List prices of prescription drugs continue to rise, albeit at a much slower pace than several years ago. Most of the increase in drug prices and patient cost-sharing is attributed to specialty pharmaceuticals.
Rebates, as inferred approximately from gross to net difference in sales figures, are also increasing. Drug companies say that the rebate growth rate has outstripped list prices.
Pharmacy benefit managers (PBMs) assert that through rebates they’re stemming increases in premiums.
But, what do end-users see? The insured are faced with ever-rising premiums and cost-sharing. And, without negotiating clout the growing ranks of uninsured pay the full retail price of prescription drugs.
Perhaps this explains why in some respects President Trump is making good on his campaign promise to tackle drug prices. By singling out and appearing to shame certain companies, he’s tapping into voter discontent on the issue of drug prices.
Last month, Pfizer and Novartis announced a price freeze until next year. This raises many questions. Who’s next? Is this a one-off development? Or does it represent systemic change?
One-off moves are positive gestures, but they have little impact. Absent direct price controls or structural alterations to the market dynamic, one cannot expect to see substantive changes to drug prices.
The Trump Administration has signaled that substantial changes to the market dynamic may occur. Signs of the Administration’s pursuit of structural change have transpired in stages. First, in the lead up to the unveiling in May 2018 of the Department of Health and Human Services (HHS)’s Blueprint named “American Patients First,” the Food and Drug Administration (FDA) commissioner weighed in on drug prices. Specifically, he spoke critically of pharmacy benefit manager (PBM) rebates. And, he voiced opposition to branded manufacturers blocking market entrance of generic products. At the same time, the commissioner promoted the accessibility, affordability, and acceptance of biosimilars.
Second, the Blueprint presented a set of policies aimed at improving transparency, establishing value-based pricing, and eliminating rebates.
On transparency, the FDA is to evaluate the possibility of disclosure of price information in direct-to-consumer advertising. Also, HHS suggested the design and publication of a drug pricing dashboard, which would make drug price changes more transparent to end-users.
Furthermore, HHS would prohibit pharmacy gag clauses. These are stipulations in which pharmacists are prevented from informing patients when they could be paying less out-of-pocket by not using their health insurance.
HHS has laid out several longer term goals, including the establishment of incentives for value-based pricing, in particular, indication-based payments, which would allow drugs to be priced or reimbursed differently based on their indication. The Department also outlined a proposed pilot program to move certain drugs from Medicare Part B to Part D where payers can negotiate prices and exert more control through formulary management. This could pave the way for a comprehensive transitioning of Part B products to Part D.
Third, on July 18th, HHS submitted to the Office of Management and Budget for regulatory review a proposed rule entitled “Removal of Safe Harbor Protection for Rebates.”
HHS is aiming to scale back protections currently in place that allow rebates between drug manufacturers and PBMs. In effect, this would remove the safe harbor protection for rebates from the anti-kickback law.
The anti-kickback law prohibits payments as incentives for products that Medicare, Medicaid or other federal healthcare programs reimburse.
In order to contain drug price growth leverage is critical. Whether in the form of rebates or discounts, entities with more leverage will be able to extract greater price concessions from pharmaceutical manufacturers.
Such leverage won’t be coming from the federal government, at least not under the Blueprint, as Medicare as a monopsonist would not be permitted to negotiate with drug manufacturers. Nor is it likely that payer consortia are forthcoming due to anti-trust concerns.
Therefore, PBMs will continue to play an important role, although doing so more transparently.
There are many unresolved issues that need to be addressed. Suppose, for example, PBMs negotiate upfront fixed-price discounts rather than ex post rebates. It’s not clear how deep those discounts would be compared to rebates.
Drug manufacturers would offer ex ante discounts in exchange for better formulary positioning of their products relative to competitors.
But, this does not guarantee them an improved market share. In fact, once the discount is paid the incentive to move market share is muted. On the other hand, moving market share is a prerequisite for getting rebates.
And, just as with the rebate system formulary negotiations would revolve mostly around financial incentives, not the value of products.
That is, attaining a preferential position on the formulary would be based on the discount offered rather than a product’s clinical or cost-effectiveness relative to its competitors.
A cheaper product is not necessarily more cost-effective.