICER’s drug pricing recommendations to exclude 
breakthrough drugs, including those for orphan diseases. Would he want his wife or daughter 
to have their access limited by CVS and Aetna (who is being acquired by CVS)? 

 He may not know that ICER is funded by CVS. He may not know that ICER never talks about 
sharing the increased rebates or fees that CVS would pocket if their lower prices are used. He 
may not know that even with the price cuts he thinks ICER should set, patients will still pay 
retail or be forced to try other treatments. He may not know that breakthroughs are 
breakthroughs because they are first in class. And he may not know that the step therapy or 
exclusions ICER also recommends are also based on containing costs, not increasing 
affordability. And he may not know that limiting access to drugs to generate rebates and fees 
comes at the expense of the sickest 2 percent of patients or that limiting access to drugs 
considered by ICER as cost effective is associated with worse outcomes and more spending 

But now he knows and now he should ask himself if G-d forbid he, his wife or children had their 
access to treatment denied by CVS and ICER would he embrace it. If he does, that͛s fine. But 
leave me and everyone else out of an approach that in my opinion violates the spirit of 
Nuremberg code on human experimentation. 
  Read More & Comment...

Peter" Bachs" Dying PBM Business Model

08/08/2018 09:05 PM | Robert Goldberg

Peter Bach recently published an article claiming that PBM rebates are only 4 percent of the total share of list price drug spending.   The fact that he even acknowledges rebates and what Drug Channels calls the gross to net bubble is to be commended since for so long he and others ignore them. 

Bach’s claim that PBMs only extract 4 percent while pharmacies and doctors pocket more — was bought hook, line and sinker by Politico’s Sarah Carlin-Smith.  But his analysis is laughable for two reasons:

1. Bach uses PBM gross profit margins to estimate the industry’s share of the pie revenues.   PBMs count the list price cost of drugs as expenses  in calculating their gross profits.   The 3 largest PBMs only had an operating-profit margin of 4% to 7%, which is 16% below average among S&P 500 companies, according to an article in Bloomberg. But PBMs never take title or own the drugs..  they make money on the pass-through income such as rebates, fees, etc.  Had the PBMs calculated their revenue in the same way other companies do, their margins would dramatically increase, the article alleged. While this tactic may not attract new investors, it can, however, reduce criticism related to the companies’ practices. “It hides a lot. It’s as simple as that,” Ravi Mehrotra, a partner at the MTS Health Partners investment bank, told Bloomberg.

2. Moreover, unlike other parts of Bach’ supply chain, PBMs — unlike drug companies -invest litte in fixed assets or R and D.  So the  better benchmark is, as AllianceBernstein concluded  EBITDA (earnings before interest, taxes, depreciation and amortization) and the rate at which gross profit converts to EBITDA. While drug distributors convert 45% of their gross profit to EBITDA, and insurers and pharmacies around 30%, PBMs convert 85%. And the reason for that is the relative lack of fixed assets, which in turn keeps depreciation and amortization low. PBMs, are middlemen without the warehouses or stores of pharmacies and wholesalers. 
 
 The release of the article coincides with growing skepticism of the PBM business model and the proposed merger of Cigna and Express Scripts(ESI).  Both companies claim this is a merger to make health care more cost-effective and personalized.  The share price Cigna paid to acquire ESI —$96 — reflects the huge impact the cash PBMs generate and which  Bach’s article tries to hide.  But as the PBM model is threatened, it behooves ESI and thepro-PBMM Bach to downplay margins.    

 Carl Icahn is publicly urging Cigna shareholders to reject the ESI acquisition because the PBM business model — built on the spread between list price and what PBMs pocket — is going to be dead: 

“(We believe that Express Scripts is a company with major problems whose business could well fall off a cliff. Given the significant worsening of several major risks since the deal announcement, we are confident in saying that Express Scripts on a standalone basis would likely be worth less than $60. Though there is a not another standalone PBM to compare Express Scripts to, we note that drug distributors McKesson and Amerisource Bergen are down 17% and 16% respectively since the announcement of the Cigna/Express Scripts deal and that the risks are likely greater in the case of Express Scripts. Applying the 9x P/E multiple that pharmacies and drug distributors currently trade at to Express Scripts’ 2019E ex-Anthem earnings of $6.50 would result in a $58.50 standalone stock price. We find it unconscionable to pay over $90 for a company that today would likely be worth less than $60.”

If you had to take investment advice from Bach or Carl, who would you choose? 

  Read More & Comment...

Outbreak of Foot-in-Mouth Disease at HHS

07/24/2018 04:46 PM | Peter Pitts

It’s the self-inflicted wounds that hurt the most.
 
From the savvy pen of BioCentury’s Washington Editor, Steve Usdin.
 
Azar’s political play with drug importation
 
The drug importation policy announced by Alex Azar last week is a political stunt, aimed at generating headlines at a time when the HHS secretary seems desperate to demonstrate to Donald Trump and the media that he’s fulfilling the president’s pledges to lower drug prices. In fact, as Azar knows, importation will have a negligible effect on access to drugs.

Opening the door to importation as a price control tactic will, however, create precedents that will damage FDA, and consequently hurt biomedical innovators and patients.
 
The new policy would allow importation of drugs that lack patent protection or exclusivity, and that are produced by one manufacturer.
 
Azar indicated in a July 19 interview with Fox News that the move was his idea, and that he expects FDA to fall into line behind it. The HHS secretary said he called FDA Commissioner Scott Gottlieb to demand establishment of a working group on importation, telling him: “I insist that you find a pathway to make this happen.”

The record shows both Azar and Gottlieb know that importation won’t move the needle when it comes to drug prices.
 
Speaking to reporters in May, Azar dismissed drug importation as a “gimmick,” arguing that even if it could be done safely, drug companies would respond by limiting supplies to countries that were exporting to the U.S.
 
In March 2016, Gottlieb wrote that presidential candidate Trump’s endorsement of importation was “good politics” but that it would “offer consumers little relief.” The cost of ensuring the safety of imported drugs would eat up any savings, he wrote.

During his FDA confirmation hearing in April 2017, Gottlieb reiterated his belief that importation isn’t a feasible tool for lowering drug prices.

Azar’s politically motivated plan will undermine FDA’s well-earned reputation as a non-partisan, science-based regulator.
 
Azar and Gottlieb didn’t issue any caveats. They never suggested importation could be used to target price hikes taken on off-patent drugs by unscrupulous pharma companies.
 
The issue isn’t whether FDA can ensure the safety of imported drugs. History shows it can do so to address public health emergencies, on a limited scale and at great cost.
 
For example, in 2012 the agency facilitated the importation of an unapproved vaccine to combat meningitis outbreaks on college campuses. The next year, FDA found and arranged importation of foreign supplies of injectable drugs used to make total parenteral nutrition after a U.S. manufacturer voluntarily shut down to resolve quality issues. In a blog posting, the agency described the resource-intensive process it went through to ensure the safety of the imported products.
 
There’s a big difference, however, between taking extraordinary steps to secure drugs needed to combat a public health emergency and claiming importation should be used to puncture a pricing bubble.

Azar’s politically motivated plan will undermine FDA’s well-earned reputation as a non-partisan, science-based regulator by putting it at the center of political and economic controversies it is ill-equipped to navigate.

Across multiple presidencies, the agency has consistently said it has no authority over prices. But Azar would force FDA to develop a methodology to determine which prices are egregious - inevitably leading it to steer regulatory policy on the basis of public outrage, media attention, or political expediency. 
 
The alternative is for HHS to tell FDA which drugs would be subject to importation. This would set a precedent at odds with FDA's mandate to operate as an independent agency.
 
What’s going to happen when President Trump or a future occupant of the White House sees TV programs about a lifesaving new drug with an eye-popping price in the U.S. that is available for less in Italy or Indonesia? How long will it take for the president to pick up the phone and order HHS to arrange for imports from a country with price controls? And in the heat of the moment, will either the White House or HHS stop to ensure that the supply chain is safe, to consider the disincentive to innovation caused by intemperate importation of price controls, or to consider other ways to ensure that American patients have access?
 
Azar and Gottlieb have described a circumscribed program in their public statements, and reiterated their opposition to large-scale importation. Nuance doesn’t get far in Washington.

No matter how targeted the program is, it will fuel the enthusiasm of activists who are demanding the broad importation practices that Gottlieb and his predecessors have condemned as infeasible and dangerous.
 
It already has. 
 
Within hours of Azar’s announcement of the importation policy, Sen. Chuck Grassley (R-Iowa) praised the action as the first step toward opening the borders to prescription drugs from Canada and other countries.
 
While it will be politically attractive, whacking a pharma bro or two wouldn’t fundamentally change the drug pricing environment.

Given his prior opposition to importation, it seems Azar is motivated by a desire to placate Trump by generating favorable publicity. In fact, his department has been prodding and cajoling reporters for weeks as part of an organized effort to get more favorable coverage of its drug pricing blueprint. 
 
Although he talks about market forces and promoting competition, Azar also has displayed an enthusiasm for intimidating individual companies and vilifying CEOs. He has amplified Trump’s tweeted threats to pharma companies and celebrated their demonstrations of contrition. 

Tweets and headlines fade quickly. In their relentless search for publicity, Azar and the Trump administration will be reaching for more quick fixes.  Read More & Comment...

Healthcare's High Stakes Exam

07/03/2018 10:45 AM | Peter Pitts

The Trump Administration’s triad of HHS Secretary Alex Azar, FDA Commissioner Scott Gottlieb and CMS Administrator Seema Verma represents an exciting policy wonk triple play. All three are idea-driven innovators and nowhere is this more vividly on display than in the American Patients First Blueprint to lower drug prices and reduce out-of-pocket costs.

On May 14th, HHS issued a request for information (RFI) on the administration's blueprint, seeking input from stakeholders on a wide range of policy proposals. Responses are due on or before July 16, 2018. This is not an exercise.

The Blueprint is both a directional document of free-market principles and a high-stakes exam for America’s healthcare leadership. Why an exam? Precisely because in it the Administration asks a series of tough, intriguing, challenging and precise questions on a series of interesting potential pathways for reform. It’s not a final exam – but it certainly is a high stakes one for all involved.

The headline message is that incremental change isn’t enough. Dynamic, discontinuous and disruptive ideas are the order of the day. Attention American healthcare leaders: It’s time to lead, follow or get out of the way. And, as the Beltway adage reminds us, “If you’re not at the table, you’re on the menu.”

As America’s best and brightest cogitate on their RFI responses, here are some things to consider:

Drug Manufacturers: Are you ready to facilitate generic drug development by becoming part of the solution, ceasing the shenanigans that prevent quicker development programs? Straightforwardly, are you ready to come to the table to discuss the real problems with the CREATES Act – and solve them?

Pharmacy Benefit Managers: Are you ready to stop putting profits in front of patients? Will you pass along more of your double-digit discounts to patients in the forms of lower co-pays and co-insurance? Will you stop using restrictive formularies, co-pay accumulators, and prior authorization to pad your own pocket? Are you willing to accept fiduciary responsibility for your actions? If not – better get ready for Uncle Sam to take away your anti-kickback exemption.

Administrator Verma: Are you prepared to grant more states waivers for more aggressive reform pilot programs? How can you insert more market-based forces into Part B while retaining existing price transparency?  How can you help to drive more competitive benefit design options both inside and outside of government programs?

Commissioner Gottlieb: FDA’s senior leadership is saying all the right things. Legislation has given the agency broader authority to do more things in new ways. How can you convince, cajole and empower line review staff to get with the program?

Secretary Azar: You’ve accused insurers of “keeping customers in the dark.” How can you use both your authority and bully pulpit to help propel more sunlight (the best disinfectant) into this and other systemic issues that are trying to hide in the shadows of industry lobbyists? How soon can we eradicate the Gag Rule and set pharmacists free to help patients lower their out-of-pocket costs?

Congress: Unfortunately, the less you understand about the healthcare ecosystem, the more simplistic, politically popular sound bite-driven solutions seem like the order of the day. Drug importation, patent expropriation and  “single payer” for example, are bad ideas that many in both Houses (and state legislatures) support even though they have been shown, time and again to be not just non-starters but replete with dangerous unintended consequences. Rather than looking for people to blame and punish, how about looking for ways to solve the problem?

And when it comes to the 340B imbroglio, how about a more realistic definition of a "patient?"

Yes, the exam questions are difficult, time is short and the stakes are high. But with sound national leadership, a more open-kimono ecosystem and continued political pressure to develop disruptive solutions that deliver lower costs for patients while enhancing innovation, we can expect more than a passing grade. We can expect real progress.
   Read More & Comment...

Gray Lady Misses the Mark on the 21st Century FDA

06/10/2018 07:33 PM | Peter Pitts

According to an editorial in the New York Times, “For several years the F.D.A. has been lowering the standards  by which it decides whether new medications are safe and useful.” Balderdash.

Is the FDA approving drugs too fast or not fast enough? Are they demanding too much data or not enough? There isn’t any dearth of commentary supporting either proposition. There is, however, no evidence to support the sound bite that the FDA is approving “everything,” or that every product that requests an expedited pathway receives it, or that “all” those that do receive an expedited pathway designation get approved, or that every product that does reach the market via an expedited approval is in some way more dangerous than other medicines. Some particulars:

* An analysis of every product (364) requesting a Breakthrough Therapy designation (from July 2012 – June 2016) shows that CDER granted 133 (37%) of those requests, denied 182 (50%), and the sponsor withdrew their request 49 times (13%) before the agency made a decision. Hardly a regulatory carte blanche.

* In 2013, the first full year of the Breakthrough Designation, the FDA approved 3 new drugs, 14 in 2014, and 9 in 2015. Hardly an onslaught of new medicines.

* Among 22 drugs with 24 indications granted accelerated approval by the FDA in 2009-2013, efficacy was often confirmed in post-approval trials a minimum of 3 years after approval, although confirmatory trials and preapproval trials had similar design elements, including reliance on surrogate measures as outcomes.Unsafe? Not effective? “Dangerous? A new “wild west” FDA? No.

New ways of understanding and interpreting how data evolves over time, upends the traditional frame of regulatory stasis and opens up the opportunity to embrace a more 21st century approach to the regulation of healthcare technologies.  Read More & Comment...

PBM Transparency Legislation? How's Bayou?

05/18/2018 03:56 PM | Peter Pitts

Louisiana is leading the nation in smart drug pricing transparency legislation. Last year, as in many other states, the issue was pharmaceutical manufacturer pricing. But many have learned that, by focusing on just one part of the ecosystem, partial transparency results in unhelpful opaqueness.
Bravo to the Bayou State for understanding that real pricing transparency requires real transparency by all concerned. Consider two pieces of legislation that just passed both houses of the Louisiana legislature by unanimous votes:

Senate Bill 283 calls for PBMs to make their rebate data (in aggregate form) available on a public website. Bill 283 requires that pharmacy benefit managers  “provide for internet publication of formularies; to provide for transparency reporting; to provide for certain reportable aggregate data; to provide for internet publication of the transparency report; to provide for definitions; to provide for the duties of the commissioner of insurance relative thereto; to provide for confidentiality; and to provide for related matters.”

Translation – show us the money.

The second piece of legislation, Senate Bill 282, requires PBM reporting of “Excess Consumer Cost Burden.” According the bill, this means “an amount charged to an enrollee for a covered prescription drug that is greater than the amount that an enrollee’s health insurance issuer pays, or would pay absent the enrollee cost sharing, after accounting for rebates, or where an enrollee is subject to a paid for as medical care under any hospital or medical service policy or certificate, hospital or medical service plan contract, preferred provider organization, or health insurance organization offered by a health insurance issuer.”

In other words – show us the money – and how it impacts the price patients’ pay at the pharmacy.

As more legislators recognize the value of ecosystem transparency, these two pieces of legislation are likely models of what other states will propose. This is also in keeping with Secretary Azar’s call for PBMs to pass along 30% of their rebates to Medicare and Medicaid patients in the form of lower co-pays, deductibles, and co-insurance. No one understands better than the people of Louisiana that it’s “the price at the pump” that matters most to the average Joe.

To paraphrase the Kingfish, former Louisiana Governor Huey Long, PBMs are going to get real transparency - and they aren't going to like it.
   Read More & Comment...

Arnold Foundation Funded Austin Frakt Falls Flat Flakking for ICER

05/16/2018 03:00 PM | Robert Goldberg

In the wake of the President’s speech on drug pricing organizations and individuals funded by the Laura and John Arnold Foundation have been campaigning to establish the Institute for Clinical and Economic Review – another Arnold funded enterprise –  as the ultimate and undisputed authority for determining the price and value of new medicines.  

An article written by Austin Frakt, a blogger, and director of  the Partnered Evidence-Based Policy Resource Center at the V.A. Boston Healthcare System tries to make just that case. 

Frakt, the latest expert put on the Arnold foundation payroll wrote that ICER is the light and salvation to the drug pricing issue: 

“It is hard to generate enough reliable cost-effectiveness information to give insurers the leverage to say “no” to unreasonably expensive drugs….

The nonprofit and privately financed Institute for Clinical and Economic Review  has proposed a way to solve that problem. Largely funded by the Laura and John Arnold Foundation, it is an independent organization that weighs the benefits of medical technologies against their prices.

For each new drug that comes to market, the organization conducts a clinical and economic analysis that’s available to the public. It then suggests to payers and manufacturers a price range that’s aligned with benefits and budgets.

There’s evidence that the exercise is helping insurers cut better deals. For example, Dupixent, the first cure for eczema, was expected to launch last year at a price of $60,000 per year of treatment. At a cost this high, many insurers would have imposed onerous cost-sharing requirements on patients before covering it.

Instead, Dupixent manufacturers Regeneron Pharmaceuticals Inc. and Sanofi sought a value-based price from ICER before setting the list price for the drug. Then, during negotiations with payers, the companies argued that the outside assessment established a fair price that warranted lower cost sharing and fewer barriers for patient access.

A similar story arose with Praluent, for high cholesterol. Regeneron and Sanofi struck a deal with the pharmacy benefits manager Express Scripts to reduce Praluent’s price to one that ICER believed aligned better with benefits. In exchange, patients will get easier access to the drug.”

Frakt ignores how ICER’s suggestions on pricing and limiting access to save money were used to deny and limit access to hepatitis C drugs, recommendations that drove cure rates down from 99 percent to 75 percent in some health plans.   It claimed that new medicines for multiple myeloma were not valuable at ANY price.  On top of all that, ICER claims that spending more than about $1 billion a year on one drug would threaten the financial stability of a health plan.  Which means that even if we had a cure for HCV or Alzheimer’s we would have to limit access once that $1 billion mark was hit. 

Frakt is either misleading or uninformed about access to Dupixent.  The Dupixent ‘deal’ was made with Express Scripts.  The claim that patients have faster access to the drug is bogus: Express Scripts requires Medicare patients to fail first on two other drugs in order to get Dupixent.  

“Patient meets both of the following criteria: a. Patient has used at least one medium-, medium-high, high-, and/or super-high-potency prescription topical corticosteroid for at least 28 consecutive days OR patient has atopic dermatitis affecting ONLY the face, eyes/eyelids, skin folds, and/or genitalia and has tried tacrolimus ointment for at least 28 consecutive days AND b. Inadequate efficacy was demonstrated with these previously tried topical prescription therapies, according to the prescribing physician. “


He also claims that ICER research would make more medicines widely available because health plans don’t do any cost-effectiveness analysis of their own to make such patient-focused decisions. Yet as search of Dupixent on Formulary Lookup reveals that only 5 percent of commercial health plans given the drug preferred access.  None allow immediate access.  Instead, patients have to fail first on 2-3 other drugs.  Nearly 70 percent of Medicare Part D PBMs don't even cover the drug. 

Frakt also fall flat in describing the health bounty flowing from ICER’s evaluation of new anti-cholesterol medicines called PCSK9s (one called Repatha, made by Amgen and another called Praluent, made by Regeneron) that are much more effective than statins alone in reducing cholesterol levels and the heart disease caused by the condition.

The list price for the drugs was – is - $14000.  ICER said it was only worth about $5000 and that to make it available to every patient who could benefit, the price should be $2000.  

These recommendations were used by PBMs for force deeper rebates in exchange for excluding competitor drugs from their formulary as well as reduce the PBM and health plan spending on new drugs. In the case of Repatha and Praluent, such practices have cut the market for Repatha and Praluent by two thirds.   

As Frakt noted, Express Scripts recently cut a deal with Regeneron to eliminate step therapy and prior authorization for  Praluent in exchange for more rebates.  ICER produced a new assessment that Express Scripts claimed led to this deal.  In fact, ICER essentially restated the findings in its first report: that a small subgroup of patients should get the drug if drug companies cut the price to about $5000.  

This value-based pricing process increased rebates and led to a lower net price. But it did NOT result in eliminating cost sharing.  Patients – the handful that will get the drug – will still pay $100 a month for the drug.  Second, Express Scripts is limiting access to its infusion centers, meaning more profit.  Third, as part of the deal, Express Scripts no longer covers Repatha, Amgen’s PCSK9.  Patients will have to pay full price or reapply to get Repatha. 

The fact is, net prices alone will not guarantee affordable access.  PBMs will still use step therapy, prior authorization, and cost sharing to maximize rebates and keep drug costs using ICER prices as a bargaining chip.

The president has made it clear that drug companies will have to find another way to get new and expensive medicines to patients.   But those prices must be based, not on the secret and ideologically driven deliberations of a group like ICER or the kind of backroom deals that lead to the Repatha ripoff.  

The job of deciding the value of any medicine will have to be democratized.  If drug and device companies don’t take the money they now spend on rebates, patient assistance programs, and copay cards and invest in demonstrating the differential value of their products to doctors, health plans and most importantly, patients, groups like ICER will gain more control over access.   Which means, contrary to Frakt’s flakking for ICER, most patients will have less access to new medicines and pay more for them.  
  Read More & Comment...

It's the healthcare ecosystem, stupid

05/15/2018 07:50 AM | Peter Pitts

Per Paul Krugman's op-ed, Just Saying Yes to Drug Companies -- anyone who was paying attention to President Trump's press conference or has read the White House Blueprint should understand that drug pricing is an ecosystem that includes manufacturers and multiple intermediaries. Games are being played and patients are (generally) the losers.

Why not a single word from Dr. Krugman about the very questionable practices of, for example, Prescription Benefit Managers? PBMs receive large rebates (aka, "kick-backs") and, rather than passing along the savings to patients, they pocket hundreds of millions of dollars. President Trump and HHS Secretary Alex Azar made it very clear they will demand that these rebates be used to "lower the price at the pump" -- lower co-pays for patients when they get their drugs at the pharmacy.

When people say, "My drugs are too expensive," what they mean is "My co-pay" or "My deductible" is too expensive. Shame on Dr. Krugman for perpetuating the myth that drug prices are a one-dimensional issue. And shame on him for ignoring the many solid recommendations made by the President and his healthcare team. As the Yiddish proverb goes, "A half truth is a whole lie." It's the ecosystem, stupid.
   Read More & Comment...

Some Thoughts on President Trumps Plan on Lowering Drug Prices

05/11/2018 03:20 PM | Peter Pitts

Per the President, “There is a tangled web of special interests keeping the price of drugs artificially high.”

The big take-away from the President’s speech today is that “the price of drugs” is an ecosystem problem that requires an ecosystem solution. To us, this is obvious. To the American people, it is not. (There are no “simple” solutions such as “drugs from Canada.”)

* This truth telling isn’t surprising since POTUS is following the lead of three very sharp policy wonks – Secretary Azar, Commissioner Gottlieb, and Administrator Verma. And they’ve been saying this for years. In fact, Alex talked about it during his confirmation hearing. This speech isn’t at all surprising – if you’ve been listening. Azar, Gottlieb and Verma have been repeating this statement for the past few weeks.

* Per PBMs, the president's budget calls for insurers/PBMs who provide Medicare Part D prescription drug plans to give at least one-third of the rebates and price concessions to beneficiaries at the pharmacy.

* “My drugs are too expensive” generally means, “my co-pay/co-insurance is too high.” The President’s plan will lower the “price at the pump.”

* The big policy implication here is that the ACA promised “insurance for all.” But that rhetoric led people to believe this meant their healthcare would be “free.” Not so. And many of these new plans (especially the Silver ones) were designed along the lines of low premium/high co-pay.  This is particularly true for the no/low premium plans. This new thinking begins to get at that problem.

* The next policy conversation will be “Do lower co-pays mean higher premiums?” Watch for the payer pundits to ask this question.

* One man’s rebate is another man’s kickback. Will the federal exemption for rebates be revoked? Big battle here that PBMs cannot afford to lose. Watch how the issue of premium subsidies comes back around.

* The President is voicing free-market solutions. (Azar+Gottlieb+Verma = free market thinking.) See here.

* The large and growing gap between the drugs’ list prices and the actual, secret prices PBMs pay is bad for competition. Markets are less efficient without clear price signals. The proposed HHS rule (for passing along a portion of the rebate) “would improve price transparency which may have a positive effect on market competition and efficiency.”

* Again, per “ecosystem,” do higher list prices equal higher rebates? Well – sometimes. How can this best be addressed? The answer begins with transparency. Transparency can give manufacturers an edge. After all, it’s harder to pocket money (rebates/kickbacks) when it’s sitting on the table where everyone can see it.

* The administration may also considering how it pays for drugs administered in doctor's offices, clinics or hospitals through Medicare's Part B program.

The federal government currently pays providers 6% more than the average price of those medicines. Hence, manufactures have the incentive to raise prices and gives providers the incentive to select more expensive medicines. (This is Seema Verma’s philosophy since her days running the Indiana Health Department.)

* The administration is considering moving certain Part B coverage (perhaps orals vs. injectables) into the Part D program, where insurers can (in theory) negotiate better prices and requiring manufacturers to provide more accurate sales data to make sure they don't exclude discounts.

* States are the laboratory of invention. Reducing drug costs in Medicaid is also under consideration. The president's budget calls for giving up to five states greater leeway to test drug coverage and payment models in their Medicaid programs. Allowing states to determine which drugs to cover would in theory allow them negotiate bigger discounts directly with manufacturers.

* Exclusionary Contracting. FDA is focusing on reducing prices by increasing competition via generics biosimilars. Gottlieb has teed up tackling the "games" manufacturers play to keep competitors off the market, such as using loopholes to block rivals or paying them to delay bringing their drugs to market and, particularly for biosimilars, exclusionary contracting.

* The President wants to do away with the “gag rule” that prohibits pharmacists (in some states) from telling their customers there are cheaper (generic) alternatives to what they have been prescribed. To-date, this has been a state issue. It is likely to remain so because of interstate commerce regulations.

* Patents should be used to protect innovation, not to delay generics to market. (aka, “shenanigans.”)

* Secretary Azar said that the FDA was going to write new regs that would require drug companies to list the price of their products in their advertising. Not sure where this is going, but it’s worth watching carefully.

* Per other nations’ bullying our drug manufacturers into unrealistically low prices/allowing other countries to freeload off of American innovation,” it’s a fair point that’s going to be difficult to address. But the fact that the President is teeing it up is a big step in the right direction. For more on this point, see this article from the Wall Street Journal.

* What will we read in the New York Times tomorrow? I predict the mainstream media chattering classes will say this is a “victory for Big Pharma.” They will (begrudgingly) admit that direct federal negotiations are a good idea. (It will not mention that this is contrary to the existing Non-Interference Clause that will require legislation to undo). Media and Democrats in Congress will peg the speech as “caving in to Big Pharma.” If I am wrong I will buy you all lunch.

* Addressing the kickback statute and the Non-Interference Clause will require legislation. Will Dems work with the White House?

* Equally important is to not pay much (if any) attention to whatever hyperbole the President uses. Implementation of the above-discussed initiatives will be done by HHS/FDA/CMS.

In the words of the British pundit Ernest Benn, “Politics is the art of looking for trouble, finding it whether it exists or not, diagnosing it incorrectly, and applying the wrong remedy. “

The good news is that experts are at the wheel.

They’re focusing on free-market solutions.

The ideas require an ecosystem approach.

Nobody said it was going to be easy.  Read More & Comment...

Trump Takes On the PBMs

05/11/2018 10:07 AM | Robert Goldberg

Previews of President Trump’s speech on drug pricing made it quite clear that he wants to eliminate the bribes and barriers that are pushing drug prices higher and make access to the medicines that work best for each individual affordable.  At the heart of this effort is to change or eliminate the role PBMs play in perpetuating such scams.  If there was a slogan that captured the tenor of Trump’s address it is: Replace PBMs with affordable access to important medicines.  

Currently, about 30-40 percent of the price of a drug goes to PBMs, insurance companies, state Medicaid programs and Medicare in the form of rebates, not lower prices.  Drug companies have an incentive to launch or raise prices as high as possible, so they can give PBMs the biggest rebates possible.  PBMs and insurers then steer you to medicines that can make them the most money.  Often people seeking a drug that is more effective must fail to get better or wind up getting sicker using the rebate rich drugs instead of the medicine that works best.  Moreover, while PBMs and insurers pocket the rebates, the sickest patients who need the newest medicines are paying a part or all of, the retail price of a drug.  

Indeed, the gaming of the system is cruel and discriminatory.  

In fact, individuals with Medicare and employer-sponsored plans with people with cancer, HIV, hepatitis C, autoimmune conditions, multiple sclerosis and rare diseases are also much more likely to have to pay up to 40 percent of the retail price of a medicine.  They comprise about 2 percent all insured consumers – 4.4 million people -- and less than 3 percent of all prescriptions.  

Though specialty drugs are only 1.9% of all prescriptions dispensed each, they and the patients that depend on them generate nearly 30 percent of all rebates.

PBMs and health plans could use rebates to reduce cost sharing.  Instead, they systematically maximize their use for the sickest patients.  They do it because they can and because by doing it, they rake in tens of billions of dollars in a predictable manner. 

In addition, the 2 percent paid PBMs and insurers approximately $12 billion in cost sharing based on a percentage of the full price of the medicine, not the rebated price. 

Put another way, each of the 4.4 million patients in the 2 percent provides PBMs and health plans close to $11000 in rebate and coinsurance revenue.   Discrimination makes net price profitable under these circumstances. 




The combination of withholding rebates and retail priced based cost sharing – in addition to other ways PBMs (on behalf of insurers) use to reduce access –discourages a large percent of people from simply not picking up prescriptions or refilling them.   And when they don’t pick up or refill their prescriptions, people get sicker. Or they die.  

Incredibly, there are groups that want to go after the list price of drugs and not address the assault on human health that fills the pockets of the PBMs.   The fact is, cutting the launch price of expensive drugs for small populations (price controls in effect) will have no effect on PBM discrimination.  

Indeed, those groups and politicians who want to chop launch prices want to give PBMs more control over access such drugs to achieve that goal.  They want PBMs to force patients to get sicker on cheaper drugs.  They want them to continue to exclude such drugs when they can.  Which means they are willing to let them pocket rebates and force patients to pay a share of the retail price that is unaffordable.  

PBMs are systematically exploiting the vulnerability of the sickest 2 percent of Americans to maximize profit. They can profit from the suffering because they can design prescription drug benefits to impose a special burden on people with pre-existing conditions.   Giving PBMs more power to cut launch prices and keep the spread between list and net prices would only deepen the discrimination the President has pledged to eliminate. 
  Read More & Comment...

What President Trump Should Say in His Speech on Drug Prices

05/08/2018 09:43 AM | Robert Goldberg

My fellow Americans,  medical innovation is the beating heart of health care.  Absent new drugs and vaccines for a wide range of illnesses, including HIV, heart disease, cancer and hepatitis C, we would spend more on health care and insurance premiums and get less for it. Our lives would be shorter and less productive.

For most Americans, access to new medicines is not a problem.  Generic versions of off-patent medicines comprise 90 percent of all prescriptions written.  Over the past few years, the average out of pocket costs for drugs has declined.  So too have the net price of medicines.  In fact, while there more new medicines for unmet needs than ever,  prescription drugs as a percentage of health care spending has remained stable at 10 percent.   

At the same time millions of Americans, those with the rarest conditions and fewest options have had to pay more, much more for their medicines than they can or should.  That’s because pharmacy benefit management companies — the middlemen that handle drug coverage for almost every American control what medicines you can get and how much you have to pay.  

Instead of maximizing health, prescription drug benefits are designed to maximize revenue.  Indeed,  these Americans are caught up in an extortion scheme in which drug companies, pharmacy benefit managers, insurance companies and even the government participate. 

And the goal of this extortion is to extract as much cash from drug companies in the form of rebates paid in exchange for a pharmacy benefit manager and health plan covering a medicine.   Rebates and discounts pocketed by PBMs, health plans and hospitals are 40 percent of the retail price of drugs. In fact, rebates that are generated when you fill a prescription total $130 billion a year.  Nearly a third of that money from less than the 3 percent of Americans with cancer, HIV, autoimmune disorders and rare diseases.   Yet, these are the same people who pay a share of the retail price of a drug, something that can cost thousands of dollars a year. 

That’s what happened to Kristin Agar, who was diagnosed with Lupus but can’t afford the drug that could keep her health.  Insurance pays 80 percent of the retail price of $2500 a dose and she has to pay 20 percent of that, about $1000 a month, on top of insurance premiums and other medical expenditures.  As she told the Washington Post,  although she works hard and makes decent money, “I make too much money to qualify for assistance, but I don’t make enough to pay the bills,”

That money goes to PBMs, insurance companies, state Medicaid programs and Medicare, not to you to lower prices.  Drug companies have an incentive to launch or raise prices as high as possible, so they can give PBMs the biggest rebates possible.  PBMs and insurers then steer you to medicines that can make them the most money.  Often people seeking a drug that is more effective must fail to get better or wind up getting sicker using the rebate rich drugs instead of the medicine that works best.  Moreover, while PBMs and insurers pocket the rebates, you are paying a part or all of, the retail price of a drug.  

Too often PBM profits come at the expense of not only of someone’s  well-being but their lives.  Cancer doctor and CEO of New York Cancer Specialists, Jeff Vacirca tells of a young husband with advanced melanoma and tumors attached to his brain being treated in his practice who had a  potentially life-prolonging drug waiting for him at the pharmacy. But, as he wrote, “his Pharmacy Benefit Manager pumped the brakes, instead requiring that he and his wife order the medication from the mail-order pharmacy owned by that PBM — and submit a $1,000 co-pay.

By the time his wife was able to procure co-pay assistance, the young man could no longer swallow pills and passed away in the ICU. Medication that was critical to treating his cancer remained just on the other side of the clinic’s pharmacy counter, with access denied by the couple’s PBM."

As FDA Commissioner Scott Gottlieb said recently, “Patients shouldn’t face exorbitant out-of-pocket costs, and pay money where the primary purpose is to help subsidize rebates paid to a long list of supply chain intermediaries. Sick people aren’t supposed to be subsidizing the healthy.”  Nor are they supposed to subsidize those hospitals, insurance companies and PBMs that make money under. Obamacare, Medicaid or Medicare. 

My administration has already taken steps to make more medicines more affordable.  The FDA has cleared the backlog of generic drug applications and is working hard to bring more affordable versions of biotech drugs – called biosimilars – to the market.  

Unfortunately, our success in breaking lower priced medicines to market has not always led to lower out of pocket costs for consumers.  FDA approved two cheaper versions of a brand biologic drug for arthritis last year.  Rather than letting products compete on price, PBMs used the competition to extract even bigger rebates from the brand drug in exchange for excluding the less expensive versions from coverage.   The brand drug’s list price and sales actually increased with nearly 90 percent of the price hike going into the pockets of the PBMs. 

Starting today, my administration will eliminate the bribes and barriers that are pushing drug prices higher and make access to the medicines that work best for each individual affordable.

First,  we are going to let people know when they are being taken advantage of.  Starting next month, Medicare and Medicaid will require the disclosure of the actual net price of every drug they pay as well as the retail price for every medicine. 

Second, we are going to pay for the net price of drugs, nothing more.  To that end, we have stopped letting hospitals that serve the poor to get discounts on drugs and then sell them to you at the retail price.  

We will expand this policy to every drug benefit program the government pays for.  

Third, I have instructed Secretary of Health and Human Services, Alex Azar, to use the buying power of the federal government to get a better deal for consumers.   We will, starting next year, require pharmaceutical companies, health plans and insurance companies participating in a federally subsidized health plan to reduce out of pocket drug costs of those who pay most for new medicines.  We will also encourage the development and use of outcomes-based health coverage where companies provide money back guarantees to the government and consumers if their products don’t work.  

HHS has already established such agreements for the use of gene therapy for cancer.  But we can do more. And as part of that effort, we will allow drug companies to directly reduce net prices of medicines and out of pocket costs of Medicare and Medicaid patients.  That means using charities to pay part of a higher retail drug price will be phased out in a way that does not disrupt patient access.  

Fourth, we will begin to actively investigate and prosecute health plans, PBMs and drug companies that steer patients to certain medicines that generate higher rebates or impose barriers to access that are designed to achieve the same goal.  Our administration is already going after a group of generic drug companies for conspiring to increase prices by over 1000 percent.   Free markets benefit the consumer and spur innovation.  Cartel like behavior in the pharmaceutical supply chain will be targeted and eliminated.  You can count on it

Fifth, we will regard drug benefit designs that have a pattern of forcing the sickest to pay the most or to require people in need of medicines take other drugs just because they are cheaper to the plan as both discriminatory and in potential violation of anti-kickback and racketeering laws. 

Finally, will eliminate the use of gimmicks and legal maneuvers to limit generic drug approvals.  The FDA will waive requirements that generic and brand companies have to agree on steps to handle the distribution and testing of new medicines in favor of a more streamlined policy that will protect the public health while freeing innovators to partner with generic manufacturers in ways that benefit both.  

We have seen how medical innovation has reduced the burden of major diseases in our lifetime.   It is now time to ensure that those innovations today and, in the future, do not impose yet another burden by virtue of their cost.   
  Read More & Comment...

The Big Cat Finds ROI Where the Sun Don't Shine

05/07/2018 11:57 AM | Peter Pitts

In the United States, the manufacturers of branded medications (on-patent, innovative drugs) represent 39% of gross net drug expenditures while the morass of non-manufacturer middleman -- Prescription Benefit Managers (PBMs), brokers, agents and assorted wholesalers and intermediaries -- are responsible for 42% of gross expenditures. What’s going on?

Perhaps a better question is what’s not going on. Topping that list is a lack of transparency in the cost supply chain, leading to cloudy conflicts of interest. If sunshine is the best disinfectant, perhaps enlightened self-interest is the best medicine.

Consider Caterpillar. Like many large corporations they were suffering under the burden of runaway healthcare expenses –especially for prescription medicines. Between 1996 and 2004, this iconic American company saw its drug spend rise by an average of 14% annually.

And then something happened. The company realized that the mechanisms it had put in place to manage cost (the traditional PBM model) wasn’t getting the job done and that a major part of the problem was systemic conflict of interest

According to Todd Bisping, Caterpillar’s Global Benefits Manager, “Our initial analysis estimated that there was 10% to 25% waste in the system, some of which we believed was driven by conflicts of interest in the system. For example, some of the same consulting firms that plan sponsors pay to help them choose their pharmacy benefit manager (PBM) often receive “broker fees” from the selected PBM. As we evaluated the supply chain, we knew eliminating conflicts of interest would be an area of focus.”

Deciding to reassert control of their own destiny, Caterpillar decided to forge a new path. After thoroughly investigating their relationship with their PBM, Restat (now a part of the UnitedHealth Group), the company decided, per Bisping, to “disintermediate the PBM from certain functions” that generated profits for them – but not for Caterpillar or its employees.

“One thing is certain, says Bisping, “the current market dynamic is creating a bloated supply chain and, ultimately, exposing plan sponsors to additional costs.”

Caterpillar’s first steps was to identify the complex ecosystem of the prescription drug supply chain, applying the same principles to their pharmaceutical costs as they do to other expenditures at Caterpillar. The result? According to Bisping? “We eliminated waste in the prescription drug supply chain. That, in turn, promoted the sustainability of our healthcare benefits.”

Caterpillar developed a unique and potent pathway to success.

First, they identifed at least one major pharmacy that would be willing to partner in a direct contracting relationship (bypassing the normal PBM pricing process) via non-exclusive relationships.

In the current system, pharmacies do not have an effective way to increase their market share outside of building additional stores. By negotiating directly with pharmacies, Caterpillar enabled them to find another way to increase their market share -- by exchanging volume for margin. A win–win for both companies. Per Bisping, “Although this model also would work in an exclusive arrangement, we believe in healthy competition. So a key deliverable was to ensure that neither party would be locked into an exclusive arrangement. It also allows for continued competition as this methodology takes hold in the industry.”

Next, Caterpillar developed a new pricing methodology to eliminate the use of average wholesale price (AWP) methodology. Bisping believes (as do many health policy experts) that the AWP methodology is flawed and only produces more waste. Caterpillar worked with its pharmacy partners to develop a “cost-plus” methodology. The Caterpillar plan includes a “real” invoice price, which represents the actual net cost to purchase the drug by the pharmacy -- not a transfer price. It also includes all net items/revenue streams that are generated now or in the future by the purchase of such drugs.

For Caterpillar’s model to be sustainable, pharmacies need to realize a profit. Therefore, the final cost is real invoice price + overhead + margin for each drug. It allows pharmacies to optimize/compete on three fronts in addition to customer service—buying, efficiency, and margin—to make them a more attractive partner to payers and win more of their business.

Perhaps most revolutionary is Caterpillar’s recognition that the fatal flaw of the established PBM is a lack of fiduciary responsibility to its clients. Therefore, their new strategy establishes audit rights.

Obviously, the net price any company pays its supplier often is a confidential matter. However, to ensure that this new methodology doesn’t design in the historic opportunity for corruption, validation is necessary. Caterpillar’s arrangement gives them the right to engage a third-party auditor to ensure that their pricing methodology is properly applied. The audit keeps critical pharmacy information confidential while allowing the company to validate that they are paying the price agreed to in the contract. In other words, trust – but verify.

Rather than relying on their PBM for a one-size fits all provider network, Caterpillar developed their own. In locations where participants didn’t have reasonable access, Caterpillar added  local, independent pharmacies to the preferred network. According to Bisping, “With a preferred network in place, we chose to incentivize our plan participants to purchase their prescriptions at a preferred network pharmacy by maintaining current prescription copayments at those pharmacies. Plan participants continue to have the option of using a pharmacy in our broader PBM network; however, they now will have higher copayments (or coinsurance) at those pharmacies.”

Smart choice pays dividends. Says Bisping, “Our model is based on a simple premise: find a way to manage pharmaceutical costs so we continue to provide a sustainable, valuable prescription benefit to our healthcare participants.”

The Caterpillar model increases their ROI by decreasing COI (conflicts of interest). The company’s benefits design allows pharmacies to take control by setting their own prices and exchanging better pricing for volume, thereby eliminating the squeeze from PBMs who are forcing prescription volume to mail order (largely owned by PBMs) to lower their costs.

A key problem to address is an institutional one: too much benefit outsouring by too many companies (both large and small) – with too little strategic thinking. Perhaps this is a timely opportunity for a new wave of benefits consultants who, as their primary objective, is to help companies reduce costs and enhance patient outcomes – rather than the profits of PBMs.

It’s not an easy process. According to Bisping, “It’s been difficult to initiate and implement this process. Developing the solution has required a significant investment of time from Team Caterpillar and our consultants and vendors, but we think this model is an improvement over the way most payers purchase prescription drugs today, and other payers could easily adopt it.”

But, as Admiral Rickover so famously reminds us, “The devil is in the details – but so is salvation.”  Read More & Comment...

Why Drug Prices Are Too Damn High

05/02/2018 10:12 AM | Robert Goldberg

Thanks to film maker Ami Horowitz for embedding himself in Miami Beach to produce this video!!  Read More & Comment...