Latest Drugwonks' Blog

Safe Harbors & Invisible Hands

  • 02.01.2019
  • Peter Pitts
From Bloomberg ...

Drug Rebate ‘Safe Harbor’ Axed in Highly-Anticipated Proposal
The legal status now protecting controversial drug rebates would be flipped upside down under a highly-anticipated proposal released Jan. 31.
Drug rebates paid by drugmakers to middlemen and insurance plans providing coverage through Medicare’s Part D drug program or Medicaid would no longer be protected from federal anti-kickback laws under proposed regulation from the Health and Human Services Department.
The anti-kickback statute prevents transactions “intended to induce or reward referrals for items or services reimbursed by federal health care programs.” However, drug rebates are currently exempted from that statute and those exemptions are often referred to as “safe harbors.”
The proposed change also would create a new safe harbor to protect direct discounts to patients at the pharmacy counter, the HHS said. It also would create a new safe harbor protection for fixed-fee service arrangements between manufactures and drug middlemen called pharmacy benefit managers.
The current drug rebate system has been criticized for incentivizing higher list prices for drugs. Drug companies charge more for the drug initially, but then offer refunds or “rebates” to pharmacy benefit managers and plans. Drug companies say the process forces them to raise the original price.
Changing the system is part of the Trump administration’s plan to lower drug prices, and many have said changing the rebate structure could be a massive step toward that goal
‘Invisible Hand’
The trade-off would be higher premiums in Medicare, but the government counters that this change would “lead to lower Part D spending for Medicare beneficiaries as a whole, because the projected reductions in out-of-pocket costs are larger than potential increases in premiums.” The pharmaceutical lobbying group said in a statement pharma companies support the plan. It will “fix the misaligned incentives in the system that currently result in insurers and pharmacy benefit managers (PBMs) favoring medicines with high list prices.”
“What the safe harbor has allowed [pharmacy benefit managers] to do is act as a non-regulated invisible hand in the drug pricing ecosystem,” Peter Pitts, president of the Center for Medicine in the Public Interest, told Bloomberg Law.
The center is a nonprofit research and education organization focused on patient-centered health care. “By removing the safe harbor, it’s forcing PBMs to play by the rules like everyone else and be transparent about it,” he said.
The HHS is also asking the public to weigh in on potential transparency requirements that would require drug middlemen to disclose details of fee arrangements with drugmakers and plans.
But would the change lead to directly lower prices for consumers? Pitts thinks so. “One of the many important things it would do is to reduce the price for patients at point of sale at the pharmacy,” he said. “That’s what this is designed to do.”

The Real Problem with Biosimilars

  • 01.10.2019
  • Peter Pitts
In today’s Washington Post, our long-time pal Chris Rowland writes, “Health-care and government officials are growing concerned that the makers of the most advanced drug therapies are using scare tactics to ward off emerging generic versions of their products, a bid to protect profits that has enormous implications for the nation’s efforts to control health-care costs.”
There are two major problems with this statement. The first is that the manufacturers of biosimilars are those same “makers of the most advanced drug therapies.” The second issue is far more important – that’s not even the problem.
Why haven’t biosimilars gained a larger share of the market? There are a number of structural ecosystem issues that reflect misaligned incentives in the marketplace. The industry here isn’t just Big Pharma, but also “Big Payer.”
The insurance industry and prescription benefit managers (PBMs) engage in a dance called “exclusionary contracting” that often blocks a less-expensive product from replacing a costlier one on a patient’s insurance plan. Biological medicines (both brand and biosimilar) are purchased via a “buy-and-bill” process, where providers purchase medicines and then bill the payers (both private or public) once the medicines have been administered to the patients.
The net result is a “cost plus” payment system, where providers lose money when they prescribe a lower-cost product. The current system also incentivizes payers to prefer medicines that carry higher rebates rather than lower list prices, driving preferences for higher-priced products and anti-competitive behavior that blocks access to other medications.
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.
“Facts,” as John Adams reminds us, “are pesky things.” Blaming Big Pharma may resonate with politicians and the press – but it’s not going to advance the worthy cause of biosimilars. As they say in Japan, don’t fix the blame, fix the problem.

Joy for ODES

  • 01.08.2019
  • Peter Pitts
FDA plans to create a new office to leverage cutting-edge science
By Matthew Herper @matthewherper
The Food and Drug Administration plans to create a new office to improve the review of new medicines — one that will develop a standardized approach to using personalized medicine, digital data, and patients’ own reports, according to Commissioner Scott Gottlieb.
Gottlieb will outline the plan for the new 52-person group, called the Office of Drug Evaluation Science (ODES), as part of a talk at the annual J.P. Morgan Healthcare Conference on Tuesday. Because of the government shutdown, he will deliver the talk via videoconference. “We’re operating with limited staff and I’m needed here,” he said.
He said the new office is not just an organizational shift, but part of something grander.
To spend or not to spend: Investing for commercial success as an emerging company

A review of emerging biopharma company launches identifies the “sweet spot” for launch spending that could mean the difference between success and failure.
“Eventually the drug review process will look a lot different,” Gottlieb wrote in an email. He envisions a world where data will be uploaded from drug company studies into the cloud, and instead of looking at the charts and tables companies create themselves, the FDA will use its own standardized methods on the raw data. “That is what I mean by a structured approach,” he said. “That is where we are heading, starting with the evaluation of safety data.”

Often, industry’s approach can seem anything but structured. For instance, immune-system-unleashing cancer medicines like Merck’s Keytruda, Bristol’s Opdivo, and AstraZeneca’s Imfinzi all depend on tests for the presence of a protein called PD-L1 in tumors; but each company used its own measures.
But these kinds of personalized approaches are becoming ever more important. Last year, the FDA even approved two drugs not for traditional cancer categories, but for cancers caused by particular genetic mutations. (The drugs: Keytruda for patients whose tumors have a condition called MSI-High, and Vitrakvi, from Loxo Oncology and Bayer, for tumors caused by mutations in a protein called TRK.)
Another important mission for the new office will be understanding how to turn what patients tell doctors into structured data. Take the case of Pfizer’s gene-targeted lung cancer drug Xalkori. It’s because of patient reports that the drug’s label contains a warning that it can cause eye problems, but patient reports also showed that it may reduce worsening of shortness of breath. Patient reports have become increasingly important to the agency since 2011, when the FDA demanded that Incyte Pharmaceuticals, which was developing a drug called Jakafi for myelofibrosis, show not only that the medicine shrank patients’ spleens but also made people feel better.
ODES will be part of the Office of New Drugs, which is itself part of the FDA’s Center for Drug Evaluation and Research, which oversees the approval of new medicines. It will have its own director, and three divisions: an 18-person Division of Clinical Outcomes Assessments, charged with evaluating measures of how well drugs are working and how safe they are; an 18-person Division of Biomedical Informatics and Safety Analytics, which will evaluate new ways of using information technology; and an 11-person Division of Research and Biomarker Development, whose job it will be to monitor all those blood draws and genetic scans.
The new office is going through the final stages of review and Gottlieb expects to start the office in the first half of this year.
“These are now hard sciences,” Gottlieb said. “We think this is going to allow us to understand safety and efficacy much more efficiently.”

Solving the Drug Shortage Problem

  • 12.18.2018
  • Robert Goldberg
The primary cause of drug shortages is, to paraphrase the old joke, that the portions are small and the market is terrible.  It’s hard to make a buck churning out old medicines when the cost of production and distribution increase faster than prices. It makes more sense to invest fixed assets in more profitable products. As FDA Commissioner Scott Gottlieb and Janet Woodcock, the Director of FDA’s Center for Drug Evaluation and Research point out: “There may be critical drugs that may sometimes be priced too low relative to the full cost of reliably producing a predictable and high-quality pharmaceutical product. These critical drugs are typically older generic medicines that must be in a sterile, injectable form.”  (It’s amazing how markets and pricing signals determine supply and demand.)
Indeed, solving the drug shortage requires creating a robust market for the products that are, or will be, in short supply. The FDA has done a remarkable job in reducing the number of product shortages by preventing them before they occur, instead of having to scramble after they emerge. The agency prevented 132 shortages in 2017. That’s one reason that shortages declined from a peak of 251 in 2011 to 35 in 2017.
Specifically, FDA’s drug shortage czar, Keagan Lenihan, (FDA’s Associate Commissioner for Strategic Initiatives of the Agency Drug Shortages Task Force) has increased the amount of collaboration required to identify and avert potential shortages. The agency is not staffed with mind readers, so it needs more advance information from manufacturers, providers, pharmacists, and consumers, which surprisingly is also in short supply.
The dearth of predictive information hurts in two ways: First, it forces the FDA to react, rather than head off, shortages. As Dr. Gottlieb and Woodcock note: “If an additional production facility or supplier is needed to help mitigate or prevent a shortage of certain important drugs, we can expedite inspection of a new facility so that it can become operational as soon as possible. We can also expedite review of a new or generic drug application that, if approved, may help mitigate or prevent such a shortage. We prioritize these inspections and reviews.”
But these tools are most effective when they are used to prevent a shortage. While an early warning system would help resolve some shortages (and Congress is considering legislation to create such a program), it can be really valuable in creating a risk index to support a commodities market for the raw materials and finished products. In fact, in 2011, IMS (now IQVIA) recommended an early warning system that would include data for “risk identification, demand forecasting, a volatility index, and predictive modeling.”
Drug shortages have all the hallmarks of a manufacturing sector that could benefit from trading futures. Like many agricultural products and raw materials for finished goods, generic injectables face volatility due to (1) global sourcing, (2) number of qualified suppliers, (3) market constraint, (4) price increase, and (5) geopolitical climate. Depending on the supply risk of the commodity, food, and agribusiness companies are able to decide whether it is necessary to take actions for securing their supply. More insight into the risks of key input commodities helps companies in their decision-making and risk management. And a robust futures market creates liquidity (cash) that companies can use to invest in manufacturing.
But creating a market for drug shortages also requires an upgrade in manufacturing and a reliable source of demand. After Pfizer bought Hospira, it realized that the manufacturing arm of the company (which is virtually a sole supplier of many injectables with persistent shortages)  needed to be overhauled.  An article in Fortune describes the daunting task facing Pfizer in just one facility:
The Rocky Mount facility, for example, makes up to a half-billion sterile injectables each year, enough to fill 20 semi-trailers every day. Workers there make 500 different products, fitted into syringes, vials, and ampoules. They span a human life, from the vitamin K used to promote blood clotting in new babies to the morphine used to ease the pain of terminal illness.
The plant, though, has only 26 manufacturing lines, meaning that any given line is likely to be running something different every day. Each line, moreover, has to be FDA-qualified for the drugs made on it, a costly and lengthy vetting process. Schedules are typically planned weeks in advance and can be scuttled for any number of unforeseen events, from a snow day to a worker’s illness to components that don’t arrive at the factory on time.
Because of the testing and paperwork involved, it takes batches three to six weeks to leave the factory. And each batch generates a 200- to a 400-page stack of paper that documents the process. These, of course, are merely logistical wrinkles. Achieving a sterile environment—essential for medicines that are shot directly into the bloodstream—is the true challenge.
The long-term solution is to replace the current manufacturing platform for medicines and injectables, which are based on 19th-century production principles and technology with continuous manufacturing. The FDA is encouraging “the adoption of new production technologies, such as 3D printing and continuous manufacturing. Over time, these methods could lower drug production costs, enable more rapid scale up of manufacturing, and help prevent drug shortages caused by product quality and manufacturing problems.” But such a shift needs incentives as well.
And that is where public policy could help. Overhaul of the pharmaceutical manufacturing platform may require a public-private partnership (like the Semiconductor Manufacturing Technology or Sematech program) that would focus on continuous manufacturing, 3-D printing, and other advanced production and supply chain technologies. Such a partnership – a pharmaceutical advanced manufacturing technology consortium (PharmaTech?) would require funding but also a commitment on the part of private companies to involve their best and brightest in the enterprise. This is not a fully fleshed out proposal. But it is a model that works.  “Sematech has become a model for how industry and government can work together to restore manufacturing industries—or help jump-start new ones. “ It’s time to approach the drug shortage issue with the same spirit of urgency and inventive opportunity.

Right to Try vs. Right Way to Try

  • 12.15.2018
  • Peter Pitts
Great article by BioCentury’s Steve Usdin on the FDA’s new approach to facilitating appropriate and responsible expanded access to experimental drugs. Rather than buying into the political pabulum of “Right to Try,” the FDA is taking the reins with the right way to try.
Here are some snippets from the BioCentury article:
FDA to facilitate access to unapproved drugs
How FDA plans to help patients get expanded access to unapproved drugs
by Steve Usdin, Washington Edito
FDA plans to launch a new program in 2019 that will help patients gain access to unapproved therapies. The agency will field telephone requests from physicians and patients, streamline the application process, and act as an intermediary between physicians or patients and drug manufacturers.
Legislation is not required, and FDA has sufficient funding to conduct the pilot. Richard Pazdur, director of FDA’s Oncology Center of Excellence, proposed the initiative in early 2018.
The goals of the program, FDA Commissioner Scott Gottlieb told BioCentury, are to remove impediments that prevent physicians and patients from seeking access to investigational drugs and to communicate FDA’s support for manufacturers providing access.
An FDA internal working group has been meeting for two months to develop implementation plans and to iron out legal issues for the initiative, which FDA staff have dubbed Project Facilitate. The project involves the Center for Drug Evaluation and Research (CDER) and the Center for Biologics Evaluation and Research (CBER).
Under the initiative, the agency will provide a telephone number that patients and physicians seeking compassionate use -- which FDA calls expanded access -- can call. FDA staff will answer calls and fill out the form required to apply for a single-patient IND request. It will send the completed paperwork to the physician for signature and then forward the request to the manufacturer.
Manufacturers will be expected to respond to requests within a specified time period. FDA has not yet determined the response deadline. Drug companies will continue to have the discretion to approve or deny requests, but for the first time “they’ll have to give the reason for denying access,” Pazdur said.
Legislation is not required, and FDA has sufficient funding to conduct the pilot.
Drug companies have an “obligation to consider expanded access, especially in areas of unmet medical need,” Gottlieb said.
In addition to streamlining requests and incentivizing companies to grant access, placing FDA at the center of the expanded access process will give the agency insight into demand, drug company behavior and outcomes.
Under the current system, drug companies have no obligation to report data to FDA or the public about the number of compassionate use requests they receive or grant, or about the outcomes patients experience. Under the new program, FDA will collect data on requests for unapproved drugs to help close the knowledge gap and make it easier to formulate policy. And if FDA learns that a drug company is receiving numerous requests for access to an unapproved drug, it may recommend that the company open an expanded access protocol designed for an intermediate or large population, or a clinical trial, Pazdur told BioCentury.
FDA’s expanded access program will, for the first time, create a systematic process in the U.S. for learning about the outcomes of access to unapproved drugs.
While biopharma companies often express concern that adverse experiences from expanded access may lead FDA to delay or derail drug reviews, the fear is largely unwarranted, according to FDA officials. The idea that expanded access will harm a development program is “urban lore,” Peter Marks, director of CBER.
An FDA review of expanded access data from 2005-2014 found two instances in which adverse events from expanded access contributed to FDA’s decision to impose a clinical hold. “It is very hard to find instances where something identified in the setting of expanded access raised questions that were an impediment to a review,” Gottlieb said.
Bob Temple, deputy center director at CDER, suggested that expanded access protocols can produce data that can demonstrate efficacy in populations outside those studied in registration trials, potentially leading to broader indications.
If sponsors create large non-randomized expanded access protocols, “they can actually use the information to expand the label,” Gottlieb told BioCentury.
The complete Usdin article is worth a read. One interesting take-away is that the FDA is now leading the conversation, controlling the playing field and searching for areas of convergence that reward advancing the health of not just individual patients but also the broader public health by rewarding appropriate industry cooperation.

The FDA's new program is a tremendous step in the right direction but many unanswered questions remain, such as who pays -- and how?

Stay tuned.
The FDA has posted a Framework for FDA’s Real-World Evidence Program, creating a framework for evaluating the potential use of real-world evidence (RWE) to  help support the approval of a new indication for an already approved drug and help support or satisfy drug post-approval study requirements. (The framework does not cover medical devices.)
The framework will evaluate the potential use of RWE to support changes to labeling about drug product effectiveness. This includes adding or modifying an indication, such as a change in dose, dose regimen, or route of administration; adding a new population; or adding comparative effectiveness or safety information. The RWE Program will establish demonstration projects, engage stakeholders, get input from FDA senior leadership when evaluating RWE, and promote shared learning and consistency in applying the framework. FDA will also develop guidance documents to assist sponsors interested in using RWE to support drug development.
Fine sentiments but divisional actions speak louder than policy statements.

In the framework, FDA identifies a three-part approach for assessing whether the use of real world data (RWD) to generate RWE is appropriate to answer a regulatory question:  
(1) Are the RWD fit for use? 

(2) Can the trial or study design used to generate RWE provide adequate scientific evidence to answer or help answer the regulatory question? 

(3) Does the study conducted meet FDA regulatory requirements (e.g., for study monitoring and data collection)? 

The agency is accepting comments on the framework and encourages interested parties to submit comments to the established docket (FDA-2018-N-4000). 
It’s time to get real.

Being and Nothingness in Drug Pricing

  • 11.16.2018
  • Peter Pitts
Pfizer has just issued a statement concerning it’s 2019 price increases. Here’s the headline of the company’s press release:
“Pfizer Provides Transparency on Drug Prices in the U.S. 90% of Company’s Prices Will Remain Unchanged”
When you separate the spin from the substance, here’s what the headline should be:
“Pfizer adjusts 2019 prices in order to achieve 0% net revenue growth”
That’s the truth – but it’s not likely to be reported (or tweeted by a certain someone) that way.
Here are the facts:
Effective January 15, 2019, Pfizer will increase the list price of 41 medicines (10% of its entire drug portfolio).  The increase in list price of this subset of the company’s portfolio will be 5%. The only exceptions are three products that have a 3% increase and 9% for Xeljanz due to the completion of two extensive development programs leading to new medical uses for unmet patient needs.
But just as you can’t measure risk without benefit, price increases must be considered relative to cost increases. These increases will be offset by higher rebates and discounts paid by Pfizer to insurance companies and Pharmacy Benefit Managers (PBMs) – resulting in a net effect on 2019 Pfizer revenue growth in the U.S. to zero.  According to the company’s statement, “Given the higher rebates and discounts, we expect that the healthcare system will share those benefits with patients, so they do not experience higher costs for their medicines. In 2018 the net impact of price increases on revenue growth is projected to be a negative one percent in the U.S compared with 2017.”
PBMs and insurers should explain what they will do with this enhanced revenue source besides holding it onto it for themselves
It’s also important to note that in 2016 Pfizer invested $7.8 billion in R&D, in 2017 that number was $7.7 billion and in 2018 its projected to be between $7.7- $8.1 billion. That’s billion with a capital “B.”  Innovation is hard. Today it takes about 10,000 new molecules to produce one FDA-approved medicine and only 3 out of 10 new medicines earn back their R&D costs. Moreover, unlike other R&D-­intensive industries, biopharmaceutical investments generally must be sustained for over two decades before the few that make it can generate any profit. The costs to bring a new cancer drug to market are about $2.6 billion. Risk/Benefit anyone?
The President, Health & Human Services Secretary Azar, just about every member of Congress, governors, members of state legislatures, policy wonks and media cognoscenti have weighed in on why our healthcare system is broken and requires change – some even have ideas on how to fix it. Per Pfizer Chairman and CEO Ian Read, “We believe the best means to address affordability of medicines, is to reduce the growing out-of-pocket costs that consumers are facing due to high deductibles and co-insurance and ensure that patients receive the benefit of rebates at the pharmacy counter.”  
The concept of “zero” is one of the most significant breakthroughs in the history of mathematics. It’s an equally important – and complex -- concept when it comes to pharmaceutical pricing.
When you make yourself into zero, your power becomes invincible. -- Mahatma Gandhi

Repatha, Amgen’s breakthrough medicine that attacks treatment-resistant hyperlipidemia, has been shown to save lives and prevent heart attacks and stroke.   PBM policies, enabled by a rigged cost-effectiveness evaluation produced by the Arnold funded ICER, have made it made it impossible to get the medicine.  First, the PBM  prior authorization process has been lengthy and confusing because, it was argued, Repatha was too expensive to make widely available.

So Amgen increased the rebate amount it would provide for Repatha.  Amgen’s rebate deals with payers are 65 percent of Repatha's commercial revenue.  In turn, the PBMs simply pocketed the rebates and charged people who actually got through the step therapy gauntlet up to 50 percent of Repatha’s NON-rebated price.   And of the small percent of patients who actually got permission to use Repatha, nearly 75 percent never filled the prescription because of the huge out of pocket cost. 

A few weeks ago, Amgen cut the list price of Repatha by 60 percent, as a way of reducing the out of pocket cost to patients.   And it also meant that PBMs like Express Scripts were getting less rebate loot.   

It did so in a way that ultimately embarrassed and exposed the PBM rebate game.  

According to the company’s press release: “Amgen is making Repatha available at a reduced list price by introducing new National Drug Codes (NDCs). SureClick®, the most commonly used delivery system, will be available immediately; the Pre-Filled Syringe and Pushtronex® (monthly, on-body infusor) delivery systems will be available in the next 2-3 months. The lower priced Repatha is identical to the Repatha currently available…At the same time, Amgen will continue offering Repatha at its original list price until 2020 or sooner.”

Express Scripts responded to the Amgen gambit by announcing it would create a separate Flex formulary of products with lower list prices.  

It will be interesting to see if such a move gets traction.  Adam Fein notes that someone in Express Scripts said that employers are addicted to rebates.  That may be true, but that begs the question of why are PBMs and health plans are still supplying the employers rebate fix.  

By forcing a real choice between a rebate driven or patient-driven drug benefit Amgen has put the PBM business model on trial.  How many PBM and employers will continue to use the higher price to rake in rebates?  How many will use the lower price?  And how will this affect prior authorization and step therapy?

In the short-term patients may not benefit.  In the long term, I believe Amgen is forging a path other companies will follow.   Amgen cut the price because it aligns with a business strategy based on increasing access and demonstrating value.   And it aligns with Amgen’s recognition that it cannot rely on the newly integrated health plans and PBMs to deliver value.  The company will have to deliver value directly to patients and physicians, something that PBMs are unable to provide.  
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.
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, 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. 

Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.

Blog Roll

Alliance for Patient Access Alternative Health Practice
Better Health
Biotech Blog
CA Medicine man
Cafe Pharma
Campaign for Modern Medicines
Carlat Psychiatry Blog
Clinical Psychology and Psychiatry: A Closer Look
Conservative's Forum
Club For Growth
Diabetes Mine
Disruptive Women
Doctors For Patient Care
Dr. Gov
Drug Channels
DTC Perspectives
Envisioning 2.0
FDA Law Blog
Fierce Pharma
Fresh Air Fund
Furious Seasons
Gel Health News
Hands Off My Health
Health Business Blog
Health Care BS
Health Care for All
Healthy Skepticism
Hooked: Ethics, Medicine, and Pharma
Hugh Hewitt
In the Pipeline
In Vivo
Internet Drug News
Jaz'd Healthcare
Jaz'd Pharmaceutical Industry
Jim Edwards' NRx
Kaus Files
Laffer Health Care Report
Little Green Footballs
Med Buzz
Media Research Center
More than Medicine
National Review
Neuroethics & Law
Nurses For Reform
Nurses For Reform Blog
Opinion Journal
Orange Book
Peter Rost
Pharm Aid
Pharma Blog Review
Pharma Blogsphere
Pharma Marketing Blog
Pharmacology Corner
Pharmaceutical Business Review
Piper Report
Prescription for a Cure
Public Plan Facts
Real Clear Politics
Shark Report
Shearlings Got Plowed
Taking Back America
Terra Sigillata
The Cycle
The Catalyst
The Lonely Conservative
Town Hall
Washington Monthly
World of DTC Marketing
WSJ Health Blog