Senate committee works to understand balance between drug innovation, affordability

Drug pricing is a complex system in the United States, and costs vary significantly between different payers and consumers for a number of reasons, including rebates and discounts offered by manufacturers, drug patents, agreements with insurers, and changes from volume- to value-based payment systems. In a hearing before the U.S. Senate Committee on Health, Education, Labor & Pensions titled “The Cost of Prescription Drugs: How the Drug Delivery System Affects What Patients Pay,” experts testified about who pays for prescription drugs, and what that money pays for. In his opening statement, Committee Chair Sen. Lamar Alexander (R-Tenn) explained that this is the first of three planned hearings; the second hearing will consider the full drug delivery process and its associated costs, and the third hearing will focus on ensuring patient access to affordable drugs.

Dan Mendelson, President, Avalere Health, said in his testimony that consumer drug prices are “determined jointly by health system design, pharmaceutical company pricing, and decisions by health plans, pharmacy benefit management (PBM) practices, and other transactions involving distributors and pharmacies along the supply chain.” He explained that total costs often include payments for (1) the product; (2) services provided; (3) shipping; (4) rebates; (5) pharmacy reimbursement; and (6) costs associated with PBMs and third-party payers including reimbursement, share of rebates, and contractual obligations. Mendelson noted that most patients pay cost-sharing for prescription drugs based on list price, not net price, because many rebates are not shared directly with consumers. He added that the patient protections included in the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) led to payers increasing deductibles for consumers in order to offer lower monthly premiums. However, he said, the ACA’s cost-sharing reductions have allowed individuals using the health insurance exchange to pay less for drugs; Mendelson reminded committee members that the American Health Care Act (AHCA) (H.R. 1628) in its current form would repeal cost-sharing reductions.

Allan Coukell, Senior Director of Health Programs, Pew Charitable Trusts, testified that net pharmaceutical spending has increased 42 percent since 2006, but two-thirds of that growth has occurred in the past four years. He listed the following limitations on effective drug pricing competition:

  • monopoly pricing for new drugs;
  • lack of competition for some older drugs;
  • misaligned incentives and incomplete information for stakeholders, including payers, providers and patients at many points in the system, and
  • a historical willingness to cover new therapies without ensuring that their clinical benefits justify the price.

Coukell said that the cost of new medicines is rising, and that is largely responsible for increased drug spending—for example, high-cost specialty products, particularly biologics that are not used by many individuals, account for more than 40 percent of drug spending. He suggested that the 12 years of exclusivity granted to biologic manufacturers, particularly when compared with the five years that drug manufacturers get, is excessive.

Paul Howard, Ph. D., Senior Fellow and Director of Health Policy, Manhattan Institute, also spoke about the challenges involved with specialty medicines, such as those that treat hepatitis C, cystic fibrosis, and rheumatoid arthritis. He said noted that the vast majority of prescription drugs are “highly affordable,” and that the “outlook for innovation has never been brighter,” but mentioned the need for increased competition to reduce waste and ineffective care. Howard recommended that Congress “create incentives that reward providers who use medicines (both generic and branded) and technology to deliver care as efficiently as possible, while also empowering patients with the information they need to identify high quality providers.” He suggested changes to the 340B drug discount program, HHS and FDA coordination on safe harbors for innovative contractual arrangements, and broader Medicare, Medicaid, and patient-empowerment reforms.

Gerard Anderson, Ph.D., Professor of Medicine, Johns Hopkins University School of Medicine, also blamed high costs on specialty drugs and chronic conditions, but added that state and federal health care programs cannot afford to continue paying high prices for these expensive drugs for Medicare and Medicaid recipients, and are being forced to make “life or death decisions.” His recommendations are increasing competition and changing policies to increase access to pharmaceuticals, such as including drugs in bundled payments and accountable care organizations (ACOs) while eliminating rebates from PBMs and prescription drug plans. Anderson also recommended cracking down on abuse of orphan drug designations and allowing branded drugs to move to the generic market sooner. He suggested that negotiating drug prices, specifically by a single designated federal agency using existing authority under 28 U.S.C. §1498, and enacting price-gauging legislation.

Trump nominates Gottlieb for FDA Commissioner

President Trump intends to nominate Scott Gottlieb, M.D., a resident fellow at the conservative American Enterprise Institute (AEI), clinical assistant professor at New York University School of Medicine, and a member of the HHS Federal Health IT Policy Committee, to the post of FDA Commissioner. The White House announced the nomination, which brought varied reactions from opposite sides of the aisle and a general positive response from the pharmaceutical industry, via a tweet from Press Secretary Sean Spicer.

Gottlieb served as the Deputy FDA Commissioner from 2005 to 2007 and previously served as a senior official at CMS. He has testified before Congress on numerous occasions as an AEI felllow, most recently with respect to EpiPen® price increases and “How Regulatory Barriers Inhibit Pharmaceutical Competition.” Gottlieb noted that FDA regulatory policy has made developing less expensive copies of complex drugs after patent expiration difficult, discussed how the 340B program has put “upward pressure on drug prices,” while noting other change in drug insurance coverage structure, and described obstacles to competitive single source drug pricing.

Various sources report that Gottlieb has close ties to the pharmaceutical industry. Scientific American noted that Gottlieb believes in a quicker approval process for new drugs, but has focused on shortening waiting times for large, clinical trials rather than doing away with efficacy considerations. He commented on this, to an extent, in remarks he made at the 21st Annual International Meeting of the International Society for Pharmacoeconomics and Outcomes Research (ISPOR) in May 2016.

Gottlieb has also issued commentary about the Patient Protection and Affordable Care Ac (ACA) (P.L. 111-148). In May 2016, he testified before Congress that the law’s tiered marketplace approach has aided consumers with plan selection, but has forced insurers into narrow design corridors. His testimony regarding the ACA also included a suggestion that CMS move away from mandates and towards incentives to encourage individuals to enter into the insurance market (see Is there a better way than the ACA? Hearing asks experts, Health Law Daily, May 12, 2016). More recently, he coauthored a piece with another AEI fellow, opining that President Trump’s election provided, “a generational opportunity to pursue a new direction for American health care” and making suggestions about how a new health care system should operate. The authors suggested that the system should provide a path to catastrophic health insurance for all, accommodate individuals with pre-existing health conditions, allow access to health savings accounts, and deregulate the medical services market.

Senator Lamar Alexander (R-Tenn), Chairman of the Committee on Health, Education, Labor & Pensions, touted Gottlieb’s “impressive qualifications” in a released statement. His colleague, Ranking Member Patty Murray (D-Wash), expressed “initial concerns” about the nomination, including Gottlieb’s “work with multiple pharmaceutical companies, medical device companies, and investment firms.”

AHA asks MedPAC to slow its roll on MACRA proposals

The American Hospital Association (AHA) believes that changes to the implementation of the Medicare Access and CHIP Reauthorization Act (MACRA) (P.L. 114-10) should wait until more data is available from providers. In a letter to the Medicare Payment Advisory Commission (MedPAC), the AHA expressed concerns about several proposals, including assigning clinicians to groups, aggregating results at the local market level, and replacing most clinician-reported measures. The AHA also addressed rising drug costs, encouraging MedPAC to focus on the issue.

MedPAC meeting

The letter serves as AHA’s response to MedPAC’s January meeting, during which the commission discussed items to include in a report to Congress in June. MACRA created two payment systems, the Merit-based Incentive Payment System (MIPS) and the Advanced Alternative Payment Model (APM), which are in the early stages of implementation by clinicians and hospitals. The January meeting involved discussion of several policy changes, including a MIPS redesign, which the AHA believes should be delayed until data and experience from these clinicians is available for consideration. The AHA noted that the first performance period for both programs began January 1, 2017, and that CMS views this as a “transition year” for MIPS.

Policy proposals

MedPAC proposed assigning clinicians to groups or regions and assigning an aggregate MIPS quality and cost performance score based on the performance of others in the community. The AHA believes that clinicians should be permitted to voluntarily collaborate, and that applying an aggregate score would be arbitrary. Additionally, the AHA proposes providing an option for hospital-based physicians to use the hospital’s CMS quality and resource use measure performance for MIPS. However, the association opposes the proposal to replace clinician-reported outcomes measures with CMS measures based on Medicare claims data. The AHA pointed out that claims data does not reflect a patient’s particular history, course of care, and risk factors, which would result in basing clinician performance on unreliable data.

The APM has an incentive payment designed to encourage participation in the model, rather than reward or penalize performance. MedPAC proposed only allowing participating clinicians to receive this incentive upon successfully achieving the APM’s goals. The AHA views such a change as a double reward or double penalty for participants, rather than compensation for the learning curve and resource investment required upon entering new payment models. The AHA also expressed concerns about the proposals intended to “balance” incentives offered for MIPS and APMs, believing that these proposals make MIPS less attractive than APMs, even though AHA members believe that MIPS is already a less attractive option.

Drug pricing

The AHA believes that changes to Medicare Parts B and D could alleviate some of the drug cost burdens borne by the federal government and beneficiaries. The AHA expressed several concerns about Part B drug payment policy solutions, fearing that these changes could penalize hospitals for price increases and shift the burden for high list prices onto physicians. However, the AHA supports MedPAC’s Part D proposals while offering proposals of its own: disallowing co-pay assistance cards, developing value-based payment arrangements, requiring rebates, varying patient cost-sharing, and issuing annual reports.

Mylan calculated profitability using 37.5% tax it doesn’t pay

Mylan is being met with yet more derision after a profitability analysis released by the company to the Securities and Exchange Commission (SEC) revealed that its profits are calculated after factoring in a U.S. tax rate that is much higher than the actual rate—which the Washington Post reports is nearly nothing.

When Mylan CEO Heather Bresch appeared before the House Committee on Oversight and Government Reform to address the pen’s price increases, she claimed that the company receives about $100 of profit from each sale of the $608 EpiPen® 2-Pak (see Mylan CEO highlights EpiPen® access improvement efforts before House committee, Health Law Daily September 22, 2016). The SEC’s profitability analysis revealed that Mylan includes a 37.5-percent tax rate when calculating its net product profitability.

According to the Washington Post, Mylan relocated its headquarters to the Netherlands, which reduced its tax rate. In 2015, the company’s overall tax rate was 7 percent in 2015, but an independent tax expert reported that the U.S. tax rate is actually close to zero. Mylan argued that standard profitability analyses include tax for the jurisdiction reviewed. Representative Elijah Cummings (D-Md) expressed Congress’s skepticism over the numbers provided, and noted that Mylan has until Friday, September 30, 2016, to give Congress files that will allow the government to determine the company’s actual profits.