Drug Pricing, Repricing, Rebates, and Patient Access
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1 Drug Pricing, Repricing, Rebates, and Patient Access Jack Hoadley, Ph.D. Health Policy Institute, Georgetown University Bipartisan Policy Center April 13,
2 Credits and Notes Some of my drug policy research has been done under contract with the Kaiser Family Foundation Find links to full reports: hpi.georgetown.edu/medicarepartd Thanks to Kaiser Family Foundation and the Medicare Payment Advisory Commission for use of their slides 2
3 Outline Background basics How are drugs priced? Who gets what rebate? How are drugs re-priced over time? Do payer actions affect patient access Looking to the future 3
4 Background Drug spending trends Brands, generics, and specialty drugs Components of the drug supply chain Flow of dollars for drug purchases Drug pricing terminology and definitions 4
5 1970s 1980s 1990s Drug Spending Growth, 1970s-2024 Average annual growth per capita, actual and projected Prescription (Actual) Prescription (Projected) 7% 15% 14% 13% 12% 11% 10% 8% Total Health (Actual) 8% 5% 4% 4% Total Health (Projected) 11% 10% 5% 5% 5% 6% 6% 6% 6% 6% 4% 2% 2% 2% -1% -1% NOTE: Average annual growth rate of prescription drug spending per capita for 1970 s 1990 s; annual change in actual prescription drug spending per capita and projected prescription drug spending per capita to 2015 percent changes are calculated using 2014 actual and 2015 projected amounts. SOURCE: Kaiser Family Foundation analysis of National Health Expenditure (NHE) Historical ( ) and Projected ( ) data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group (Accessed on December 7, 2015) 5
6 Drug Spending as Share of Health Retail drug spending = all spending at outlets that directly serve patients : as low as 6% of health spending versus 12% today Non-retail drug spending = spending by medical providers for drugs they provide to patients Inpatient hospital, outpatient hospital, physicians offices, infusion centers : about 4-5% of health spending Combined retail and non-retail drug spending: 2015: 17% of spending on personal health services SOURCE: DHHS/ASPE, Observations on Trends in Prescription Drug Spending March Based on data from DHHS National Health Expenditure Accounts and the Altarum Institute. 6
7 Brand Versus Generic Drugs, Share of Spending: Brand Drugs 76% 75% 72% 71% 72% Share of Dispensed Prescriptions: Brand Drugs 1998 brand share of prescriptions = 49% 23% 20% 16% 14% 12% SOURCE: IMS Institute for Healthcare Informatics, Medicines Use and Spending Shifts: A Review of the Use of Medicines in the U.S. in
8 Specialty versus Traditional Drugs No universal definition Characteristics tend to include: Expensive (at least $600/month for Part D) Manufactured in living systems (biologicals) Difficult to administer; may be injected or infused Prescribed by specialist physicians May require complex patient follow-up, monitoring Used to treat serious conditions for which few or no alternative therapies available Administered through specialty pharmacies Require special handling (temperature control) 8
9 Spending on Specialty Drugs, As Share of Total Spending 33% 24% 25% 28% 30% SOURCE: IMS Institute for Healthcare Informatics, Medicines Use and Spending Shifts: A Review of the Use of Medicines in the U.S. in
10 Supply Chain for Drug Delivery Manufacturers Wholesalers Chain Pharmacies and Food Stores with Pharmacies Retail Pharmacies Independent Pharmacies Mail-Order Pharmacies Nonretail Providers Hospitals, HMOs, Clinics, Home Health Care Providers, Nursing Homes, and Federal Facilities Consumers Paying for Purchases Out of Pocket Consumers Consumers Who Have Some or All Purchases Paid for by a Third Party (Including health plans and public-sector programs) Source: Congressional Budget Office, Prescription Drug Pricing in the Private Sector,
11 Supply Chain Functions Manufacturers Develop, produce, and market drugs Set list prices as a basis for price negotiations Negotiate rebates and discounts with plans or PBMs Wholesalers Link manufacturers with outlets that dispense drugs Help smaller pharmacies negotiate with generic manufacturers Pharmacies Stock drugs and fill prescriptions on demand Negotiate discounts with generic drug manufacturers Pharmacy Benefit Managers (PBMs) Administer drug benefit for health plan or employer Build pharmacy networks Negotiate rebates with manufacturers 11
12 Supply Chain Market Shares By non-discounted spending, 2014 Other Long Term Care Chain Pharmacies Clinics Hospitals Retail Pharmacies Mail Order Independent Pharmacies Food Stores Source: IMS Institute for Healthcare Informatics, Medicines Use and Spending Shifts: A Review of the Use of Medicines in the U.S. in
13 Drug Spending by Payer, % 90% 80% 70% Start of Medicare Part D Projected 60% 50% 40% 30% 20% Out of pocket Private health insurance Medicare Medicaid Other 10% 0% SOURCE: MedPAC analysis of historical and projected data from CMS s national health expenditure accounts as of July
14 Flow of Funds for a Brand Drug Negotiated Rebate for Brand-Name Drugs Drug Manufacturer Drugs AMP Preferred Placement on Formulary Pharmacy Benefit Manager Negotiated Payment Wholesaler Drugs WAC Pharmacy Payment Managed Drug Benefits Share of Rebates from Manufacturer Drugs Copayment Drug Coverage Health Plan Premium Beneficiary Premium Employer Flow of Funds Flow of Prescription Drugs Services Note: AMP = average manufacturer price; WAC = wholesale acquisition cost Source: Congressional Budget Office, Prescription Drug Pricing in the Private Sector,
15 Pricing for a Brand Drug Drug Manufacturer (Receives net payment of $74) $80 Payment $6 Rebate to PBM $80 (Adjusted AMP) $83 (Average price paid by independent pharmacies) $88 (based on 15% discount off AWP of $101, plus $2 fee) Wholesaler (Retains $3) Independent Pharmacy (Retains $5) Pharmacy Benefit Manager (Has a net cost of $82) $88 Payment $6 Rebated from Manufacturer Source: Congressional Budget Office, Prescription Drug Pricing in the Private Sector,
16 How Are Drugs Priced? What is the price? Pricing rationales Factors influencing pricing Price variation by payer 16
17 What is the Price of a Drug? List prices AWP = average wholesale price, defined as the published list price that wholesalers post for retailers and other providers WAC = wholesale acquisition cost, defined as list prices posted by manufacturers Price measures calculated by the government AMP = average manufacturer price, defined as the average of prices actually paid by wholesalers and retailers who buy directly from manufacturers ASP = average sales price, defined as the average price realized by manufacturers for sales to all purchasers net of rebates, discounts, and price concessions Discounts Retail discounts = discounts available to large-volume retailers on purchases from wholesalers or manufacturers Manufacturer rebate = amounts paid by manufacturer to health plan or PBM to create a discount price 17
18 Rationales for Launch Prices Lack of transparency Cost of research & development Industry estimate: $2.6 billion for an average drug Source: J. DiMasi et al, Innovation in the pharmaceutical industry: New estimates of R&D costs, Journal of Health Economics May Tufts Center for the Study of Drug Development Savings accrued for the health care system as a result of taking the new drug Presence and pricing of competing therapies Strategic positioning relative to products on the market or coming soon 18
19 Investigational New Drug application submitted New Drug Application / Biologics License Application submitted Food and Drug Administration approval Drug Discovery, Development and Review Basic research Drug discovery and preclinical studies Clinical trials FDA review Post-marketing studies and surveillance Phase I Phase II Phase III Phase IV healthy volunteers volunteers with the condition 1,000 5,000 volunteers with the condition 5,000 10,000 compounds narrowed down to ~250 5 compounds 1 approved drug 3-6 years 6 7 years 1.5 years SOURCE: Adapted by MedPAC from Pharmaceutical Research and Manufacturers of America. 19
20 Price of Oncology Drugs per Life-Year Gained SOURCE: David Howard, Peter Bach, Ernst Berndt, and Rena Conti, Pricing in the Market for Anticancer Drugs, Journal of Economic Perspectives, vol. 29, no. 1 (Winter 2015):
21 Supply-Side Factors Influencing Prices Increasing complexity of biopharmaceuticals Emphasis on treatments for small disease populations (e.g., orphan drugs), often with few competing therapies Patents and temporary monopolies granted by the government Consolidation within biopharmaceutical industry Changes in the drug supply chain 21
22 Demand-Side Factors Influencing Prices Shift from out-pocket purchases by consumers to a third-party payment system Shift from private to public insurance Consolidation in the insurance industry Discounts and rebates mandated by law (Medicaid, VA, DOD, 340B program) Increased demand as the population ages 22
23 Who Gets What Rebate? Factors influencing rebates Trends over time Public-sector rebates 23
24 Factors Influencing Rebates Proprietary Ability of a payer to grow market share for the manufacturer s drug Ability of a payer to move market share Encouraging use of one manufacturer s drug over competing therapies 24
25 Tools Payers Use in Negotiating Rebates Formulary management tools Exclusion of competing drugs from the formulary Preferential tier placement on the formulary, with lower cost sharing for the consumer Utilization management tools, such as prior authorization, for competing drugs Other factors Evidence of comparative effectiveness or clinical preferences Access to needed drugs for plan members Marketing considerations 25
26 Estimated Rebate Amounts As Percentage of Drug Costs by Category 33% 15% 17% 11% Share of Total Drug Spend (2010) Share of Brand Drug Spend (2010) Share of Brand Drug Spend for Top Classes* (2010) Illustrative Rebate for Drug with Competition * Refers to the top 53 therapeutic classes of drugs, which accounted for 70 percent of Part D spending in 2010 SOURCE: Adapted from Congressional Budget Office, Competition and the Cost of Medicare s Prescription Drug Program, July 30,
27 Trends in Medicare Part D Rebates, As Percentage of Total Drug Costs 16.6% 16.8% 16.8% 16.8% 16.8% 16.8% 8.6% 9.6% 10.4% 11.1% 12.9% 14.4% 11.3% 11.5% 11.7% Projected SOURCE: Medicare Trustees Report,
28 How Are Drugs Re-Priced? Interaction of price and utilization Price trends over time Factors driving price changes for generics Impact of generic substitution Factors driving price changes for brand drugs, including specialty drugs 28
29 Growth in Drug Prices and Utilization Annual percent change in price and quantity indexes of pharmaceutical and other medical products, index numbers 2009=100 14% 12% Price Index Quantity Index 10% 8% 6% 4% 2% 0% SOURCE: Kaiser Family Foundation analysis of Bureau of Economic Analysis data 29
30 Components of Drug Spending Trend, All Payers, 2015 versus 2014 Unit Cost Utilization 17.7% 11.0% 5.2% 3.2% -0.1% 2.0% 1.9% -2.1% 6.8% All Drugs Traditional Drugs Specialty Drugs SOURCE: Express Scripts 2015 Drug Trend Report 30
31 Components of Drug Spending Growth, Contribution to growth in drug spending, by spending growth drivers, in billions, $70 $60 $50 $40 $30 $20 $10 $0 -$10 -$20 -$30 -$40 Generics New Brands Protected Brands Price Protected Brands Volume Patent Expirations $26.3 $16.6 $17.9 $15.6 $20.3 $20.2 -$1.4 $4.6 $6.4 $5.7 $6.5 $10.4 $7.2 $8.5 $5.7 $9.5 -$4.2 -$2.9 -$2.1 -$0.7 -$14.7 -$11.9 -$14.3 -$19.6 -$ Source: IMS Institute for Healthcare Informatics. Medicines Use and Spending Shifts: A Review of the Use of Medicines in the U.S. in Peterson-Kaiser Health System Tracker 31
32 Drug price index equal to 1.0 at the start of the Part D program Medicare Part D Drug Price Trends, by Brand-Generic-Biological Status, Biologics* Single source brand name All Part D covered drugs Generic drugs 15% NOTE: Chain-weighted Fisher price indexes. 32 * The shift in biologics price index in October 2012 is due in part to a change in how prescription quantifies were reported for Avonex. SOURCE: Adapted from MedPAC, Report to the Congress: Medicare Payment Policy, March 2016, Figure 13-8 (Acumen LLC analysis for MedPAC)
33 Drug price index equal to 1.0 at the start of the Part D program Part D Drug Price Trends, with Effects of Generic Substitution, All drugs and biologics All drugs and biologics accounting for generic substitution 15% 0.70 NOTE: Chain-weighted Fisher price indexes. 33 SOURCE: Adapted from MedPAC, Report to the Congress: Medicare Payment Policy, March 2016, Figure 13-7 (Acumen LLC analysis for MedPAC)
34 Factor Driving Generic Price Changes Number of generic manufacturers in market Timing of generic approvals Special circumstances Markets with limited entry of generics Mergers and acquisitions, resulting in market concentration Shortages resulting from permanent or temporary market exit Special cases of new patents or market exclusivity (e.g., asthma drugs) 34
35 Prices Relative to Number of Generic Entries Average relative price per dose 94% 52% 44% 39% 33% 26% 23% 6% Number of generic manufacturers SOURCE: MedPAC, based on FDA analysis of retail sales data from IMS Health, IMS National Sales Perspective, , extracted February
36 Brand Share After Patent Expiration SOURCE: IMS Health, National Prescription Audit, February 2011, used from The Use of Medicines in the United States: Review of 2010, IMS Institute for Healthcare Informatics. 36
37 Factors Driving Generic Substitution Traditional Drugs Automatic substitution by pharmacists with patient consent, based on state laws Biosimilars Estimates of lower prices: 20% to 40% (CBO, European experience) FDA policies on interchangeability State laws on substitution of biosimilars Consumer and prescriber acceptance Public and private insurance rules 37
38 Factors Driving Brand Price Changes Introduction of competing therapies Other changes in competitive environment Negotiations with PBMs on behalf of plans and employers Stage in patent protection cycle 38
39 Price Increases, Diabetes Drugs, Source: Alliance of Community Health Plans, from Medi-Span Price Rx. Note: Figures reflect wholesale acquisition cost. Price modifications will alter the values reflected above. 39
40 Components of Diabetes Spending Growth, In billions of dollars 40
41 Changes in MS Drug Spending, In billions of dollars 41
42 MS Drug Prices from FDA Approval Date $70,000 $60,000 $50,000 Betaseron Avonex Copaxone Rebif Tysabri Extavia Gilenya Aubagio Tecfidera $40,000 $30,000 $20,000 $10,000 $0 SOURCE: D Hartung et al., The cost of multiple sclerosis drugs in the US and the pharmaceutical industry, Neurology 84, May 26, 2015,
43 Do Payer Actions Affect Patient Access? Utilization management Decisions by payers to raise or lower access barriers (e.g., PA criteria) in concordance with price negotiations (e.g., new hepatitis C drugs) Impact of price changes on the cost to consumers Varying use of coinsurance versus copay Impact of closed and open formularies on consumers Effectiveness of appeals and exceptions 43
44 Express Scripts Plan Management Strategies Average annual increase in per-member per-year spending, , compared to overall U.S. trend of 5.2% 12.9% 5.6% 3.3% Unmanaged Plans Managed Plans Tightly Managed Plans SOURCE: Express Scripts 2015 Drug Trend Report. 44
45 Hepatitis C Multiple Sclerosis Rheumatoid Arthritis Cancer Formulary Coverage of Specialty Drugs Varies Across Medicare Part D Plans, 2016 Plans listing drug on formulary in 2016 Plans not listing drug on formulary in 2016 Harvoni Sovaldi Viekira Pak Copaxone Tecfidera Avonex Humira Enbrel Orencia Gleevec Revlimid Zytiga NOTE: Analysis includes 20 national and near-national stand-alone prescription drug plans in Baltimore, MD (zip code 21201). SOURCE: Georgetown/Kaiser Family Foundation analysis of 2016 Medicare Plan Finder data. 45
46 Difference Between the Lowest and Highest Out-of-Pocket Monthly Cost, Brand Drugs, Medicare Part D, 2016 Crestor (high cholesterol) Januvia (diabetes) Advair Diskus (asthma) $29 $47 $56 $29 $47 $86 $31 $47 $154 $382 Part D enrollees out-ofpocket costs in 2016: Lowest cost when on formulary Median cost when on formulary Lantus Solostar (diabetes) Namenda (Alzheimer's disease) $29 $60 $40 $172 $142 $173 $430 $392 Highest cost when on formulary Highest cost when not on formulary Spiriva (COPD/emphysema) $33 $181 $472 $1,271 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 NOTE: Analysis includes 20 national and near-national stand-alone prescription drug plans in Baltimore, MD (zip code 21201) and reflects pricing at a Rite Aid pharmacy in this zip code. SOURCE: Georgetown/Kaiser Family Foundation analysis of 2016 Medicare Plan Finder data. 46
47 Future Projected Trend, All Payers, Trend Forecast: Traditional Drugs Trend Forecast: Specialty Drugs 17.4% 16.8% 17.2% 0.4% 0.7% 1.3% SOURCE: Express Scripts 2015 Drug Trend Report 47
48 What Does the Future Hold? Factors to watch that will influence trends Approvals of new drugs (brands, generics, biologics, biosimilars) Trends in drug benefit management by public and private payers Price sensitivity by consumers and prescribers Price transparency Evidence on comparative effectiveness Innovations in value-based purchasing 48
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