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Pharma Faces a Penalty Kick

  • 07.15.2019
  • Peter Pitts
The US Senate is debating whether to implement a Consumer Price Index (CPI) penalty on drug price increases. In other words, if any given product price increase is greater than general inflation, a penalty will be assessed by the government with monies then returned to Uncle Sam in the  form of a rebate. (This mechanism already exists in Medicaid.)  Sound good? Not so fast.
Drug manufacturers are already subject to such penalties today in the  form of “price protection rebates” negotiated by Pharmacy Benefit Managers (PBMs) and insurers.  These rebates effectively establish a private sector ceiling or cap on the amount by which medication prices can increase. Almost 100% of contracted medicines already have price protection built into their contracts Now that the HHS rebate rule is dead, a better and more timely question is: how much of those rebates/fees collected by PBMs and insurers are going back to the government? Without complete supply chain transparency we will never know.
And there’s more than one CPI. Which is the right one? General inflation or medical inflation? Medical inflation rates are at least 1-2% above general inflation. According to the U.S. Bureau of Labor Statistics, prices for medical care were 88.70% higher in 2019 versus 2000 (a $887.03 difference in value). Details count.
Between 2000 and 2019: Medical care experienced an average inflation rate of 3.40% per year. This rate of change indicates significant inflation. In other words, medical care costing $1,000 in the year 2000 would cost $1,887.03 in 2019 for an equivalent purchase. Compared to the overall inflation rate of 2.08% during this same period, inflation for medical care was higher.
Another unaddressed detail is, which price will be used for the inflation penalty? Will it be the retail price increase or the net price increase after all of the systemic cross-trading rebates and fees have been accounted for? Per IQVIA:

Our national policy makers are laser focused on drug costs. But what about hospitals and physician expenditures? Shouldn’t they peg the inflation rate to where the real inflation is -- the growth in hospital and physician per capita spending? Per Axios:

As always, the devil is in the details but, as Admiral Hyman Rickover reminds us “so is salvation.”
From the pages of STAT …
  By Peter J. Pitts
Even in the complicated ecosystem of drug pricing, one fact stands out: $166 billion in discounts from pharmaceutical companies go directly into the coffers of pharmacy benefit managers. That’s 37% of our nation’s entire expense on drugs.
Not a single dollar of that largesse is used to reduce patients’ out-of-pocket costs when they need medicines. So when the White House boldly developed a rule to change the dynamic by banning many rebates drug companies pay to pharmacy benefit managers under Medicare, policy experts applauded. That proposed rule died last night, the victim of intense lobbying and general ignorance. Who loses? Patients. Who wins? The status quo.
When a group of pharmaceutical CEOs testified before the Senate Finance Committee in February, Pfizer CEO Albert Bourla said he supported “reforms that would create a system in which transparent, upfront discounts benefit patients at the pharmacy counter, rather than a system driven by rebates that are swallowed up by companies in the supply chain.” When asked if they would lower prices if the pharmacy benefit managers played fair, every hand on the panel went up.
Now the pharmaceutical industry is off the hook. So are the big payers. And important systemic change is off the table and the status quo rules. What happens to health care reform when all we’re left with are silly soundbite solutions like “drugs from Canada” or “price controls from Slovakia”? That’s no win for patients.
For shame, Mr. President. Was all of that really just political theater?
Pharmaceutical company rebates to pharmacy benefit managers that are tied to formulary restrictions create an incentive for entrenched market leaders to “bid” incremental rebates to prevent or limit access to competitive medicines. This model, coupled with escalating cost-sharing requirements, harms patients by driving up prices, which results in reducing access to innovative drugs.
Allowing pharmacy benefit managers to continue with business as usual means a continued disincentive to promote a more aggressive uptake of both biosimilars and less-expensive generic drugs. Worse, reinforcing the status quo moves us even further away from a health care ecosystem based on competitive, predictable, free-market principles and not outrageous solutions like “Medicare for All.” Zany ideas don’t solve complicated public health problems. There are no simple solutions to complex obstacles — and politicians hate that.
Not following through on the proposed rule to ban rebates is harmful to patient health and the public purse. One of the biggest threats to the body politic is nonadherence to the medicines physicians have prescribed: It causes 125,000 deaths each year and is responsible for 10% of hospitalizations. Why don’t people take their medicines? Often because their copays and co-insurance rates are too high.
Those rates aren’t set by pharmaceutical companies. They’re the domain of the pharmacy benefit managers and insurance companies. During the last five years, pharmaceutical spending has increased by 38% while the average individual health insurance premium has increased by 107%. During the same period, rebates, discounts and fees paid by the biopharmaceutical industry to insurers and pharmacy benefit managers have risen from $74 billion to the aforementioned $166 billion. Facts, as John Adams said, “are pesky things.”
Government policies should encourage rebate dollars to flow back to patients who need to take prescription drugs. Will greater transparency of contracting practices on the state level drive better pharmacy benefit manager behavior? That’s one theory. Such transparency efforts in New York and Connecticut, for example, will be the bellwether. But greed often trumps shame and, without penalties, will the C-suite at Big Payer choose to do the right thing by patients and reduce their hefty profits?
At the heart of the debate is whether we are going to improve our health care system through the use of smart and evolving free-market principles, such as more focused regulation that addresses the exclusionary contracting that locks out savings from biosimilars, or go down the sound-bite-laden path of “free health care.”
Can facts win out over fiction?
All of this is contingent on the executive branch and Congress being honest brokers and not hucksters. As the great health care philosopher Frank Douglas once said to me, “It’s not what you control, it’s what you contribute.”
Taking the heat off of pharmacy benefit managers does nothing to enhance access to essential medicines. The White House’s decision may be a win for the status quo, but it is a lost opportunity for real systemic change.

Contracting Biosimilars

  • 06.24.2019
  • Peter Pitts
Per Denny Lanfear ‘s op-ed, “How Big Pharma Suppresses Biosimilars” (WSJ, June 24, 2019), it’s nice to see that the group Patients for Affordable Drugs has finally recognized that Prescription Benefit Managers (PBMs) are  a major roadblock to affordability and access to medicines. It just goes to show you that even David Mitchell can't be wrong 100% of the time. Shenanigans such as exclusionary contracting that prioritize PBMs profits over patient access to FDA-approved, safe and effective biosimilars must end. Just because such actions aren’t illegal doesn’t make them right. It’s past time to prioritize what’s best for patients.

Drug Importation: Stupidity Redux

  • 06.03.2019
  • Peter Pitts
From the pages of Politico ...

Vermont considers insulin, HIV drugs for importation
By Rachana Pradhan
Vermont is eyeing birth control, insulin and pricey medications for HIV and multiple sclerosis patients as possible candidates for the state’s landmark program to import cheaper drugs from Canada, according to documents obtained by POLITICO.
The drugs are among the 17 most expensive that two private insurers identified for state officials and are potentially eligible for importation, show the documents, which were obtained through a Vermont public records request. Vermont officials determined the importation program could save insurers up to $5 million annually, based on that list of drugs.
The medications include Gilead’s Truvada, a $20,000-a-year HIV prevention pill whose price tag drew scorn from congressional Democrats during a hearing this month; Harvoni, among the recent class of drugs effectively curing hepatitis C; Merck’s Nuvaring, a contraceptive costing up to $200 per month without health insurance; and Zytiga, a blockbuster prostate cancer drug manufactured by Johnson & Johnson.
The list, which is from last year, isn’t a final catalogue of drugs Vermont would seek to obtain from the United States’ northern neighbor, but it provides a glimpse into the state’s deliberations more than a year after state lawmakers authorized the nation's first wholesale drug importation program.
“The 17 is our first cut, or our first time analyzing what would be candidates for importation that would generate savings,” said Ena Backus, the state's director of health care reform. “I think you do it a different quarter of the year you’re going to get a different list.”

Florida and Colorado approved similar importation programs this year. The idea has support from President Donald Trump but has encountered resistance from his top health officials.

Vermont still has several hurdles to overcome before its program could get off the ground. It still must finalize a plan and submit it for the Trump administration’s approval. Vermont is also delaying a statutory deadline to send its plan to HHS by a year — giving itself until July 2020 — because it wants to huddle with other larger states trying to build importation programs.

Because the process is breaking new ground, Backus said state officials were essentially "flying blind" on how to best approach federal officials.
“That’s why we felt like it was a great opportunity to slow down on submitting our application and to understand how more people are thinking about this," she said, adding that the state has not yet discussed its plan with HHS.
Vermont and other states seeking HHS approval must prove the importation program wouldn’t pose additional risks to patient safety and that consumers will pay less for drugs under the new model.

HHS set up a working group last summer to study importation, but its work — and even who’s in the group — has been kept secret.
The pharmaceutical industry and other importation opponents, including many Republicans, have argued that it will open up a dangerous pipeline into the United States for drugs whose safety cannot be accounted for. Further, they say it won’t produce much savings because importation could drain Canadian drug supplies, creating shortages and driving up prices, resulting in minimal savings for U.S. customers.
“We simply can’t fathom a duration or a scheme or a structure in which this plan will drive significant savings,” said Tom Rutkowski with CBPartners, a consulting firm focused on pharmaceutical and device issues which has analyzed the Vermont program.
The company said Vermont was unlikely to save much because discounts Canadian provinces negotiate with drugmakers would not be passed down to U.S. customers, and some especially expensive drugs that could drive greater savings don't qualify for importation.
“It’s a dumb idea now and a dumb idea in 2020,” Peter Pitts, president of the Center for Medicine in the Public Interest and former associate FDA commissioner, said of importation. “It’s a political ploy.”
The idea of importing drugs from Canada is gaining steam in states as officials grapple with rising costs and see a steady stream of new drug approvals with eye-popping prices. Maine and Connecticut are among the other states also considering creating their own programs, although legislation is unlikely to pass this year.
Trump has recently heaped praise on the idea, and he’s frequently complained that U.S. patients often pay much higher prices for drugs. He’s asked HHS Secretary Alex Azar — who has called importation a “gimmick” — to work with Republican Florida Gov. Ron DeSantis, a close ally, on his state’s importation plan.
“We may allow states to buy drugs in other countries if we can buy them for a lesser price — substantially less price,” Trump said at a White House event on health care earlier this month.

A plan won’t come easy, though. Vermont officials are still figuring out how much operating an importation program would cost and how it would pass cost-savings on to consumers. Backus, the health reform director, said the list of import candidates is a moving target because of changing prices and drug usage.
Further, the state doesn’t have the full picture of which drugs cost health insurers the most. Blue Cross Blue Shield of Vermont and MVP Health Care provided information for the state’s analysis but Cigna declined, Backus said.
Other regulatory issues could alter Vermont’s plans. For example, the FDA next year will regulate insulin as a biologic rather than a drug, which could make it ineligible for importation.

Backus and others said should Vermont manage to get its program off the ground, the state would likely update its list of importation candidates every quarter.
“This is all new ground,” said Trish Riley, executive director of the National Academy for State Health Policy, which is working with Vermont, Florida and Colorado on their importation plans.

“They want to be consistent and they want to think it through together,” she said.
Sarah Owermohle contributed to this report.
Vinay Prasad is an associate professor of medicine at the Oregon Health & Science University School of Medicine. As his Wikipedia page states: “Prasad is a noted critic on the direction of cancer research. He has developed a following using Twitter as his platform.”  More to the point, Prasad has is adored by a group of journalists, policy types and cranks who believe that drug companies use shoddy clinical studies to market expensive medicines that are marginally effective.  
In particular, Prasad has singled out targeted cancer drugs as a waste of time and money, a position for which he has been praised and quoted by health care journalists who, like Prasad, publish this perspective with funding from Arnold Ventures.
In a recent episode (1.57) of his podcast called Plenary Session (which deserves all the neglect and inattention it receives) Prasad personally attacked University of California at San Diego cancer researchers Razelle Kurzrock and Jason Sicklick, the authors of a study published in Nature showing that attacking multiple genetic and non-genetic drives of tumor growth with combinations of targeted cancer drugs improve survival and reduces toxic side effects.
Before explaining why he believes precision oncology -- and the Nature study -- is largely a fraud, Prasad accused Kurzrock and Sicklick of grabbing $200 million for producing what he calls negative results about targeted cancer treatment.  (Around 3:28 into the podcast)
He then goes on to claim that Kurzrock and Sicklick effectively silence critics of their methods with “retribution” in the form of denying them funding for their own studies or the opportunity to publish responses.  He implies that he has experienced such retribution from Kurzrock in particular. (Around 4 minutes into the podcast.)
Prasad concludes that the researchers can only demonstrate clinical benefit by treating only people they know they can respond and denying others that don’t access to standard of care or by delaying the process of sequencing tumors that people die waiting. (21 minutes into the podcast)
Both Kurzrock and Sicklick are Jewish and both live near the Chabad synagogue in California recently targeted by an anti-Semitic animal who killed and maimed congregants during Passover services. Prasad’s personal attack intentionally or not invoked the trope about Jewish control over banking, media, manufacturing, etc. Indeed, by asserting that the researchers let people die in order to make more money through the expansion of personalized combination cancer therapy, I believe Prasad implicitly invokes the blood libel.  
Prasad has crossed two red lines. He has alleged, without any evidence, that the principal investigators have grabbed hundreds of millions of dollars for negative results, threaten those who dare to challenge them, covered up the deficiencies of targeted oncology and designed trials that harmed the sickest in order to enrich themselves. And he tells whoever is listening or following him on Twitter that Kurzrock and Sicklick that they did so to make as much money as possible by escalating the use of their junk science.  In other words, Vinay Prasad claims that precision oncology is not about the patient but all about the Benjamins.
FDA Attack on Underage Vaping Could Backfire  
By Robert Goldberg
May 06, 2019

Scott Gottlieb’s extraordinarily productive tenure as Commissioner of the Food and Drug Administration (FDA) will be remembered for his crusading against underage use of E-cigarettes and the companies that produce them.  But his legacy is not to be found in his jawboning against the retail distribution of vaping products but in the guidance the FDA issued on developing a nicotine replacement therapy (NRT) product that reduces tobacco use.

Gottlieb announced the guidance in February, but it received little, if any, media coverage. That’s too bad because the document lays out a clear path to fully realize the contribution of vaping to the public health.  Specifically, he noted:

“Novel products with different characteristics or routes of nicotine delivery have the potential to offer additional opportunities for health-concerned smokers interested in quitting. This could also include products such as electronic nicotine delivery systems like electronic cigarettes, but which would need to be proven safe and effective for smoking cessation and regulated as a drug product. This would allow them to be marketed as a prescription or over-the-counter drug products with medical claims for smoking cessation or related indications – ultimately reducing the likelihood of someone continuing to suffer the clinical consequences of smoking. This is different from our regulation of e-cigarettes as tobacco products.”

And it is different from the public statements Gottlieb was making about e-cigarettes as tobacco products as well.  Last September Gottlieb announced the FDA was taking "historic action" by threatening e-cigarette manufacturers with criminal prosecution and sales bans unless they developed plans to reduce the "epidemic" of teen use. 

Juul, the leading manufacturer of vaping devices had anticipated the FDA move and had already begun implementation a "Youth Prevention Plan" that eliminated pod flavors, such as cucumber and mango, from the 90,000 or so retail outlets across the country. Flavored pods are still available online, but Juul also had stopped using social media, instituted age verification tools to ensure that purchasers are 21 years of age or older introduced new purchase limits and product serialization.

These actions did not mollify Dr. Gottlieb.  Instead, he stepped up his attack.  He told Vox: “The dramatic spike of youth [vaping] — that was driven in part at the very least if not largely by Juul.  I hope they recognize the problem that’s been created has been created largely by their product.”

While Gottlieb “acknowledged there’s, no definitive data showing the teens now experimenting with vaping are using Juul” he still holds the company responsible for triggering what the regards as a spike in teen addiction to nicotine that could lead to cigarette use.

Meanwhile, the guidance discusses how companies should test the effectiveness of E-cigarettes in reducing tobacco use in the pediatric population: “Given that use of tobacco products frequently starts in early adolescence, drug products approved for smoking cessation have the potential to benefit and be used in the pediatric population. Based on the current prevalence of smoking in younger children, the Agency has waived…requirements for clinical studies of NRT drug products in patients younger than 12 years of age because clinical studies would be highly impracticable in that age group.”

So, the opportunity is there to turn e-cigarettes into medical products that could be available to anyone who needs to quit smoking at any age.  Conceivably, vaping products could be available behind the counter along with other heath products that have taken the reverse course from by prescription only to OTC.  

Hence, Gottlieb was trying to prod e-cigarette companies to re-introduce themselves as an OTC medical device. The guidance notes to receive OTC approval an NRT product must demonstrate effectiveness in reducing smoking and evidence that the marketing of e-cigarettes increases the safe and effective use of products.  This is something companies such as JUUL have shown they can do.

The question is whether his efforts have made it impossible to get an e-cigarette approved as an NRT.  In stressing the risk of underage vaping the FDA has contributed to the fact that two-thirds of American adults mistakenly believe that e-cigarettes are just as harmful as smoking.  The media’s fearmongering fueled by the FDA attack and spread by so-called consumer groups has incited a movement to ban e-cigarettes altogether. Rather than being able to use vaping to reduce the use of nicotine, people will pick up a pack of cigarettes instead. 

Robert Goldberg is Vice President at the Center for Medicine in the Public Interest.
My colleague Peter Pitts has written an article on a Democrat proposal to submit the price and use of a new drug for binding arbitration before Medicare or another government program pays for it.   Arbitration is supposed to be a fair way to impose drug prices, but it is price controls all the same. 
As with everything, proof in practice is more instructive than proof in principle.  So, let me provide you with a real-world example of how such arbitration would proceed.  Proponents use the German approach to pricing arbitration as a wonderful example of how spectacular arbitration is.  There, the process comes after a company and the committee set up to determine prices can’t agree on reimbursement levels for the medicine in question. 
Throughout, the goal is to set a price for a drug based upon the additional value it generates and converting that into a price premium compared to the average price of an existing drug for a condition selected by the committee.
The selection of comparator (as well as the reference price) is one critical element.  The other is whose value is being measured.  Interestingly, the German approach does not use quality-adjusted life years to make value determinations.  The Germany process defers to an independent group to determine what comparator to use and whose value should be preferred.
In the US, proponents of pricing arbitration envision the Arnold Ventures funded group ICER serving as the arbitration organization, or something else that John Arnold would pay for by sponsoring its formation or operation.   The Center for American Progress, in particular, loves the idea of the ICER driven pricing deals.
ICER puts limits on how many people could use a drug using a price that is sensitive to insurer and PBM profits.  And that price is also based on a comparator that ICER also selects.  The cheaper the comparator, the greater the hurdle for a new drug regardless of benefits, particularly since the goal is to save insurers money and maintain the PBM spread between net and list pricing.
Here’s an example of how the binding arbitration proposal in the US would work using a real-world example and ICER’s most recent analysis of a new drug:
Spravato, a new drug for major depression was recently approved, a form of ketamine that quickly improves mood without resort to ketamine’s hallucinogenic effects.
ICER’s initial review of the drug determined Spravato was effective but said that at the list price it was not cost effective and could only be used by a small percentage of people. 
ICER’s comparator?  Injectable Ketamine which is now used to knock out animals and some patients.  The ketamine that, in the ICER preferred formulation, has the same mechanism of action at PCP.  What’s more, ICER’s comparator is not even approved for treating depression.  Untested, off-label use of ketamine.  You might know it as Cat Tranquilizer, Cat Valium, Jet K, Kit Kat, Purple, Special La Coke, Super Acid, Super K, and of course, Special K, the medicine preferred by Bill Cosby.
You read that right.  ICER used a form of a date rape drug as the comparator for determining price and is recommending the use of a date rate drug as a more cost-effective treatment. 
That might sound extreme, but in fact, the capricious and one size fits all selection of comparators is a hallmark of every price negotiation.  Standard of care is chosen to make price decisions.  Benchmarks are adjusted, goal posts are moved to maximize rebates, not well-being.  Drugs that require price cuts based on comparators are often not sold in a particular market because they lose money.   Advocates of arbitration claim that is just an example of value-based care.  Yet in Germany, 82 percent of drugs that were withdrawn because they didn’t meet the comparator price-value threshold were recommended by at least one guideline.  Hence, drugs recommended because of their clinical benefit were no longer available.   
Early assessment of new medicines is fraught with danger because prediction is not just political, it is unscientific and uncertain.   ICER’s involvement assures that such arbitration related assessments and comparisons will be downright immoral. 
From the pages of the Roanoke Times
Med Beat: Drug makers' coupons to count toward deductibles

Gov. Ralph Northam signed a bill that will require insurers to count toward deductibles and co-pays any payments made on behalf of a patient, including assistance by pharmaceutical makers.
The practice known as copay accumulator adjustments excluded from patients’ deductibles and maximum out-of-pocket costs the coupons and assistance programs that lower the price of medication.
Fair Health Care VA Coalition lauded passage of the bill.
“As out-of-pocket costs continue to rise, Virginia patients already face enough barriers to accessing the health care coverage that they need. Copay assistance programs are a critical resource, particularly for patients whose health care costs could bankrupt their families or force them to live without the care they need,” Dr. Bruce A. Silverman, a Richmond nephrologist and advocate for the collation, said in a news release. “Patients should not be denied one of the key benefits of copay assistance programs, particularly since insurers are already getting the value of negotiated drug price discounts while withholding these benefits from patients.”
When the change goes into effect July 1, all payments made by patients or on their behalf will count toward maximum out-of-patient payments and deductibles.

Drug Rebate Head Fake

  • 03.12.2019
  • Robert Goldberg
Today United HealthCare announced that they will be passing rebates directly to patients.  But the impact is not as impactful as may seem. 

United noted that “all new employer-sponsored health plan customers that use UnitedHealthcare must give discounts they get for including certain drugs in their lists of covered medications directly to consumers at the point of sale… UnitedHealthcare said Tuesday that its expanded requirement does not apply to existing employer customers that do not already give rebates directly to the consumer.”

As Drug Channels notes: “PBMI found that only 4% of employers reported that rebates were used to reduce member out-of-pocket costs at the point of sale.”

Indeed, despite the announcement of these offering, Drug Channels demonstrates (see chart below) that employers really don’t want to use rebates to cut out of pocket drug costs.


So much for sharing the savings.  

But even passing rebates on to patients is not enough.  In fact, it could make things worse in a perverse fashion.  For example, a pass-through model would reward the most rebated drugs but lead to even more step therapy or greater formulary restrictions in an effort by PBMs to make money on contracts that still reward them for lowest net cost of medicines.   Even drugs that offer zero copay but do little to affect overall net cost of medicines could be excluded.  

Another question:  Will insurers and PBMs increase the use of (illegal) co-pay accumulators – programs that intercept money designated by drug companies to reduce out of pocket costs is confiscated by insurers and NOT used to reduce cost sharing -- and then pass that cash to employers.  Can we say racketeering?  (You can read my colleague Peter Pitts article on the wholesale thievery called copay accumulators here. 

To be sure, many business health groups claim they want to optimize the use of medicines.  However, they lack the data and bandwidth to do so.  Some individual companies do make an effort to support value-based design, but most of these offerings are designed to drive people to more generic drug use.  

Absent these insights, the well-intentioned effort to reduce out of pocket costs by shifting rebates will help some but likely hurt others. Which is why at some point, large employers will be asked to explain why they aren’t doing more through smarter changes to benefit design to help their employees stay health – and alive. 


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.

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