Pharma Industry CEOs, Congress Address Drug Pricing

By Patricia Van Arnum - DCAT Editorial Director

March 6, 2019

At a Congressional hearing last week, executives from AbbVie, AstraZeneca, Bristol-Myers Squibb, Johnson & Johnson, Merck & Co., and Pfizer examined drug pricing as part of a larger policy debate on ways to lower prescription drug costs, improve transparency, and increase market access. How is the policy needle moving?

Inside the hearing room

The US Senate Finance Committee held its second hearing on drug pricing on February 26, this time seeking the input of pharmaceutical industry CEOs and as a follow-up to its first hearing held in late January as part of a policy imperative with the new Congress to address the cost of prescription drugs. “There is a balance between incentivizing innovation and keeping prices affordable for consumers and taxpayers,” said Sen. Chuck Grassley (R-IA), Chairman of the Senate Finance Committee, in an opening statement at the February 26 hearing. “Like all systems, things can get out of balance. The good news is, we are here to discuss solutions.” Policy options discussed included reforms to the rebate system, changes to government prescription drug programs and value-based contracting. 

Reforming the rebate system

One area of consensus among industry, Congress, and the Trump Administration is the need to reform the rebate system as a means to reduce out-of-pocket costs through prescriptions filled both through private insurance and government programs, such as Medicare Part D, the prescription-drug plan for people aged 65 or older.

In their testimony before the Committee, industry executives pointed to problems in the current system in which they say rebates and discounts for prescription drugs that drug manufacturers provide to pharmacy benefit managers (PBMs) and insurance companies are not passed onto consumers, resulting in high out-of-pocket costs. “The incentives in the current system are badly misaligned,” said Kenneth Frazier, Chief Executive Officer (CEO) of Merck & Co., in his testimony before the Committee. “As a result, the current system of drug competition that depends on rebating is not working for patients. The growing gap between our list prices and our net prices that results from rebating has created incentives for supply chain entities to favor products with higher list prices,” he said. “…This kind of misalignment can have a significant negative impact on patients because their cost sharing is often based on the list price of a drug, even when insurance companies and PBMs are paying a fraction of that price. Our current system that incentivizes high list prices and large rebates as a mechanism to keep insurance premiums low means that sick patients are essentially subsidizing healthy patients.”

Richard Gonzalez, Chairman and CEO of AbbVie, also pointed to similar problems in the rebate system as it pertains to Medicare Part D. “Due to the structure of the Part D benefit design, patients are charged out-of-pocket costs on a medicine’s list price, which does not reflect the market-based rebates that Medicare receives,” he said in his statement. “We are encouraged by the proposed rule that would reflect manufacturer discounts in patients’ Part D out-of-pocket payments. This is an important step in the right direction, but we believe more must still be done to help Part D patients.”

The proposed rule referenced in his testimony refers to a measure offered by Department of Health and Human Services Secretary Alex Azar and Inspector General Daniel Levinson, who in late January 2019, proposed a rule to lower prescription drug prices and out-of-pocket costs by encouraging manufacturers to pass discounts directly to patients and to have greater drug-pricing transparency. The HHS proposal would expressly exclude from safe-harbor protection under the Anti-Kickback Statute rebates on prescription drugs paid by manufacturers to PBMs, Part D plans, and Medicaid managed-care organizations. Under the proposed rule, prescription drug rebates that today amount to, on average, 26% to 30% of a drug’s list price, based on HHS estimates, may be passed on directly to patients and reflected in what they pay. HHS says the proposal would also address the most significant incentive drug manufacturers cite in raising their list prices every year, the pressure to provide larger and larger rebates.

In his testimony, Sanofi CEO Olivier Brandicourt concurred with rebate reform as a means to reduce out-of-pocket costs and offered specific suggestions. This included the “implementation of the Anti-Kickback Safe Harbor rebate proposed rule in a manner that directly lowers out-of-pocket costs for patients without creating loopholes that would undermine the proposed rule’s intent,” as well as “requiring a portion of the discounts and rebates paid by manufacturers to reduce costs for patients at the pharmacy counter.”

Further reform to Medicare Part D benefit design

While acknowledging the positive direction of the proposed rule as it relates to rebates, AbbVie’s Gonzalez also said that other reforms under Medicare Part D benefit design are needed. “We believe it is important that discussions about access and affordability include a focus on how to alleviate Medicare Part D out-of-pocket burdens above and beyond just lowering list prices,” he said in his testimony. “We are prepared to step up and discuss how companies like ours can shoulder more of the burden of a patient’s out-of-pocket expenses as we do in other areas covered by commercial insurance. Additionally, we believe the discussion should also include the possibility of Medicare Part D beneficiaries being able to purchase insurance (as they do in other parts of the Medicare program) to cover more of their out-of-pocket expenses.”

Another proposal by industry executives involves the inclusion of an out-of-pocket cap in Medicare Part D. “While Medicare Part D is working for many seniors and has been effective in containing costs, we believe an out-of-pocket cap in Medicare Part D is a needed protection,” said Jennifer Taubert, Executive Vice President, Worldwide Chairman, Pharmaceuticals, Johnson & Johnson (J&J), in her statement before the Committee. “Without a cap, Medicare beneficiaries face unlimited out-of-pocket expenses, and, as research shows, high out-of-pocket costs reduce patient adherence to prescribed treatments and make them more likely to abandon their prescriptions. Poor patient outcomes related to lack of adherence or abandonment of prescribed treatments can lead to an increase in overall healthcare costs. Individual and group health insurance policies are already required to have out-of-pocket caps. We believe that Medicare, which serves some of the sickest and most vulnerable patients and is essential to the health of American seniors, should also have that protection.”

AstraZeneca’s Soriot suggested a restructuring of the current benefit design for specialty products under Medicare Part D to allow patients to benefit from lower cost-sharing, which could include an out-of-pocket cap. “Under one potential approach, a portion of manufacturer discounts could be used to fund a reduction in cost-sharing for patients facing the highest cost-sharing amounts,” he said in his testimony. “This could be accomplished by establishing a monthly or annual out-of-pocket cap, which would give patients greater certainty in the total amount of out-of-pocket costs they could face. The cap would provide a safety-net for patients that could be funded by a portion of the discounts provided across all Part D products. Such an approach would help ensure that more patients benefit from the discounts manufacturers provide.”

Improving access to biosimilars and sharing cost-savings between patients and providers under Medicare Part D was another recommendation made at the hearing. Pfizer CEO Albert Bourla offered two such solutions. The first is a shared savings biosimilars model. “Congress could direct the CMS [Centers for Medicare & Medicaid & Services] Innovation Center (CMMI) to test a biosimilar ‘shared savings’ approach in which Medicare savings associated with prescribing a biosimilar, as compared to a reference biological, would be shared with providers,” said Bourla. The CMMI is responsible for testing models that improve care, lower costs, and better align payment systems to support patient-centered practices. The second solution suggested by Bourla was reduced patient cost-sharing for biosimilars, under which CMS could provide reduced or zero-dollar cost sharing for biosimilars for patients for a certain period.

Medicare Part B reform

J&J’s Taubert also outlined policy solutions to prescription-drug requirements under Medicare Part B, which are for drugs administered in a physician's office or hospital outpatient setting. She addressed the need to meet three objectives: (1) reduce cost and spending; (2) increase competition; and (3) remove incentives to prescribe higher cost therapies without causing significant disruption to physicians or patient care.

"As changes to Part B are contemplated, it is important to remember that Medicare currently benefits from aggressive negotiations in the commercial market through the Average Sales Price (ASP) mechanism,” she said in her testimony. “Any reform should therefore leverage the benefits of the existing system. In our response to the Health and Human Services advance notice of proposed rulemaking regarding Part B, we proposed an option that would allow Medicare to continue to achieve the negotiated cost savings of the free market, reduce Part B acquisition cost under the ASP-based model, and reimburse all stakeholders on a fee-based mechanism aligned with the services that they provide. Our proposal aims to eliminate incentives for selecting higher list price drugs while maintaining current Part B patient access to appropriate clinical care."

Value-based agreements

In suggesting options on how to reform issues impacting prescription drug costs, several pharma executives pointed to the use of value-based agreements. “…[I]n a future system, the default approach should be that pricing and reimbursement for drug therapies are tied to patient outcomes and the value the particular therapy provides,” said Pascal Soriot, CEO of AstraZeneca, in his testimony before the Committee. “As such, it is imperative that manufacturers and payers—including Part D plans—engage in value-based agreements…”

He pointed to AstraZeneca’s current use of value-based agreements, which he said now totals approximately 40, but on an industry level, he said that there are “significant operational and regulatory hurdles” to the broader implementation of value-based agreements. “Operational challenges include capturing appropriate data and other capabilities on the part of payers that are needed to successfully execute these arrangements,” Soriot said in his testimony. “For example, value-based agreements typically require plans to have systems in place to report measures like adherence and readmissions. While many payers and health systems are evolving to meet the needs of the changing healthcare environment, greater investments need to be made in data capabilities. In addition, policy and regulations must advance to support value-based agreements in becoming a standard approach to reimbursement.

On the public policy front, he pointed to draft bipartisan legislation, the Patient Affordability Value and Efficiency (PAVE) Act, which moves toward value-based arrangements by directly connecting pricing for prescription drugs and medical devices to the clinical effectiveness of their products. The draft legislation is co-sponsored by Sens. Bill Cassidy (R-LA) and Mark Warner (D-VA), who put forth the draft legislation for comment last month (February 2019).

“Current healthcare law unintentionally restricts the ability of insurers, hospitals, and clinics to pay for prescription drugs or medical devices based upon their proven effectiveness,” according to a joint January 29, 2019 statement issued by the senators. “The Patient Affordability, Value and Efficiency Act would provide for narrowly tailored exemptions to help drive down prescription drug and medical device costs while incentivizing manufacturers to create products that effectively treat patients." The proposal would promote the development of value-based agreements and would exempt performance-based drug reimbursement contracts from the Medicaid Best Price Rule, Anti-Kickback Statute, and the Stark Law.

AstraZeneca’s Soriot also outlined other ways that the government could facilitate value-based agreements. For example, he suggested that the recent proposed HHS rule regarding PBM rebates could be structured to protect existing and future value-based agreements. He also recommended that the HHS develop a prioritized list of clinical outcomes measures for manufacturers and payers to consider when developing outcomes-based agreements.

Other proposals

In addition to rebate reform, value-based contracting, and out-of-caps for Medicare, Sanofi’s Brandicourt suggested changing or clarifying government price reporting rules to make it easier to reduce list prices on medicines that have been on the market for a long time. He suggested two approaches: (1) making clear that the government pricing metrics for the new, lower list price drug do not have to be averaged with the metrics for older, higher list price drug and (2) permitting a company to treat the new lower price drug as a new product for purposes of Medicaid rebate calculations, which he says will help to link the rebate liability for the new drug to the new drug’s lower price as opposed to the higher price for the old drug.

International Price Index

One area of disagreement between some industry executives and policy makers involves HHS’ proposed International Price Index (IPI) model for Medicare Part B drugs. In October 2018, HHS, through the Centers for Medicare & Medicaid Services (CMS) issued an advance notice of proposed rulemaking to gain input on an IPI model. Under the IPI model, Medicare’s payments for select physician-administered drugs would move from current payment levels to payment levels based on international prices. It would be phased in over a five-year period, would apply to 50% of the country, and would cover most drugs in Medicare Part B, which includes physician-administered medicines such as infusions.

CMS is considering issuing a proposed rule in the spring of 2019 on the potential IPI Model. The potential IPI Model would start in spring 2020 and operate for five years, until the spring of 2025. Over the course of the model, CMS would monitor and evaluate the impact of the model on beneficiary access to drugs, program costs, and the quality of care for beneficiaries.

While supporting the proposed rule for reforming the rebate system, value-based purchasing agreements, and efforts to speed the approval of generics, one area in which Bristol-Myers Squibb Chairman and CEO Giovanni Caforio said the company did not support was HHS’ proposed IPI model for Medicare Part B drugs and offered an example of how such a model limits patient access. “We do not believe the US should adopt policies that stifle innovation in other countries, which could reduce a patient’s access to new medicines,” he said in his testimony before the Committee. Outside of the US, reimbursement of new medicines can often take more than two years. Our Opdivo and Yervoy regimen was first approved in September 2015 to treat metastatic melanoma in the US. Today, six of the 16 countries included in the International Price Index proposal do not provide access to this combination, which is now considered the standard of care for this cancer. “