Unwrapping the drug pricing mystery & understanding solutions - - PowerPoint PPT Presentation

Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap

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Unwrapping the drug pricing mystery & understanding solutions

Sean Dickson

NASTAD

with Tim Horn

Treatment Action Group

• n behalf of the

Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap

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Webinar Instructions

• All attendees are in listen-only mode
• Everyone can submit questions at any time

using the chat feature

• This webinar has too many attendees for

questions to be submitted over the phone.

• During Q & A segment the moderators will read

selected questions that have been submitted

• If you are having audio or webinar trouble go to

preventionjustice.org for troubleshooting help

Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap

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• You may also email your

questions to AKennedy@aidschicago.org

Use the Question Feature to Ask Questions, or email questions

Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap

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Join the conversation

• Follow us on Twitter @HIVPrevJustice.
• Join the conversation by using

#FixTheFormulas and #PullBackTheCurtain

• Download the slides for the webinar at

www.preventionjustice.org.

Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap

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Tackling Drug Costs

A 100 Day Roadmap

Sean Dickson

NASTAD

with Tim Horn

Treatment Action Group

• n behalf of the

Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap

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Fair Pricing Coalition

• Fair Pricing Coalition (FPC) is an ad hoc group of

activists who advocate with the pharmaceutical industry regarding the price of HIV and hepatitis drugs, both in the private insurance market and for government programs.

• Overarching goal of ensuring that the prices set for new

HIV and hepatitis drugs do not increase the net cost of treating people living with those diseases. Also works to ensure that price increases do not detrimentally affect a patient’s ability to access drugs.

• The FPC has negotiated co-pay programs with virtually

every major HIV drug manufacturer and continues to advocate for the broadest possible co-pay programs and patient assistance programs.

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Roadmap

• Drug Pricing 101
• Recommendations
• Fix the Formulas
• Enhance Existing Penalties
• Pool Purchasing Power
• Pull Back the Curtain
• A Roadmap for Action

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Drug Pricing 101

• Drug prices have minimal relation to the costs of

development and production

• Complex negotiations between insurers, hospitals, and

manufacturers set confidential prices that attempt to reflect the drug’s value

• Federal payers attempt to harness the power of these

negotiations by requiring manufacturers to sell their drugs at the average price negotiated in secret

• Understanding these negotiations and averages creates
• pportunities to influence the system for lower prices

across the board

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Drug Pricing 101: Medicaid

• Medicaid Drug Rebate Program is at the center of all

drug pricing

• Established in 1990 with a formula that harnesses

private negotiations to ensure the government gets the best price

• Medicaid does not buy drugs – it reimburses

pharmacies as an insurer, then it receives a rebate from manufacturers to offset costs

• Rebate is 23.1% of Average Manufacturer Price (AMP)

for brand name drugs; 13% for generics

• r
• The difference between the AMP and the lowest

commercial price (Best Price)

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Drug Pricing 101: Medicaid

• The Average Manufacturer Price calculation

appears simple – the average of net prices paid by retail community pharmacies

• Manufacturers have worked to define what prices

and discounts are included in that average and the Best Price analysis, resulting in a formula that excludes most discounts

• Inherent tension – manufacturers want to include

discounts in the average to reduce the base rebate paid (23.1%), but don’t want to include discounts that could set Best Price

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Drug Pricing 101: Supply Chain

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Drug Pricing 101: Medicare

• Each Medicare Part pays for drugs differently
• Part A – Included in bundled rate for inpatient services

based on average total costs submitted by hospitals

• Part B – Based on Average Sales Price, an average of

commercial prices; only applies to physician- administered drugs

• Parts C & D – Act as private insurance, negotiating

commercial prices; must report and refund any savings back to Medicare

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Drug Pricing 101: Veterans Administration

• The Veterans Administration (VA) coordinates drug

price negotiations for the rest of the Federal government

• Non-Federal Average Manufacturer Price (non-

FAMP) establishes prices for the VA, Department of Defense, Indian Health Service, and Coast Guard

• Other government agencies receive a negotiated

price based on the Most Favored Customer

• Agencies can negotiate their own additional

discounts

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Drug Pricing 101: Focus on Medicaid

• Medicaid calculations drive all other prices
• Statute creates categories for inclusion and exclusion of

certain sales in AMP that are referenced by other formulas

• Best Price penalty drives how manufacturers offer

discounts

• Inflation penalty (discussed later) can encourage lower

prices for other payers

• We will discuss policy solutions for other payers,

but Medicaid is the central policy

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Fix the Formulas

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Fix the Formulas

• AMP only includes sales and discounts that accrue

to retail community pharmacies

• To avoid including these discounts in the averages,

manufacturers offer discounts to insurers and Pharmacy Benefit Managers (PBMs)

• Insurers reimburse pharmacies for the full cost of the

drug

• According to PhRMA, rebates to insurers were $22B

in 2015 – rebates that were excluded from AMP

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Fix the Formulas

• Manufacturers changed the Medicaid statute as

part of the Affordable Care Act to exclude these discounts

• “The average manufacturer price for a covered
• utpatient drug shall exclude…payments received

from, and rebates or discounts provided to, pharmacy benefit managers, managed care

• rganizations, health maintenance organizations,

insurers, hospitals, clinics, mail order pharmacies, long term care providers, manufacturers, or any

• ther entity that does not conduct business as a

wholesaler or a retail community pharmacy”

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Fix the Formulas

• Manufacturers will argue that they cannot include

these discounts, but they are already required to do so for drugs that are inhaled, infused, instilled, implanted, or injected

• These discounts must also be able to set Best Price
• In addition to lowering government payer costs,

these policies remove the incentive to only offer back-end discounts, which could result in lower prices at the pharmacy level

• Lower prices for uninsured patients and for calculating

co-insurance

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Fix the Formulas: Recommendations

• Legislation required to make changes to Medicaid

(AMP) and VA (non-FAMP) formulas

• Administration could include these discounts in

Medicare (ASP) immediately

• The Government Accountability Office estimates that

including only some of these discounts in ASP would save at least $69M annually

• Changes to Best Price and Most Favored Customer

must exclude any discounts offered to prisons and

• ther safety net entities

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Enhance Existing Penalties

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Enhance Existing Penalties

• Medicaid and VA pricing programs both contain

protections against drug price increases greater than the rate of inflation

• Currently, these policies only serve to protect

government payers, but they could be expanded to deter price gouging in the private market

• As part of the Affordable Care Act, manufacturers

capped the impact of the Medicaid inflation penalty – a change which must be reversed

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Co Company Product 2016 2016 2015 2015 Sin ince ce Approval Abbvi vie Kaletra 6.9% 5.9% 70.2% Norvir 0% 0% 477% BM BMS Reyataz 7.9% 7.9% 108.4% Evotaz 7.9% Launch 7.9% Sustiva 9.7% 9.7% 193.3% Gilea ilead Atripla 8.6% 7.3% 107.8% Truvada 6.9% 6.9% 125.3% Complera 14.3% 6.9% 47.1% Stribild 12.1% 4.9% 23.4% Viread 6.9% 4.9% 186.0% Ja Janssen Intelence 7.9% 7.9% 66.7% Prezista 7.9% 7.9% 81% Prezcobix 7.9% Launch 7.9% Mer erck Isentress 6.9% 4.9% 58.9% ViiV iiV Epzicom 9.4% 6.9% 107.7% Selzentry 6.9% 6.9% 49% Tivicay 7.9% 6.9% 21% Triumeq 4.9% 3.9% 9%

WAC Price Increases for ARVs

Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap

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Truvada Annual WAC 2004 – 2016

$7,810 $9,345 $11,180 $12,896 $14,680 $16,461 $17,841 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 Aug-04 Jan-07 Jul-09 Apr-11 Jan-13 Apr-15 Jul-16

• Avg. annual WAC increase since approval: 10.6%

(vs. average medical CPI of 2.4-4% since 2004) Total Annual WAC increase since approval: 125% (vs. 27% CPI-U increase since 2004)

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Enhance Existing Penalties

Medicare Pric rice Medicaid id Pric rice

As manufacturers increase prices, the inflation penalty increases their “loss” under the Medicaid program. These “losses,” though, are entirely based on their excessive price increase.

Inflation

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Enhance Existing Penalties

• Medicaid is only 9% of the drug market, so

manufacturers are willing to take losses from Medicaid to raise prices elsewhere

• Turing’s price increase on Daraprim resulted in 2/3
• f sales at $0, yet they still are profitable
• Provisions under the ACA capped the Medicaid

inflation penalty at the AMP, meaning the rebate cannot establish a price below $0

• This reduces the impact of the penalty, as manufacturers

can make up the losses elsewhere

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Enhance Existing Penalties: Recommendations

• Add multiplier to inflation penalty calculation
• If price increases more than 5% greater than inflation,

double the inflation penalty

• If price increases more than 25% greater than inflation,

triple the inflation penalty

• Eliminate the inflation penalty cap, even if it results

in a negative net price

• Make conforming changes to VA inflation penalty
• Legislation will be required

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Enhance Existing Penalties: Recommendations

• Need to ensure that new drugs cannot establish

high initial AMPs to avoid inflation penalties

• Cap initial AMP at modest increase over average

inflation-adjusted initial AMP for the top third of drugs prescribed in the class or to treat the condition

• If average age is >10 years, 200% increase
• If average age is 5-10 years, 150% increase
• If average age is <5 years, 125% increase
• Alternatives for exceptionally novel drugs

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Pool Purchasing Power

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Pool Purchasing Power

• Medicaid programs can negotiate supplemental

rebates, but not all states do; some only negotiate individually rather than in groups

• Only 11 states have supplemental rebate

agreements for Medicaid MCOs

• Federal agencies can coordinate negotiations for

additional discounts, but generally only VA and DoD collaborate

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Pool Purchasing Power: Recommendations

• Allow CMS to coordinate supplemental rebate

negotiations for all states, while allowing states to continuing pursuing their own rebates individually

• r in group
• Estimated to save $5.8B over 10 years
• Expand VA and DoD negotiating agreement to
• ther Federal agencies with predictable large drug

purchase needs

• Assess whether changes can be implemented with

existing authority or require legislation

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Pull Back the Curtain

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Pull Back the Curtain

• Many drug pricing averages are already public
• ASP, FSS, and Big-4 (VA price)
• Provides information on average prices to pharmacies

and lowest price to pharmacies

• Because these formulas omit most discounts, not

useful to drive competition

• “Fix the Formulas” leverages these existing

transparency measures

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Pull Back the Curtain

• Need to consider what transparency is helpful
• Concern that requiring disclosure of individually

negotiated prices will lead to price fixing

• Priceline for hotel rooms, airline routes
• Disclosing average prices as a first step, using

existing mechanisms

• Additional transparency requirements as a penalty

for price increases

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Pull Back the Curtain: Recommendations

• “Fix the Formulas” to leverage existing transparency

tools

• Require additional disclosures when AMP rises greater

than 25% more than inflation over product’s life, disclosing:

• R&D costs
• Production costs
• Detailed marketing expenditures
• Research funding
• Detailed patient and payer information
• Executive compensation
• Further studies on 1) impact of additional disclosures

and 2) average costs of drug development and production

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Moving Forward

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A Roadmap for Action

Include all commercial discounts in Average Sales Price through existing administrative authority Include all commercial discounts in Average Manufacturer Price and non-Federal Average Manufacturer Price through legislation Ensure the government pays no more than the lowest commercial price while protecting additional discounts to safety net programs through legislation

Fix the Formulas

Remove the cap on Medicaid inflation penalties through legislation Double and triple the Medicaid inflation penalty for egregious price increases through legislation Extend inflation penalties to new drugs with prices that drastically exceed average prices for widely-used drugs in their class through legislation

Enhance Existing Penalties

Establish a coordinated national Medicaid negotiating pool while continuing to allow states to negotiate on their own through existing authority or legislation Expand existing inter- and intra-agency negotiations through existing authority

Pool Purchasing Power

Strengthen existing transparency tools by modernizing price reporting formulas through existing authority and legislation Require manufacturer disclosure of detailed drug development costs, marketing costs, and executive compensation for egregious price increases through legislation Study whether additional transparency, such as public and private payer discount and rebate amounts, will reduce costs or lead to anti-competitive price fixing Study the relationship between drug development costs and prices

Pull Back the Curtain

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Questions?

Sean Dickson sdickson@nastad.org Tim Horn tim.horn@treatmentactiongroup.org

Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap

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• You may also email your

questions to AKennedy@aidschicago.org

Use the Question Feature to Ask Questions, or email questions

Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap

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Thank you!

Sean Dickson sdickson@nastad.org Tim Horn tim.horn@treatmentactiongroup.org