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The Pulse of the Pharmaceutical Industry

Value of Medicines 2019 Special Feature: The unanswered question of value

Written by: | | Dated: Wednesday, February 13th, 2019


With Congressional hearings on drug prices, proposed rules for Medicare plans, and new ICER efforts to link outcomes to value, finding answers on how to price and pay for drugs is still difficult.


For the pharma industry, the new year kicked off with committees in the House and Senate questioning the high prices of basic drugs such as insulin and the Trump administration proposing new regulations for Medicare drug plans that would change the way drug discounts are negotiated. And ICER, the independent body that assesses the clinical value of drugs, in January announced two new programs: one is an international collaborative to develop methods for value-based pricing of potential cures, and the other will assess whether the most significant prescription drug price increases are supported by new clinical evidence.

Additionally, one company that provides a system in which pharma, PBMs, and HHS can centralize the contract and rebate negotiation process hopes that a partnership with another company that assesses the clinical and outcomes value of drugs can introduce efficiencies and clarity into the processes that will ultimately provide the best prices for patients. But as policy makers and pharma advocates continue to debate, the answers of how to tie price to outcomes and affordability – as well as how drugs are currently priced – remain unclear.

Hearings, proposed rules set the stage

In January, after newly elected Democrats took over the House, the House Oversight Committee – led by Rep. Elijah Cummings, D-Md. – announced an investigation into 12 pharmaceutical companies and their drug-pricing methods.

“For years, drug companies have been aggressively increasing prices on existing drugs and setting higher launch prices for new drugs while recording windfall profits,” Cummings said in a statement. “The goals of this investigation are to determine why drug companies are increasing prices so dramatically, how drug companies are using the proceeds, and what steps can be taken to reduce prescription drug prices.”

In late January, the House Oversight Committee and the Senate Finance Committee – led by Senator Chuck Grassley, R-Iowa – brought in pharma executives, patient advocates, and health experts to discuss the damaging effects of high insulin prices. While no one who testified was doubtful on the therapeutic value of insulin, there were a lot of questions from legislators about why insulin prices had gone up.

A study by the Health Care Cost Institute (HCCI) found that between 2012 and 2016, insulin spending by each type 1 diabetes patient went up by $2,841, to $5,705 per person on insulin in 2016. The cost of diabetes supplies such as testing strips and other prescription drugs was $4,119, a 22 percent increase during that time period. “The increase in gross spending on insulin was larger than any other category, nearly doubling between 2012 and 2016,” HCCI reported.

In looking at the usage and types of insulins, HCCI says the price of all insulin products increased between 2012 and 2016. “The average point-of-sale price nearly doubled, rising from 13 cents per unit to 25 cents per unit,” experts say. “That translates to an increase from $7.80 a day in 2012 to $15 a day in 2016 for someone using an average amount of insulin (60 units per day).”

At the end of January, the Trump administration proposed new rules for Medicare Part D plans in an attempt to lower drug prices. The way the system works at present is that drug companies set a price for their products and then pharmacy benefit managers negotiate a discount in the form of a rebate, on behalf of insurance plans. PBMs keep some of that money for themselves and the insurers use some of it to help lower premiums across the board. However, the Trump administration proposal would ban those rebates in Medicare plans and force PBMs to just accept a flat fee for their work. While Part D premiums would go up, Health and Human Services expects that senior patients will save more at the pharmacy counter.

“Part D plans have ways to avoid premium increases, including more use of generics, tougher negotiation, or lower overhead,” according to HHS Secretary Alex Azar, in February 1 remarks to the Bipartisan Policy Center. “We believe Part D plans will use these tools to keep premiums steady, because they already compete incredibly aggressively on premiums. That part of our system works relatively well. The biggest problem, the pain point, is patients’ out-of-pocket spending at the pharmacy.”

While the proposal would only apply to Medicare plans, Azar seemingly doubled down on it, in his remarks to the Bipartisan Policy Center, when he called on Congress to end rebate practices all across the market. “Congress has an opportunity to follow through on their calls for transparency, too, by passing our proposal into law immediately and extending it into the commercial drug market,” he said.

During October 2018, Health and Human Services unveiled a proposal for a new international pricing reference for Medicare Part B drugs. “Specifically, CMS intends to test whether phasing down the Medicare payment amount for selected Part B drugs to more closely align with international prices; allowing private-sector vendors to negotiate prices for drugs, take title to drugs, and compete for physician and hospital business; and changing the 4.3 percent (post-sequester) drug add-on payment in the model to reflect 6 percent of historical drug costs translated into a set payment amount, would lead to higher quality of care for beneficiaries and reduced expenditures to the Medicare program,” HHS executives say in the advanced notice of proposed rulemaking.

In its December response to the Part B proposal, the International Society for Pharmacoeconomics and Outcomes Research (ISPOR) stated that international reference pricing in Medicare Part B could have some potential advantages.

The scientific organization surveyed its membership, and some possible advantages were suggested.

“Use of IRP might result in overall price reductions in that program and generate some cost savings that could be used elsewhere in other parts of Medicare, other government programs, or tax reductions,” ISPOR executives stated. “It could make pricing for these drugs more homogeneous across developed countries, which might be perceived as fairer by many U.S. citizens. It could motivate drug companies to negotiate more strongly with other countries to achieve pricing that could help share the global R&D burden cost in a way that U.S. citizens might regard as more appropriate.”

Another advantage to international reference pricing might be from a health technology assessment (HTA) perspective, ISPOR says, in which the clinical and economic effectiveness of a therapy across countries and geographies might be evaluated more consistently.

“To date, there are significant variations across countries in the HTA methodology used to measure and understand variations in outcomes across patient populations,” ISPOR says. “A more unified approach to pricing could simplify the value assessment and evidence comparisons across geographies, reducing duplicative effort by both payers and drug companies across jurisdictions, and thereby strengthening payor understanding of decision-making relative to prices as well as sending clearer signals to drug developers as to likely returns on investment.”

The disadvantages to IRP, according to ISPOR, are changes in behavior of both payers in the referenced countries and the manufacturers supplying them.

“If Country A references prices in Country B, then drug manufacturers treat the two markets as linked when they set prices. If prices in Country B were lower than those in Country A, then they may increase prices in Country B, or stop supplying Country B so there is no price to be referenced by Country A,” ISPOR says. “Either action will reduce the impact of reference pricing on the prices in Country A.”

If prices are raised in Country B, then overall returns to R&D will increase and patients in Country A will benefit from more innovation, but two things are likely to happen, according to ISPOR.

“Firstly, revenues may fall (and therefore returns on innovation) because Country B buys less – for example, reducing the sub-populations for whom the drug is made available,” these experts say. “Secondly, as noted above, the payer in Country B and the manufacturer may agree on higher list prices and larger confidential discounts, such that, the net price paid in Country B is unchanged. However, the list price rises such that Country A gains no benefit from referencing Country B.”

Despite all the government hearings and proposals, don’t expect a lot of movement on the pricing issue in 2019, says Jeremy Schafer, senior VP and director of the Access Experience Team, Precision for Value.

“The primary issue is that the true net pricing system in the United States is incredibly complex and convoluted,” Schafer told Med Ad News. “In fairness to manufacturers, their hands are somewhat tied. Rebate and discount contracts with PBMs and pharmacies are confidential, meaning that open disclosure can’t be done without violating contracts and revealing competitive strategy. In addition, the way that PBMs pass the lower net cost onto employers and health plans is not something the manufacturer can influence.

“The result is that while employers and health plans enjoy a lower net cost post-rebates, the patients are stuck in a system where they may pay a coinsurance reflective of the list price. The Trump administration has discussed a radical change to the rebate system that would instead focus on net cost, but there hasn’t been much movement in this area. In the end, neither manufacturers nor PBMs have much to gain by more transparent pricing. It gives up potential competitive advantage for both organization types and would probably end up costing them more. As a result, more aggressive change may come from the government who, at the moment, appears more interested in just bringing prices down rather than making them more transparent.”

(For more about the proposed Medicare Part B reference plan and recommendations on how pharma companies could prepare if the program is implemented, see the “Will the U.S. adopt global reference pricing?” Med Ad News February 2019 extra feature).

PhRMA tries to push back

Trulicity Rx Pads

In 2018, PhRMA member companies voluntarily pledged to share information about what patients could potentially pay for specific products as part of its DTC advertising. Eli Lilly was the first, launching a website in conjunction with its DTC advertising for Trulicity, The site shows Trulicity’s “list price” of $730.20 a month.

The site then breaks down the potential cost by patient type. If a patient has employer-sponsored insurance, “About 94 percent of Trulicity prescriptions cost between $0-$30 per month, and the remaining 6 percent cost an average of $195 per month,” the site says. “What you pay for Trulicity will depend on your insurance plan. Each plan has different preferred drug lists and out-of-pocket amounts, and most include an annual deductible. If you haven’t met your deductible, you’ll see higher prices until the deductible is met, then your out-of-pocket cost will likely drop.”

Estimates are also provided for Medicare patients, Medicaid patients, and for those without insurance or whose insurance companies refuse to include Trulicity on their formularies, there is the truly bad news: “If you do not have prescription drug coverage or your insurance does not cover Trulicity, you can expect to pay the list price shown above, plus any additional pharmacy charges depending on where you purchase your medicine.”

Schafer says he is “doubtful” that moves such as Lilly’s will change public perception of pharma companies and their pricing practices, “although every little bit helps.”

“In addition to the opaqueness of the pricing system, manufacturers are likely challenged by the decline in public trust for the industry,” Schafer explains. “If people do not trust the entity providing the information, then the likelihood that the information will resonate will be low.”

He suggests that the pharma companies partner with medical organizations or even the government to validate the accuracy of the information offered by the industry and build trust.

“If the information is made available and understandable to patients, it may spur more pressure from the patient side onto PBMs to demand changes to benefits that will allow more patients to reap savings directly,” he says.

The pharma industry “would be well served by communicating to patients and everyday consumers the monumental changes that medications in particular categories have brought to society,” Schafer told Med Ad News.

“Many times the value discussion is focused on an individual brand which can get lost in the deluge of negative news that consumers see every day,” he says. “Instead, pharma could communicate how drugs have helped dramatically alter the rate of cardiovascular death, have made some cancers ‘curable,’ and have changed the survival picture for people with diseases like hemophilia. When presenting “value” to PBMs and payers, however, the focus should be on the individual drug with information on savings that payers can identify and quantify. While indirect costs and quality of life are important for understanding overall value, these metrics need to be connected to interests of payers in order to be viewed as valuable since payers will focus on direct impacts such as avoiding use of other medications, not going to the emergency room, reduced hospitalizations, etc.

ICER proposes studies of value-based pricing, price increases

At the end of January, the Institute for Clinical and Economic Review (ICER), an independent and non-partisan research organization that objectively evaluates the clinical and economic value of prescription drugs, medical tests and other health care and health care delivery innovations, made two announcements. In one, ICER launched a new international collaborative to develop new methods to guide value-based pricing; in the other, the organization will be studying whether the most significant drug price increases are supported by new clinical evidence.

ICER will be collaborating with methodology experts, stakeholders, and several leading international health technology assessment (HTA) groups, including the United Kingdom’s National Institute for Health and Care Excellence (NICE) and the Canadian Agency for Drugs and Technologies in Health (CADTH). “The goal of this initiative is to ensure that assessment methods are tailored appropriately to the distinctive nature of the evidence base for potential cures,” ICER says, and “will inform ICER’s 2019 update to its value assessment framework while seeking to build consensus across HTA groups in anticipation of a rising tide of gene therapies and other potential cures.”

The drug price increase study proposal, which ICER plans to turn into an annual review called the “Unsupported Price Increase” report, will analyze significant prescription drug increases and determine whether or not new clinical evidence exists that could be used to support those increases. ICER plans to release the first of these reports in October.

“Drug prices are often increased substantially over time in the U.S., and questions are frequently raised regarding whether these price increases are justified,” according to David Rind, M.D., ICER’s chief medical officer. “By identifying drugs with substantial price increases despite no new evidence of added benefit, we hope to make an important first step in providing policymakers with information they can use to advance the public debate on drug price increases.”

According to Jason Shafrin, Ph.D., a senior director of policy and economics with Precision Health Economics, the proposal to re-evaluate treatment prices seems sensible. “The value of a treatment changes over time based on the evidence available about its benefits, risks, and costs,” Shafrin says. “In fact, Dana Goldman and others have proposed a three-part pricing model, where drug prices start out relatively low and increase over time as uncertainty resolves, and then fall after patent expiration. A key question is, how do we determine when new evidence would justify price increases? Thus, ICER addresses a pressing issue.”

However, the key shortcomings of the ICER approach are how it will be implemented, according to Shafrin. “First, value depends on drug prices,” he says. “Drug prices, however, are not entirely transparent. It is entirely possible that list prices increase over time, but the net cost to payers stays constant or declines due to rebates.”

ICER makes some effort to address this issue using SSR Health data, but as rebates vary across payers, the true value is best measured in a local context rather than a national one. Shafrin adds, “the quoted price may not be the price most relevant to the individual payers who are separately negotiating drug prices with life sciences companies.”

ICER is also not clear about what it will consider “new information” and how it would affect any models.

“ICER states that its literature review will examine ‘randomized trials, high-quality comparative observational studies, and, for information on low-frequency harms, from large uncontrolled studies,’ but to date most efficacy and safety parameters that ICER has used come only from randomized controlled trials,” Shafrin says, adding that it is unclear how ICER would update its existing models if new high-quality observational studies were identified.

“Further, over time evidence for additional components of value will be generated, but it is not clear if or how those would be incorporated into ICER’s value assessment,” Shafrin told Med Ad News.

Health economics and outcomes researchers have recommended the inclusion of nonclinical value assessments into HEOR such as a treatment’s effect on productivity, caregiver burden, educational outcomes, and other factors. “As this evidence accumulates, it is important for ICER to incorporate these components into its value assessment as well,” Shafrin notes. “My own research has shown that including these recommended components can significantly affect a treatment’s estimated value.”

His third critique, which is a general critique of ICER, is that “the value assessments continue to measure the value only for the average patient and not fully incorporate patient preferences. “In practice, what value assessment should aim to do is identify the highest value treatment for each patient,” he says.

For example, two treatments may have identical efficacy but one may work the same for all patients and the other works fantastically well for half of patients and poorly for the other half. “In this case, Treatment B is likely to be more valuable than Treatment A, particularly if these patients can be identified ex-ante or if physicians are able to identify treatment non-response rapidly,” Shafrin explains. “Thus, failing to account for this heterogeneity may underestimate the treatment’s benefit. “

Additionally, patient preferences need to be incorporated into the measure of value. “Some patients may prefer highly effective treatments regardless of side effects; others are willing to give up some efficacy in order to avoid adverse events,” Shafrin told Med Ad News. “The ICER approach assumes patient preferences are identical when evaluating a treatment’s value, which is problematic in practice when value varies across different patient groups.”

Bringing efficiency to the bidding system

One of the problems drug companies have been grappling with has been trying to keep track of all the information related to the bidding and contract processes for PBMs to negotiate rebates. Enter Quantuvis.

Started by former Hobart Group head Lisa Bair, Quantuvis provides a platform for pharma and payers to centralize all the information generated during the bidding and negotiation processes.

“Prior to us launching this Quantuvis solution, everything was captured manually captured and nothing was in real time and it hindered the whole process of negotiation,” Bair told Med Ad News. “We’ve got a lot of people using the system, we’ve got 194 pharma and biotech companies bidding in the system. It’s been a very informative ride, in terms of getting healthcare to embrace technology, particularly in payer and pharma interaction.”

With insurers such as Optum Rx and Humana in the Quantuvis system, “we’re standing at 50 percent of the lives covered,” according to Bair, who says the system makes negotiation go much faster and get to a better endpoint so that pharma understands what the contracting is for and payers absolutely know what to put on formulary based on where they net out with their negotiation process.

“And there is no discrepancy when you come to the contract process, meaning there were a lot of times they would go back and forth and they would end up in the end of the negotiation cycle, and they’d get to the contract and they’d have different interpretations of the terms and conditions.”

By having a centralized, secure place for pharma and PBMs to keep track of information for contracts, Bair believes cost savings can be generated from money that was spent on things such as audits and legal time.

Additionally, a recently announced partnership with a company called Dymaxium will provide a way for pharma and PBMs to include outcomes and clinical data into the evaluation. Dymaxium provides, a comprehensive platform supporting the exchange of information between life sciences companies and payers.

The site is home to the AMCP eDossier System and a community of more than 1,900 U.S. payers and health care decision makers, and is billed as “the only community with identified ACTIVE payers” who are reviewing products for reimbursement and can provide direct qualitative feedback to better inform drug company strategies.

“I think the gap, prior to us announcing this partnership with Dymaxium, is that those exercises are very different [understanding therapeutic effectiveness vs. what the rebate needs to be],” Bair states. “So the value of the partnership with Dymaxium is to say, ‘Let’s take the first step forward in bringing together the clinical and net cost of drug data into one platform.’

“Everyone’s really trying to crack the nut around value-based contracting and assessments of formulary, but without having any sort of framework to bring those two closer to one kind of third-party system that allows all that data to be shared across many groups – the payers, the PBMs, and the pharmaceutical companies – is what we see as a way to monetize the opportunity for content, pushing out information about drugs coming to market,” Bair says.

Through Quantuvis’ partnership with Dymaxium, pharma companies will be able to get a better understanding of how the formulary position of a product is going to look before launch, based on this assessment and the quality of the format. Once the drug hits the market, the commercial teams can turn to Quantuvis during the rebate negotiation talks with payers, Bair notes.

With the pressure continuing to grow around drug price increases, “it’s going to take awhile to figure out what degree of the policy influence can pressure the market,” Bair explains. “What we’re trying to do is provide the mechanism for getting to the best negotiation, best price for the drug, so it’s more affordable, whether it’s a Part D patient or a commercial patient. We bring efficiency to the system, and we’re starting to assess the framework about value-based assessment by bringing in the clinical and outcomes.”


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