Over 30 years of reporting on Congress, federal agencies and the White House for corporate America as well as national trade and professional associations.

The 21st Century Cures Act: FDA Implementation One Year Later

P&T Journal-March 2018 for the original article go HERE (https://www.ptcommunity.com/journal/article/full/2018/3/149/21st-century-cures-act-fda-implementation-one-year-later?utm_source=PT_NL_18-03-06_ASM_A&utm_campaign=PT+NL+18-03-06&utm_medium=email)
Some Action, Some Results, Some Questions
Stephen Barlas 
Last July, Mallinckrodt announced that its regenerative skin tissue product StrataGraft had received a regenerative medicine advanced therapy (RMAT) designation from the Food and Drug Administration (FDA).1 The RMAT designation was established in the 21st Century Cures Act,2 the bill passed by an overwhelming vote in Congress in December 2016 and signed by President Barack Obama amid praise from industry and patient advocacy groups. The bill opened the door to a grab bag of FDA regulatory initiatives, including the new RMAT designation, aimed at making it easier, faster, and cheaper for drug manufacturers to introduce new products, such as StrataGraft, a cell-based tissue graft that would provide a treatment for burn victims that does not exist today. By bestowing the RMAT designation, the FDA put Mallinckrodt on a path to earn priority review and/or accelerated approval of the product.

Since the start of 2017, the FDA has awarded 13 RMAT designations out of approximately 43 applications, according to the agency. Michael Werner, Co-Founder and Senior Policy Counsel for the Alliance for Regenerative Medicine (ARM), says the FDA “has moved very, very quickly to implement statutory language from the Cures bill.”

The establishment of the RMAT designation was one of about 60 initiatives the Cures Act authorized the FDA to take. The key provisions in the law are found in Title III, Part II, which contains Subtitles B–G, each of them containing multiple requirements. Subtitle B is “Advancing New Drug Therapies,” Subtitle C is “Modern Trial Design and Evidence Development,” and Subtitle D is “Patient Access to Therapies and Information.” Each contains provisions concerning items such as qualification of drug development tools, real-world evidence (RWE), standards for regenerative medicine, and grants for continuous manufacturing. Subtitle F contains provisions on medical device innovation.2

 A year into implementation, the FDA has already chalked up some accomplishments, such as launching the RMAT designation. But implementation of the nearly 60 “to-do” items in critical Title III appears to be moving slowly in some areas and faster in others, in some cases because of the long lead times Congress allowed for FDA action and in other cases because of personnel limitations.
Where implementation has been minimal may have something to do with the multiplicity of open jobs at the FDA. “It is hard for me to argue that if we are down hundreds of slots in our drug center, for example—and I think that is what you refer to—that that doesn’t have an impact on the overall operation,” FDA Commissioner Scott Gottlieb, MD, told the House Energy and Commerce Committee on November 30 when he provided an update of progress a year after the bill passed Congress.3

“It is my opinion that Commissioner Gottlieb is leading the charge on implementation and has energized FDA staff with great expectations and a sense of possibility due to the Cures Act,” says Mark McLellan, Chairman of the FDA Science Advisory Board and Vice President for Research at Utah State University. “Regarding personnel limitations, the board is on record with concerns regarding hiring limitations and challenges as seen over the years.”

Many of the 60 initiatives under Title III were supposed to be funded (i.e., staff hired) with money from a $500 million Innovation Fund, which would be available over 10 years starting in fiscal year (FY) 2017, which ended last September 30.2 But the money has to be appropriated each year by Congress, and the annual amounts—$20 million in FY 2017 and $60 million in FY 2018—are fairly minimal. The FDA has received the first $20 million. However, Congress must appropriate FDA Innovation Funds every year, and that is no sure thing.

The FDA can use its base budget from Congress to fund Title III programs. The Center for Drug Evaluation and Research (CDER) had a $1.4 billion budget in FY 2017, while the Center for Biologics Evaluation and Research (CBER) was funded at $360 million. Some of the Title III sections concern CBER programs. However, it is a bit more problematic for the FDA to take user fees that drug companies pay to the FDA and apply them to Cures Act programs because those user fees, totaling $866 million in FY 2017 for CDER, comprise a big percentage of the FDA’s operational budget and are generally tied to commitments the FDA made to the pharmaceutical industry when the two sides negotiated a new user fee agreement in 2016 prior to the Cures Act being passed. Nonetheless, some of the user fee commitments were negotiated with Cures Act provisions somewhat in mind.

Malcolm Bertoni, the FDA Associate Commissioner for Planning, explained the complexity surrounding funding for the Innovation Fund when he addressed the FDA’s Science Board on May 9, 2017. He stated, “That complexity is compounded by the uncertainty introduced by the transition to a new administration and the uncertainty in how budget priorities are going to play out, as well as the uncertainty about the reauthorization of the user fee programs and whether the current draft legislation will pass as written.”4

Oncology Center for Excellence: A Marquee Provision

At the House hearings at the end of November, Dr. Gottlieb highlighted the FDA’s “standing up” of its new Oncology Center for Excellence (OCE) as “one of our first achievements” related to the Cures Act.3 Actually, former FDA Commissioner Robert M. Califf, MD, announced the establishment of the OCE six months before Congress passed the Cures Act, in good part to support the National Cancer Moonshot Initiative established by President Obama in 2017 and spearheaded by Vice President Joe Biden. What the Cures bill did was require the FDA to create additional centers of excellence patterned after the OCE. That has not happened. Dr. Gottlieb noted the FDA is “contemplating” similar centers for immunology and neuroscience.3

The Cures Act did not provide the FDA with money for the OCE; however, the National Institutes of Health (NIH) was tasked with sharing some of its $1.8 billion Moonshot money (over 10 years) with the OCE. The NIH received $4.8 billion over 10 years for four programs, including the Cancer Moonshot (see related coverage on page 131 of this issue).2 At the House hearings, Dr. Gottlieb explained, under questioning from U.S. Representative Diana DeGette (D-Colorado), “There have been some challenges associated with transferring those funds to FDA, some legal challenges.”3 He was referring to the transfer of Moonshot money to the OCE. The implication was that the OCE has been hamstrung, its small budget of $3.6 million in FY 2017 undoubtedly less than the FDA hoped for when it expected an infusion of Moonshot funds.

Reflecting its underfunded status, the OCE has nine employees to date in a full-time but “acting” capacity. Richard Pazdur, MD, was named the permanent Director on January 19, 2017, but he also serves as Acting Director of the Office of Hematology and Oncology Products at CDER. So his time is split between the two offices.

The OCE appears to be a promising model. It apparently made a major contribution when the FDA approved tisagenlecleucel (Kymriah, Novartis) in late August for certain pediatric and young adult patients with a form of acute lymphoblastic leukemia. At the time, the FDA called the approval “historic,” making it the first gene therapy available in the United States, ushering in a new approach to the treatment of cancer and other serious and life-threatening diseases.

Before the House committee, Dr. Gottlieb called the OCE’s role in the approval of tisagenlecleucel “instrumental” and stated, “I think the essential point is the center allows us to consolidate the clinical review and take a more multidisciplinary approach to how we look at the evaluation of efficacy and safety around these products. And we do think that this kind of center approach represents the future of how we want to approach other therapeutic spaces.”3

In December 2016, the American Society for Clinical Oncology (ASCO) issued a press release calling the Cures Act “historic.” Despite Dr. Gottlieb’s praise, ASCO spokeswoman Rachel Martin says, “Unfortunately we don’t have enough information to provide additional comments on the OCE.”


Just as the existence of the OCE predated passage of the Cures Act, so did the FDA’s biomarker program, which has been in place since 2006 when a White Paper was issued. Biomarkers are seen as a means of telling drug developers earlier whether their drug may have toxicity or that it may not work at all, and to get that early read on what’s going to be successful. In the past, biomarkers have been developed by single companies conducting clinical trials and have been, for the most, proprietary. But rousing successes on biomarkers have been few and far between. At the House hearings, U.S. Representative Eliot Engel (D-New York) said, “My understanding is that a lack of taxonomy and evidentiary standards has made it difficult to develop workable biomarkers that can be replicated during the drug approval process.”3

The Cures Act anticipates consortiums applying for biomarker qualification, and once accepted and validated, those biomarkers would be publicly available, allowing any company to use them. Dr. Gottlieb said the FDA currently has eight biomarkers under consideration as part of the new three-step qualification process endorsed by the Cures Act. The sponsors of those eight applications have not been made public.

Besides establishing this new qualification process, it is not clear if the FDA is using standards different than it was using before. The minimal FDA biomarkers qualification website is silent on that. So it is hard to tell whether the 21st Century Cures bill has led to substantive changes in qualification or to bureaucratic changes only, given that there has been some “office shuffling” within the FDA to ostensibly ease the way for biomarker approval. What is known is that the FDA has progressed further with clinical outcomes assessment (COA) tools that are linked with biomarkers in the Cures Act provision on “drug development tools.” The first COA from the COA Drug Development Tool Qualification program has been accepted—the Symptoms of Major Depressive Disorder Scale—and the agency expects to act on that submission soon, according to Dr. Gottlieb.3
Dr. Gottlieb was a little defensive with regard to progress on drug development tools, both biomarkers and COAs. “So that might not sound like a big number,” he explained to the House committee, referring to the number of applications in the new qualification pipeline. “In our estimation, it is a profound number given the fact that these are still early days in the development of these new frameworks, and we are seeing this level of interest.” 3

Real-World Evidence

While the promise of biomarkers is that they will shorten clinical trials, clinical trials will remain the sine qua non of drug development. Sections 3021 and 3022 of the Cures Act focus on novel clinical trial designs and RWE, respectively.2 These have been hot topics, especially RWE, considered to be post-market data from health insurance databases, disease registries, and other compendia that can be used by the FDA, instead of clinical trials, to approve new uses of existing drugs. The Cures Act gives the FDA two years to establish a draft framework for a program to evaluate the potential use of RWE.

The FDA has made more progress on RWE for medical device approval than for drug approval. There is final guidance on the former, but none on the latter. The FDA actually used RWE, in this case data from the Transcatheter Valve Therapy Registry, a partnership of the American College of Cardiology and the Society of Thoracic Surgeons, as part of the rationale for its approval last June of the Sapien 3 transcatheter heart valve (Edwards Lifesciences), which is implanted in high-risk patients whose surgically placed aortic or mitral bioprosthetic valves are old and worn out.

On the drug side, with regard to RWE, the FDA has established a big data analytics initiative called Information Exchange and Data Transformation (INFORMED), which is being run out of the OCE.5 One aspect of that effort is a collaboration with Flatiron Health to examine how RWE can be used to gain insights into the safety and effectiveness of new cancer therapies. In addition, in June 2017, the FDA announced a partnership with CancerLinQ, ASCO’s big data initiative. The initial focus will be on immunotherapy agents approved for melanoma.6

RMAT Designation

Moving from data to disease, the FDA established the RMAT designation program, as authorized in section 3033 of the Cures Act.2 The program covers therapeutic tissue engineering products, human cell and tissue products, and combination products, as well as gene therapies that lead to a durable modification of cells. To qualify, a product must be:
  • Defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products;
  • Intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and
  • Preliminary clinical evidence indicates the product has the potential to address unmet medical needs for such a disease or condition.
The RMAT program is housed at CBER. Products granted designation are eligible for increased early interactions with the FDA, including all the benefits available to breakthrough therapies. Because these are considered investigational products, the FDA does not identify which products have gained RMAT designations unless the company makes an announcement itself, as Mallinckrodt did with StrataGraft.1

In November 2017, the FDA released two draft guidance documents describing the expedited programs available to sponsors of regenerative medicine and describing how CBER will encourage flexibility in clinical trial design to facilitate the development of data to demonstrate the safety and effectiveness of regenerative medicine therapies. The first addresses how the FDA intends to simplify and streamline its application of the regulatory requirements for devices used in the recovery, isolation, and delivery of RMATs, including combination products.7 The second draft document describes the expedited programs that may be available to sponsors of regenerative medicine therapies, including priority review and accelerated approval.8

Michael Werner, of ARM, explains that the RMAT designation is significant for two reasons. First, it sends a signal to the regulated industry and patients waiting for therapy that there will be a specific pathway for new products. There wasn’t one before. That puts the U.S. on the same footing as countries such as Japan, which have been more aggressive. Second, the designation allows a company to have meetings early in the clinical trial process with the FDA, which are, according to Werner and many others, “a real factor in determining success.” Designees also acquire the ability to use RWE, which is particularly important where a chemical is seen as having an impact on a rare disease but where recruitment for large clinical trials is close to impossible. There is also access to expedited approval pathways.

Peter Marks, MD, Director of CBER, acknowledged to the FDA’s Science Advisory Board last May that the scientific challenges behind regenerative therapies are “significant.” One of the key challenges is trying to facilitate reproducibility in manufacturing. Dr. Marks said CBER was “in the process now of working toward getting these partnerships in place because we very much agree that having development in a collaborative manner of standards that help with the development of these products will facilitate reproducible manufacturing and will hopefully take some of the uncertainty out of product development.”4 With that challenge in mind, the FDA awarded a $2.3 million contract in November to Nexight Group LLC, which has one year to write a report on the standards landscape for regenerative medicine therapies.

While the Cures Act seeks to set the stage for manufacturing improvements for regenerative products via an initial framework of consensus standards, there is a Cures Act provision that jumps directly into manufacturing, in this case what is called continuous manufacturing. Continuous manufacturing—a technologically advanced and automated manufacturing method—provides a faster, more reliable way to make pharmaceuticals. This can help reduce drug shortages and recalls related to problems with product or facility quality. During FY 2017, CDER granted an award to the University of Connecticut to develop and build a continuous manufacturing platform with modular components for complex dosage forms, as well as to create a library based on graphical user interfaces. These activities support quality-based risk assessment and provide a roadmap to modernize technology and solve continuous manufacturing challenges for complex dosage forms. They can also help the agency with review processes and provide necessary information to guide policy development.

The FDA has made significant progress implementing some of the 60 provisions of the 21st Century Cures Act. To the extent that it could have been expected to make more progress in some areas, the fault lies partly with funding shortfalls, which is no fault of the agency’s. Those money problems may be remedied. That will be up to Congress.
Author bio: 
Mr. Barlas is a freelance writer in Washington, D.C., who covers issues inside the Beltway. Send ideas for topics and your comments to sbarlas@verizon.net.


  1. Mallinckrodt Pharmaceuticals. U.S. FDA designates Mallinckrodt’s StrataGraft as regenerative medicine advanced therapy July 18, 2017; Available at: www.mallinckrodt.com/about/news-and-media/2286957 (link is external). Accessed January 16, 2018
  2. Upton F.H.R. 6—21st Century Cures Act. 114th Congress (2015–2016) July 13, 2015; Available at: www.congress.gov/bill/114th-congress/house-bill/6/text (link is external). Accessed January 16, 2018
  3. Committee on Energy and Commerce Subcommittee on Health. Implementing the 21st Century Cures Act: An update from FDA and NIH November 30, 2017; Available at: https://energycommerce.house.gov/hearings/implementing-21st-century-cures-actupdate-fda-nih (link is external). Accessed January 16, 2018
  4. Food and Drug Administration. Transcript: meeting of the Science Board to the FDA May 9, 2017; Available at: www.fda.gov/downloads/AdvisoryCommittees/CommitteesMeetingMaterials/ScienceBoardtotheFoodandDrugAdministration/UCM563680.pdf (link is external). Accessed January 16, 2018
  5. Food and Drug Administration. Information Exchange and Data Transformation (INFORMED) May 10, 2017; Available at: www.fda.gov/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/OCE/ucm543768.htm (link is external). Accessed January 17, 2018
  6. American Society of Clinical Oncology. CancerLinQ partners with FDA to study real-world use of newly approved cancer treatments June 1, 2017; Available at: www.asco.org/about-asco/press-center/news-releases/cancerlinq-partners-fdastudy-real-world-use-newly-approved (link is external). Accessed January 17, 2018
  7. Food and Drug Administration. Evaluation of devices used with regenerative medicine advanced therapies: draft guidance for industry November 2017; Available at: www.fda.gov/downloads/BiologicsBloodVaccines/GuidanceComplianceRegulatoryInformation/Guidances/CellularandGeneTherapy/UCM585417.pdf (link is external). Accessed January 17, 2018
  8. Food and Drug Administration. Expedited programs for regenerative medicine therapies for serious conditions: draft guidance for industry November 2017; Available at: www.fda.gov/downloads/BiologicsBlood-Vaccines/GuidanceComplianceRegulatoryInformation/Guidances/CellularandGeneTherapy/UCM585414.pdf (link is external). Accessed January 17, 2018

Talk of a “Default” Drug Formulary Rattles Industry

P&T Journal-February 2018 for the original article go HERE.

CMS Could Move in That Direction for Marketplace Plans After 2019, but the Discussion Has Already Started

The Trump administration’s creep toward significant prescription drug policy changes across federal health programs has rattled drug industry sectors up and down the distribution pipeline. In its proposed regulatory initiatives for the federal health insurance exchanges in 2019,1 the Centers for Medicare and Medicaid Services (CMS) startled manufacturers, pharmacy benefit managers (PBMs), P&T committees, and pharmacies alike by promising to consider a federal default prescription drug benefit in years after 2019. The agency wants that discussion to begin now, and the chance that a national formulary will be dictated for the marketplace plans, along with drug price transparency changes that remain unspecified in the proposed rule, would amount to a small earthquake for the pharmaceutical industry.

Any federal standard might impinge on the current flexibility that marketplace insurers have to develop formularies. The CMS doesn’t provide data to explain why it is holding out the possibility of a federal default standard, which would ostensibly crimp state regulatory flexibility over the marketplace, except to cite an Institute of Medicine report from 2011 called Essential Health Benefits: Balancing Costs and Coverage.2 That report advocated a federal standard for the 10 essential health benefit (EHB) categories that each qualified health plan (QHP) must offer to “better align medical risk in insurance products by balancing costs to the scope of benefits.” Pharmaceuticals make up one of the 10 categories. Currently, QHPs in every state must at a minimum provide all the benefits in a state’s benchmark plan. The benchmark plans vary from state to state.

In its proposed rule for 2019 exchange policies, the CMS says it might establish a federal default standard for all 10 EHB categories. But the agency appears to single out the pharmaceutical category by implying that even if it doesn’t mandate a federal default standard for all 10, it may do so for drugs alone. The proposed rule states: “For now, we solicit initial comments on this longer-term approach, particularly with regards to setting a national prescription drug benefit standard under a Federal default EHB definition and the tradeoffs in adjusting benefits from the current EHBs.” The use of the word “particularly” seems to single out prescription drugs compared with the other nine categories.

The prospect of a federal default standard for drugs has been taken to mean that the CMS would establish an arbitrary, restrictive drug count for each medication category and class, eliminating the flexibility QHPs have now. In doing so, the government might favor certain pharmaceuticals, perhaps using a “value-based” analysis to determine drug placement. The Pharmaceutical Research and Manufacturers of America (PhRMA) “was both surprised and dismayed that CMS stated it is considering adopting a ‘national prescription drug standard under a Federal default EHB definition’ for some benefit year after 2019,” Karyn Schwartz, PhRMA’s Vice President for Policy and Research, wrote in response to the proposed rule.

It isn’t just drug industry partisans who are worried. Patient advocacy groups have also reacted negatively. “Developing a ‘federal default plan,’ which ironically would be the antithesis of providing state flexibility, raises red flags because it most likely would not be expansive and meet the needs of people living with serious and chronic conditions,” said Beatriz Duque Long, Senior Director of Government Relations for the Epilepsy Foundation, who was quoted in a press release expressing opposition from a wide range of groups.3 “It also could lead to the creation of a national drug formulary, which we strongly oppose because it would limit access to only a select list of drugs and fail to meet individual patients’ health care needs.”

Any new national prescription drug benchmark, which all states might have to follow, would undercut the role of P&T committees, which QHPs are required to use for the purposes of considering newly approved medications and establishing treatment guidelines. P&T committees also play a role with regard to “nondiscrimination” requirements, which prohibit excessive patient cost-sharing, excessive utilization management techniques (such as prior authorizations), and placement of every drug that treats a certain condition on the highest tier.

“Express Scripts has serious concerns with any proposal attempting to set a national prescription drug benefit because we have always believed that P&T committees should play an integral role in developing clinically appropriate formularies that meet the needs of plan sponsors’ diverse patient populations,” wrote Sergio Santiviago, Director of Government Affairs for Express Scripts.

PBMs, QHPs, and others appear to believe that a federal default standard for drugs would be even worse than the current standard, which gives states two options. A national benchmark is presumed to be an effort to narrow formularies and cut the legs out from under P&T committees that have flexibility to shape plans in a given state. In fact, patient advocacy groups, pharmaceutical manufacturers, PBMs, and others are pressing the CMS to go in the opposite direction by broadening allowable exchange formularies, not contracting them.

What is likely to happen now is a much more in-depth, national discussion about whether the 13 million Americans who had exchange policies in 2017 were able to access drugs they needed at an affordable price (that 13 million is almost certain to decrease in 2018 and beyond because Congress canceled the requirement to obtain coverage or pay a fine). Any analysis will examine trade-offs such as the relationship between formulary construction and consumer drug prices underlined by an examination of tiering, copayments, and premiums.

Under current law, states establish benchmark plans that contain benefits in 10 categories. Those benefits must meet federal minimum standards. One category is pharmaceuticals. There, the benchmark must have: 1) one drug in every United States Pharmacopeia (USP) category and class, or 2) the same number of prescription drugs in each category and class as the EHB benchmark plan. There are additional requirements, too, related to P&T committees, exceptions for drugs not on a formulary, appeals to plans, and other issues

Are Drug Costs for Exchange Consumers a Problem?

There is nothing preventing a QHP from offering as many drugs in a category and class as it wants. Nor does the CMS have any data on how many QHPs offer only one drug in each USP category and class. With regard to cost, every exchange member has an annual out-of-pocket dollar limit. For the 2017 plan year, that limit was $7,150 for an individual plan and $14,300 for a family plan.4 How quickly someone reaches those caps depends on his or her plan’s deductibles and coinsurance.

Exchange plan deductibles cut more deeply into consumer pockets when it comes to drugs. Each QHP offers four levels of care based on cost, the so-called four metal categories: bronze, silver, gold, and platinum, with platinum having the highest premiums, lowest deductibles, and lowest coinsurance payments. But deductibles at all four levels have been increasing. Deductibles for individuals enrolled in the lowest-priced Patient Protection and Affordable Care Act (PPACA) health plans averaged more than $6,000 in 2017. Families enrolled in bronze plans had average deductibles of $12,393, according to a study by the consumer insurance comparison site HealthPocket.5

Those high deductibles take a bigger bite out of pocketbooks in the pharmaceutical category because consumers pay the list price for a drug prior to reaching their deductibles, when they start paying the discounted price the QHP’s PBM has negotiated with the manufacturer. In its comments, PhRMA pointed to an analysis from the actuarial firm Milliman that suggests this shift toward higher-deductible plans has had a disproportionate impact on cost-sharing for medicines. In its analysis, Milliman found that patients in a typical silver plan with a $2,000 deductible paid 46% of their total prescription drug costs while paying less than 30% of their costs for other medical care.6

The proposed rule the Department of Health and Human Services (HHS) issued in November is called the Patient Protection and Affordable Care Act: Benefit and Payment Parameters for 2019.1 Comments were accepted until the end of November and a final rule could come in late winter or early spring 2018, given that QHPs must typically present their initial 2019 plans for approval to HHS by mid-May.

The proposed rule was extremely wide-ranging and technical, covering administrative, financial, medical, and legal issues, from risk adjustment models to medical loss ratio calculations to premium setting to EHB requirements, where states would be able to substitute benefits from other states’ EHB categories into their own benchmark plans, except in the case of pharmaceuticals, or eliminate some offerings within categories—for example, for pregnancy coverage.

The Rationale for the Proposed Rule

The exchanges established by the PPACA and considered a major legacy of President Barack Obama have been under attack since President Donald Trump took office in 2017. The Republican Congress failed to take a sharp legislative ax to the marketplace exchanges, though the requirement that individuals not covered by an employer or Medicare buy policies or pay a tax was canceled by the tax bill Republicans passed at the end of 2017. In the absence of a Congressional blade, the HHS has used its annual responsibility to update the exchanges as the vehicle to suggest changes that, on their face, are pegged as efforts to reduce insurance costs for consumers by increasing flexibility offered to both the states and the insurers, whose numbers have been decreasing as premiums have been rising.

The Republicans have been walking a politically narrow path, not wanting to incur retribution at the polls in 2018 for totally blowing up the exchanges but at the same time wanting to satisfy their base by fulfilling a promise to cancel key aspects of the PPACA. That will not happen legislatively, so the GOP is in fallback mode, depending on the Trump HHS to inject free-market solutions into the exchanges in an effort to stop the bleeding of insurers, put a tighter lid on premium increases, and hopefully induce salutary modifications to insurance policies related to coinsurance and deductions, the latter being particularly troublesome in the area of pharmaceuticals.

The potential replacement of the two-option standard with a new federal prescription drug benchmark and the agency’s stated intention to consider proposals in future rulemaking that would help reduce drug costs and promote drug price transparency are a clear Trump administration effort to continue its recent initiatives aimed at lowering consumer drug prices. The proposed exchange rule’s assault on allegedly high drug prices aligns with the administration’s final rule reducing reimbursement for 340B outpatient drugs and its proposal to force PBMs and Medicare Part D drug plans to convert a significant percentage of manufacturer rebates into pharmacy-counter discounts for seniors.7

But critics believe any attempt to reduce exchange premiums via a federal default drug standard would be a net negative in terms of plan affordability because formularies would contract and coinsurance would increase across all tiers. “We are concerned that efforts to improve plan affordability may focus solely on reducing premiums at the expense of offering meaningful coverage to patients at accessible cost-sharing levels,” wrote Angela Wasunna, Vice President of Global Policy at Pfizer, Inc.

The proposed CMS rule does not answer two very important questions: “what is wrong with the current drug standard,” and “why would a federal drug benchmark be preferable.” As to the first question, there isn’t much substantiation. Take oncology drugs, for example. They are among the top cost drivers among pharmaceuticals. Jennifer Singleterry, Senior Analyst of Policy Analysis and Legislative Support at the American Cancer Society Cancer Action Network, says that studies by her organization show that almost all cancer patients reach the annual out-of-pocket limit. But those patients typically are paying first for expensive diagnostic tests and some medical expenditures before they start racking up drug costs. So by the time they reach expensive cancer infusion drugs, they are already close to or at their cap, and not because of drug costs.

The EHB Category for Drugs

While nearly no one greeted the possibility of a default standard for drugs with cheers, neither is there much love lost for the current federal two-option standard. Although it offers state plans some flexibility, that standard still uses a vilified “drug-count” mechanism, specifying adherence to the USP methodology or “at least” the number of drugs in the state benchmark plan, which is generally based on a typical employer plan. Each plan offered in the state has flexibility regarding the tier where it places each drug. Typically, each formulary has four tiers, with the top tier holding the most expensive drugs with the highest coinsurance. The Kaiser Family Foundation’s 2017 Employer Health Benefits Survey found that 83% of covered workers are in a plan with three, four, or more tiers of cost sharing for prescription drugs.8

“P&T committees consider category and class frameworks, such as USP’s, in addition to a myriad of other information and evidence, and we see no reason why CMS should continue to use a drug-count standard that, at best, is unnecessary, and at worst, undermines the role of the P&T committee and the ability of issuers and their PBMs to negotiate better discounts with manufacturers,” wrote Wendy Krasner, Vice President of Regulatory Affairs for the Pharmaceutical Care Management Association, which represents PBMs.

CVS Health, which has 2.3 million lives under PBM management in the exchanges (18% of the total exchange population), says the current drug-count standard increases costs for plans and patients. CVS’s influence on exchange patients will grow if its acquisition of Aetna is completed, not to mention its influence over Anthem once that insurer gets its IngenioRx PBM up and running in 2019 with the help of CVS Health, which is required to develop and maintain at least 50 formularies for exchange plans in 50 states. This is in stark contrast to the typical employer plan serving workers in different states, which generally adopts a single national formulary. “Not only does the current approach pose operational difficulties and significantly increase administrative costs for issuers, but it also hampers their ability to harness the full power of their enrolled population in negotiating drug discounts with pharmaceutical manufacturers,” wrote Don Dempsey, Vice President of Policy and Regulatory Affairs for CVS Health.

Manufacturers, of course, generally want to see as many branded products as possible in each category, although companies vie with one another within categories to win favorable placement on tiers through higher rebates. But the two-option standard has significant hypothetical limitations in certain categories—oncology, for example. In its comments to the CMS, PhRMA used tyrosine kinase inhibitors (TKIs) as an example. First approved as a treatment for a rare form of blood cancer called chronic myelogenous leukemia (CML), TKIs represented a tremendous, targeted advance over traditional chemotherapy treatments that destroy healthy and cancerous cells indiscriminately. However, despite TKIs’ effectiveness, cancer often develops resistance to an individual TKI over time. Other options have become available. Dasatinib (Sprycel, Bristol-Myers Squibb) is a TKI specifically approved by the FDA for treatment of CML that is resistant or intolerant to prior therapy, including imatinib (Gleevec, Novartis), another TKI that may be considered to fall into the same class. Everolimus (Afinitor, Novaris) is approved for treatment of advanced renal cell cancer after treatment failure of sunitinib (Sutent, Pfizer) or sorafenib (Nexavar, Bayer Healthcare). If only a single drug were available in each class, patients whose cancer had progressed on or proven resistant to that initial treatment would not have access to appropriate care.

However, not everyone agrees that the current two-option benchmark floor presents a problem for patient access. Asked about PhRMA’s example, Mary Gleason Rappaport, Director of Policy Communications for the American Society of Clinical Oncology, replied, “At this point, we’re not seeing treatment access a problem for cancer patients on the exchanges.”

Measures to Improve Drug Price Transparency?

The proposed rule laying out exchange policy modifications also opens the door to drug price transparency measures. CMS seeks comments on ideas to “foster market-driven programs that can improve the management and costs of care and that provide consumers with quality, person-centered coverage,” particularly in relation to value-based insurance design.

Value-based drug contracts are a touchy subject. While drug manufacturers have been partly open to the notion, there has been little uptake, and the methodology used by the Institute for Clinical and Economic Review (ICER) has put it in the crosshairs of the National Pharmaceutical Council. On November 21, 2017, the ICER issued an evidence report for the first two drugs approved for tardive dyskinesia (TD), a repetitive, involuntary movement disorder caused by prolonged use of medications, most commonly antipsychotic drugs, that block the dopamine receptor. Until recently there were no FDA-approved therapies for TD. Valbenazine (Ingrezza, Neurocrine Biosciences, Inc.) became the first FDA-approved drug for TD in April 2017, and deutetrabenazine (Austedo, Teva) was approved for TD in August 2017. The ICER judges the cost-effectiveness of a drug based on gains in quality-adjusted life expectancy. At current pricing levels, however, the estimated lifetime cost-effectiveness of these agents fails by a large margin to meet common cost-effectiveness thresholds.9

That ICER has in effect undermined the appeal of some new drugs (and older ones, too) has encouraged groups such as the Academy of Managed Care Pharmacy (AMCP) to come up with a more amenable measuring stick for the value of drugs. In June 2017, AMCP held a multistakeholder Partnership Forum, “Advancing Value-Based Contracting,” where representatives from health plans and integrated delivery systems, PBMs, data and analytics experts, and biopharmaceutical companies agreed on areas to strengthen and improve value-based contracting (VBC), including: 1) a definition of VBC for facilitating discussion with key policy-makers, regulators, and other stakeholders; 2) strategies for advancing development and utilization of performance benchmarks; 3) best practices in evaluating, implementing, and monitoring VBCs; and 4) action plans to mitigate legal and regulatory barriers to VBC.10

But any move by the CMS to encourage VBC by insurers offering policies on the exchange (or under Medicare, for that matter) would have to involve parallel regulatory action outside the exchanges because federal antikickback and Medicaid pricing rules stand in the way of broader use of VBC.
Rather than focusing on VBC, PhRMA emphasized the cost-minimizing effect of PBMs, generics, and reduced hospitalizations. PhRMA suggested that the CMS somehow incentivize first-dollar coverage of drugs, meaning that they would not be subject to a deductible.

PhRMA makes some reasonable suggestions. And although drug price increases inside the exchanges and outside have moderated, some patient populations are paying eye-popping amounts for prescription drugs—amounts that are untenable for certain economic groups, even with annual caps on spending. A more aggressive cost-limiting approach in some categories is warranted. Whether a federal benchmark standard for drugs would accomplish that remains to be seen. But perhaps it is at least worth discussing.

Author bio: 
Mr. Barlas is a freelance writer in Washington, D.C., who covers issues inside the Beltway. Send ideas for topics and your comments to sbarlas@verizon.net.

Trump Administration Considers New Tariffs on Chinese Aluminum

The Fabricator-December 2017 for the original article go HERE

During his campaign for president, Donald Trump was not quiet about his desire to improve the U.S. trade deficit with its trading partners. In particular, he railed against China on a regular basis. He remains focused on this task, and in late November he asked the U.S. Department of Commerce to begin an investigation into the possible dumping of certain aluminum stock into the U.S. market. If trade penalties result from this investigation, domestic manufacturers may be forced to pay more for aluminum in late 2018 or early 2019.

The Trump administration’s decision to initiate an investigation on whether China is either dumping or subsidizing imports of certain kinds of aluminum in the U.S. will lead to both statistical analysis and political calculation.

To begin, the U.S. Department of Commerce (DOC) will have to see whether unclad and multialloy clad aluminum sheet is being sold here below the price of manufacture (also known as dumping) or if the Chinese government is subsidizing those same aluminum producers. The DOC estimated a dumping margin of between 56.54 and 59.72 percent. Common uses for the products under investigation include gutters and downspouts, building facades, street signs and license plates, electrical boxes, kitchen appliances, and tractor-trailers hauled by semitrucks.

Once the DOC establishes the accuracy of its initial analysis, then the matter goes to the U.S. International Trade Commission (ITC), which decides whether domestic producers of common aluminum alloy sheet are materially injured or threatened with material injury. That decision would be expected to be made within 45 days of the ITC picking up the case. If domestic producers are believed to have suffered, the DOC makes the final determinations regarding dumping, subsidization, and injury. Such a decision likely wouldn’t occur until late 2018 or early 2019.

The Aluminum Association welcomed the investigation, which has some added impetus because the Trump administration initiated it instead of waiting for U.S. aluminum manufacturers to file complaints with U.S. trade officials, which is generally how these investigations get started. Trump railed about Chinese imports while campaigning for president, and the aluminum investigation is the latest evidence of his interest in this area. Trump also has loudly advocated for U.S. manufacturers broadly, and many of them rely on cheap Chinese aluminum.

Where this could get tricky politically is if groups like the National Association of Manufacturers or the Alliance for American Manufacturing oppose new tariffs on Chinese aluminum. Neither of those two groups responded to emails asking for their official positions.

When asked about his group’s position, Francis Dietz, vice president, public affairs, Air-conditioning, Heating, and Refrigeration Institute, responded with a letter his association sent to U.S. Trade Representative Robert E. Lighthizer earlier this year after Trump initiated a national security investigation on imported steel. That letter said in part: “…increasing the cost of steel and aluminum are of great consequence to the HVACR and water heating industry and its consumers.”

Liftoff for the LIFT

Manufacturing USA, the consortium of 14 manufacturing institutes including Lightweight Innovations for Tomorrow (LIFT), which is dedicated to lightweight metals manufacturing research, just released its 2016 annual report. The 2016 report contains an overview of the 14 manufacturing organizations, jointly funded by various federal agencies, with private-sector companies matching $2 for every dollar of federal funding.

LIFT, established in February 2014, concluded its second full year of operation with 10 new projects getting underway, some of them now near completion, according to Joe Steele, LIFT’s communications director. Some of those projects are:
  • A melt processing project team successfully produced ductile cast iron differential cases with walls as thin as 2 mm at a Midwestern foundry. By reducing the wall thickness, the team achieved an overall 40 percent weight reduction on the component.
  • Within the thermomechanical process (TMP) technology area, researchers successfully modeled the TMP history and resulting microstructure for linear friction-welded titanium for a compressor application.
  • The joining and assembly project teams successfully produced a deckhouse prototype for a Coast Guard ship that featured fabricated parts with reduced distortion through the use of new weld and fixturing approaches. Also, new cost modeling tools have been developed and have demonstrated that the new approaches result in significant manufacturing cost savings in the shipyard.
Author bio: 
Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.

Natural Gas Players Oppose Perry Coal/Nuclear Subsidy Proposal

Pipeline & Gas Journal-December 2017 for the original article go HERE.

The natural gas industry is attempting to turn back an attempt by Energy Secretary Rick Perry to in effect subsidize coal and nuclear suppliers to electric utilities at the expense of natural gas suppliers. Perry instructed the Federal Energy Regulatory Commission (FERC) in September to propose a rule to provide rate incentives to electric utilities with a 90-day fuel supply onsite in the event of supply disruptions. That would allow regional transmission organizations (RTOs) and independent system operators (ISOs), which essentially regulate wholesale electric supply and demand in various regions, to adjust rates to benefit utilities dependent on coal or nuclear power.

FERC was taking public comment on its Grid Resiliency Pricing Rule until Nov. 30 and will ostensibly decide whether to adopt Perry’s proposal, modify it or extend consideration of it. Chairman Neil Chatterjee emphasized on a FERC podcast on Oct. 25 that his is an independent agency and indicated that it doesn’t take orders from the Department of Energy. “I remain committed to upholding the Commission’s independence when considering the DOE NOPR, and the many other issues that may come before us,” he said.

Perry’s charge to the FERC follows a report issued by the Department of Energy this summer which reported on the state of the electric grid and its reliability, and surmised future reliability problems based on projected retirements of older coal plants, particularly. The report alluded to the impact, for example, of the early 2014 Polar Vortex, an extreme cold weather event, during which PJM Interconnection (PJM), a major RTO, struggled to meet demand for electricity because a significant amount of generation was not available to run.

According to the DOE staff report, the loss of generation capacity could have been catastrophic, but several fuel-secure plants that were scheduled for retirement were called upon to meet the need for electricity: American Electric Power reported that it deployed 89% of its coal units scheduled for retirement in 2014 to meet demand during the Polar Vortex, and Southern Company reported using 75% of its coal units scheduled for closure.

Paul Bailey, president and CEO, American Coalition for Clean Coal Electricity, explained at a recent hearing of the House Energy & Commerce Committee that the nation’s coal fleet is comprised of 1,004 individual generating units located at 377 power plants that represent a total of 262,000 megawatts (MW) of electric generating capacity. About 60,000 MW of coal-fueled generating capacity (20% of the coal fleet) had retired by the end of last year. An additional 41,000 MW have announced plans to retire. Altogether, these retirements represent one-third of the nation’s coal fleet.

In comments to FERC, the Interstate Natural Gas Association of America (INGAA) said the DOE proposal “disparages the reliability of natural gas-fired generators, and implicitly the reliability and resilience of the natural gas supply and delivery system, in attempting to make the case for the proposed grid reliability and resiliency rule.”

In fact, INGAA pointed to a recent DOE report which concluded: “Hurricanes Irene and Sandy did not have a major impact on natural gas infrastructure and supplies in the Northeast.” The group suggested instead that FERC ask RTOs and ISOs to report on how they value reliability and that FERC use that information to move forward with any rulemaking, but on a fuel-neutral basis.

The Natural Gas Supply Association argued, “The facts are impressive with interstate pipelines delivering 99.79% of firm contractual commitments over the last decade – a number that includes fulfilling firm shippers’ requests during the Polar Vortex when natural gas demand was at a record high and 9% higher than the previous winter.”

NGSA noted many generators in ISO and RTO markets choose to rely upon interruptible or secondary firm transportation service instead of primary firm transportation service so they may be more vulnerable to supply interruptions. But it is their decision to choose those contracts.

Moreover, the DOE Grid Study recounts that “many coal plants could not operate due to conveyor belts and coal piles freezing” during the Polar Vortex and “three nuclear reactors totaling 2,845 MW of capacity were shut down, and five operated at reduced levels due to disruptions in transmission infrastructure, reduced demand from distribution outages, and precautionary measures to protect equipment” during Superstorm Sandy.

The House Energy & Commerce Committee held two hearings in September and October on electric grid reliability. At one on Oct. 13, Marty Durbin, executive vice president and chief strategy officer, American Petroleum Institute, argued that increasing use of natural gas in electric power generation has not only enhanced the reliability of the overall system, it’s also provided significant environmental and consumer benefits. “As an example, since 2008 average annual wholesale power prices in PJM have decreased by almost 50%,” he related.

Major consumers of natural gas weighed in against Perry’s proposal. The Process Gas Consumers Group, composed of manufacturers who rely on natural gas for electric plants, stated FERC has already taken a number of steps to ensure reliability. For example, the commission approved the New England ISO’s “pay for performance” program and winter reliability programs which provide financial incentives for generators to be prepared to perform in extreme weather events.

Also, to handle issues related to possible natural gas supply interruptions, FERC issued an order to allow increased communication between electric system operators and pipeline operators, increasing electric operators’ information about gas pipeline status in dispatching gas-fired generators.

Solar and wind energy providers and environmental groups such as the Natural Resources Defense Council oppose the Perry proposal.

BLM Suspends Implementation of Methane Flaring Rule

The Bureau of Land Management (BLM) suspended and extended the deadlines for some provisions in its November 2016 final rule on methane flaring from gas wells on public lands. The 2016 final rule became effective on Jan. 17, 2017. Many of the final rule’s provisions are to be phased in over time and were to become operative on Jan. 17, 2018.

A coalition of gas and oil groups have challenged the legitimacy of the rule, arguing the Environmental Protection Agency (EPA) has the authority under the Clean Air Act to regulate methane emissions, the major contaminant among greenhouse gases. That was the argument made in April 2016 by The Independent Petroleum Association of America (IPAA), the Western Energy Alliance (WEA), the American Exploration and Production Council, and the U.S. Oil and Gas Association.

They argued that instead of worrying about methane emissions, the BLM would be better served directing its resources toward processing applications for the pipeline rights-of-ways across federal and Native American lands that are essential for the building of gas-capture technology. “Timely processing of such applications would have a much greater and more immediate impact on reducing flaring levels than BLM’s proposed one-size-fits-all, command-and-control regulation,” the groups said.

The BLM’s rule on venting and flaring of methane was also the subject of legal action undertaken by the WEA, IPAA and some of the western states most prominently affected. This litigation has been consolidated and is pending in the U.S. District Court for the District of Wyoming. The groups filed a separate request in federal court for an injunction and a stay of the rule, but those motions were denied by the court on Jan. 16, 2017 and the rule went into effect the following day.

Although the court denied the motions for a preliminary injunction, it expressed concerns that the BLM may have “usurped” the authority of the EPA and the states under the Clean Air Act, and questioned whether it was appropriate for the 2016 final rule to be justified based on its environmental and societal benefits, rather than on its resource conservation benefits alone. The next stage in the litigation will be the court’s consideration of the merits of the petitioner’s claims.

The possibility that the BLM rule could be overturned led to the BLM’s decision on Oct. 16, 2017 to delay until Jan.1, 2019 implementation of parts of the rule that would have gone into effect on Jan.1, 2018. In the meantime, the BLM will review the Obama administration rule to determine where it falls out of compliance, if it does, with President Trump’s Executive Order 13783, entitled, “Promoting Energy Independence and Economic Growth.”

Section 7(b) of Executive Order 13783 directs the Secretary of the Interior to review four specific rules, including the 2016 final rule, to determine whether to revise, suspend or rescind those rules. The result of that examination may lead to the BLM proposing a revision of the methane rule.

Author bio: 
Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.

Medicare Allows Add-On Payments to Hospitals for Some New Products

P&T Journal - November 2017 for the original article go HERE.

For the past few years, the controversy over expensive new pharmaceuticals has involved concerns over the cost of and access to cancer drugs, hepatitis C regimens, and other therapies in an outpatient setting, and whether insurers and programs such as Medicaid could afford to provide what in many cases are true advancements to the patients who need them. In the case of Medicare, therapies provided on an outpatient basis are reimbursed by Part B or D (mostly B) because the drugs are predominantly infused.

Access to expensive new drugs for patients who are in hospital beds, however, has been a much less visible issue given that the costs of those drugs are bundled into diagnosis-related groups (DRGs) and reimbursed as part of the global payment to a hospital in Part A Medicare.

But Part A drug payments are an issue, too, for both hospitals that balk at providing expensive new drugs to inpatients and for drug companies that see less hospital uptake of those drugs. To promote uptake, since 2000, the Medicare program has approved what are called technology add-on payments for expensive new drugs and medical devices in Part A for two or three years.

But the approval process is extremely complicated. This past spring, pharmaceutical companies and their lobby, the Pharmaceutical Research and Manufacturers of America (PhRMA), pressed the Centers for Medicare and Medicaid Services (CMS) to ease the standards it uses to determine if a new drug qualifies for technology add-on payments. Drug companies must apply for these add-on payments, which typically equal either less than 50% of the estimated costs of the new technology or medical service or less than 50% of the difference between the full DRG payment and the hospital’s estimated cost for the case.

The CMS received nine applications for new technology add-on payments for fiscal year 2018, three of which were withdrawn before the proposed rule was issued. Of the remaining six applications, the CMS expressed varying concerns about each of them as to whether they met the three criteria necessary for a drug to be awarded an additional payment. The six applications were for: Edwards Intuity Elite valve system/LivaNova Perceval valve; Janssen’s Stelara (ustekinumab); Kite Pharma’s KTE-C19 (axicabtagene ciloleucel); Merck’s Zinplava (bezlotoxumab); Celator Pharmaceuticals’ Vyxeos (cytarabine and daunorubicin); and Isoray Medical/GammaTile, LLC’s GammaTile.

In order for Medicare to approve add-on payments, a drug, medical service, or technology must meet three criteria. It must: 1) be new; 2) be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and 3) demonstrate a substantial clinical improvement over existing services or technologies.

The CMS does not consider a technology to be “new” if it is “substantially similar” to one or more existing technologies. The agency considers a technology substantially similar to an existing technology if it: 1) uses the “same or similar” mechanism of action; 2) is assigned to the same Medicare Severity DRG; and 3) treats the “same or similar” type of disease and the “same or similar” patient population.

Comments submitted by PhRMA contesting the application of these three criteria in the CMS’s proposed calendar year 2018 determinations argued the use of the “substantially similar” test is overly restrictive and could prevent beneficiaries from accessing novel treatments. Its comments stated: “PhRMA is concerned that, in establishing this standard, CMS may be inappropriately restricting consideration of new products—especially as this ‘substantial similarity’ analysis now dominates CMS’ discussion of virtually all the candidates for new technology payments.”

The complaints of PhRMA and additional evidence submitted by Janssen Scientific Affairs resulted in the CMS backing away from its initial decision that ustekinumab, a biologic prescribed for the treatment of Crohn’s disease, failed the “substantially similar” test. The CMS argued ustekinumab has the same mechanism of action as other cytokine-selective monoclonal antibodies used to treat Crohn’s disease. Janssen replied that a critical differentiator is that ustekinumab has a mechanism of action that sets it apart from other available biologic products. There are no other products on the market that specifically target the cytokines interleukin (IL)-12 and IL-23. It has become clear that while many patients respond to tumor necrosis factor (TNF) inhibition, 20% to 25% will not respond, regardless of the TNF inhibitor employed or the dose provided.

PhRMA also requested that the CMS expand its examples of “substantial clinical improvements.” That criterion came into play with Merck’s application for bezlotoxumab, which is indicated to reduce recurrence of Clostridium difficile infection (CDI) in adult patients who are receiving antibacterial drug treatment for a diagnosis of CDI and who are at high risk for CDI recurrence. The big question here was whether the reported adverse event of cardiac failure with bezlotoxumab disqualified it as an “improvement.” In the end, the CMS sided with Merck and agreed that because the drug represents a substantial clinical improvement over existing therapies, it would approve the extra payment given that the drug’s label makes it clear that bezlotoxumab should be reserved for use when the benefit outweighs the risk for patients with a history of congestive heart failure.

The Medicare program’s willingness to take a second look at initial decisions to deny add-on payments for drugs within DRGs is just another illustration of how the clearly delineated benefits of expensive new drugs can outweigh their costs.

Author bio: 
Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.

Land Mines Lurk as Senate Considers its Version of Self-Drive Act

Aftermarket Business - October 25, 2017 for the original article go HERE.

Though the House passed the Self-Drive Act by a voice vote, reflecting Democratic and Republican unanimity on the importance of autonomous vehicles (AVs), no one should think that autonomous vehicle legislation is a done deal. All sorts of groups indicated they want changes to the House bill, and are hoping for the Senate to do just that. The Senate held a hearing on truck AVs a week after the House passed its bill on September 6.

The statement issued by the Alliance of Automobile Manufacturers (AAM) on Sept. 6 illustrates the mixed feelings the nation's auto lobby has about the bill."We are continuing to work to improve this legislative package and are eager to review what the Senate is expected to introduce next week on the heels of tomorrow's updated federal AV guidance," says Daniel Gage, spokesman for the AAM. "Clarity, consistency, and the removal of unnecessary barriers to expanded testing and deployment of these technologies are key."

Any legislation passed by Congress would trump the revised non-binding AV policy guidance Transportation Secretary Elaine Chao announced on September 12. The new National Highway Traffic Safety Administration (NHTSA) guidance doesn't require manufacturers to submit any safety information to the agency, nor did its first iteration published in the fall of 2016.

The Self-Drive Act does require submission of safety assessment letters, and further requires the agency to submit a rulemaking plan to Congress within one year and to issue the first rule, presumably with new, enforceable AV-related standards, within 18 months, with other rules to follow, though the bill conditions all of that on an "as necessary" clause. The first step, however, as soon as the bill passes, would be a requirement to submit safety assessment letters to the NHTSA on level 4 and 5 AVs that a manufacturer or parts supplier wants to test and deploy. Within two years after the bill's passage, the NHTSA would have to publish a rule laying out a "a clear description of the relevant test results, data, and other contents required to be submitted by such entity, in order to demonstrate that such entity’s vehicles are likely to maintain safety, and function as intended and contain fail safe features, to be included in such certifications." NHTSA cannot condition approval of deployment on those submissions, however.

Part of what appears to be the cautionary stance of manufacturers about the House version of the Self-Drive Act has to do with the safety assessment letters, which in the first year would be based on the 12 safety principles in the NHTSA voluntary guidance revised by Chao in September. In May of 2016, in response to a draft of the first iteration of the NHTSA AV guidance, Wayne Bahr, Global Director, Automotive Safety Office, Sustainability, Environment & Safety Engineering, Ford Motor Co., sent a letter to the NHTSA opposing NHTSA review of Ford's self validation of functional safety processes because Ford didn't think that review "would provide the intended confirmation, and is likely to create feasibility concerns." Bahr did not respond to an e-mail asking whether Ford's position has changed.

Consumer groups have been skeptical of some portions of the Self-Drive Act. For example, on the day the House voted, the Consumers Union released a letter which started out by saying: "While several portions of the Self-Drive Act would benefit consumer safety, we are very concerned about other provisions in the bill that would change federal law in ways that would open regulatory gaps and fail to adequately protect consumers from vehicle safety hazards." The CU went on to argue that exemptions from Federal Motor Vehicle Safety Standards should only be granted "if backed by evidence that a new feature maintains and enhances safety."

There is one overlooked provision in the bill that has nothing to do with AVs and could have a big impact on aftermarket shelves. NHTSA would have to research the need for a revised standard "that would improve the performance of headlamps and improve overall safety" and propose a new standard if necessary. This mysterious provision never came up in House hearings, or on the House floor. One wonders on whose behalf it was inserted. The Insurance Institute for Highway Safety has issued reports in the past year faulting the performance of passenger and SUV headlights.

Author bio: 
Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.

More Clouds Form Over 340B Program

P&T - October 15, 2017 the original can be found HERE.

Potential Medicare Cut Underlines Need to Rein In Program

Drug manufacturers, and to a lesser extent hospitals, have complained for years about the shortcomings of the 340B Drug Pricing Program, which allows nearly 3,000 hospitals and approximately 10,000 health clinics around the country to buy pharmaceuticals at a deep discount as a means of generating revenue, ostensibly to help lower-income patients and their communities. Complaints from both parties have been validated by the Government Accountability Office (GAO)1 and the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS)2,3 and discussed at congressional hearings, where the program’s opaque guidelines and barely visible program integrity efforts have been thoroughly aired.

Yet since Congress established the 340B program in 1992, very little has changed, except for the program opening to many more hospitals and clinics thanks to the 2010 Patient Protection and Affordable Care Act (PPACA). At the latest hearings on the program’s weaknesses, held in July by the U.S. House of Representatives Committee on Energy and Commerce (E&C) Subcommittee on Oversight and Investigations, U.S. Representative Fred Barton (R-Michigan), who has a number of 340B hospitals in his district, said, “I am just trying to educate the subcommittee how screwed up this program is.”4

Of course, Congress, having ignored the program’s multiple deficiencies for years, has had a major role in the program’s dysfunction. Congress’ record on legislating improvements for the 340B program is somewhere between negligible and non existent. At the E&C hearings, U.S. Representative Frank Pallone (D-New Jersey), the top Democrat on the committee, said, “Last Congress, this committee worked on a bipartisan basis to try to address the concerns from stakeholders on all sides of this issue in a balanced and measured fashion.”4 Nothing came of that effort. Pallone’s spokesman did not respond to an email asking what the barriers were in the last Congress, and whether they are surmountable in this Congress.

But it looks like Democrats and Republicans on the Hill are waking up, and that has a lot to do with the Trump administration. The Centers for Medicare and Medicaid Services (CMS) wants to exact a severe reduction in Medicare reimbursement to hospitals for 340B drugs. That will probably force the House and Senate to confront the program’s problems and make some changes as the price for forcing the CMS to back off either somewhat or fully from its plans to hit some hospitals with revenue losses, a prospect that has hospital lobbyists crawling over Capitol Hill arguing the sky is falling.

How 340B Works

The 340B program allows participating hospitals and clinics to buy drugs at a discount, give them to eligible patients, and then bill the insurers (private companies, Medicare, or Medicaid) for the full price of the drug. That difference between the lower price hospitals pay for a drug and the higher price at which they are reimbursed constitutes an important revenue stream, especially for safety-net hospitals serving large uninsured populations. Medicare currently pays all hospitals, 340B or not, average sales price (ASP) plus 6% for drugs hospitals supply to eligible outpatients, such as oncology drugs provided in outpatient clinics and reimbursed under Medicare’s Part B program. The CMS wants to reduce its reimbursement to 340B hospitals to ASP minus 22.5%.5

That proposal has outraged the hospital industry, although only 45% of acute-care hospitals participate in 340B. “The CMS proposal to reduce reimbursement of 340B-purchased drugs has the potential to be very harmful to the sickest and most vulnerable patients by endangering their access to essential health care services,” said Kasey K. Thompson, PharmD, MS, MBA, Chief Operating Officer and Senior Vice President of the American Society of Health–System Pharmacists, in a July press release. “These changes run counter to the statutory intent of the federal 340B program and will incur a steep cost to the people and the organizations that can least afford it.”6

The reduction in Part B reimbursement to 340B hospitals would amount to an increase in the funds the CMS would be able to spend on other hospital outpatient services. How that extra money would be distributed has not been decided, and the CMS has asked for suggestions.5 But in an attempt to assuage concerns about the impact on the most vulnerable hospitals with the highest percentage of vulnerable patients, the agency is considering targeting recouped funds “to hospitals that treat a large share of indigent patients, especially those patients who are uninsured.” Many 340B hospitals already have large populations of uninsured patients; but some academic centers have smaller percentages as measured by their disproportionate share (DSH) percentage, which is an approximate measure of Medicaid patients.

Despite opposition to the reductions, it appears that key House members believe the price of averting some or all of that reduction will be Congress finally addressing some of the many underlying weaknesses of the 340B program. U.S. Representative Diana DeGette (D-Colorado) said at the hearings, “We probably do need to get more controls and that is why I said in my opening statement that we may need to have more—we need to have more legislative reporting and more transparency because you can’t have a program where nobody knows what’s going on.”4

The lack of transparency probably leads to understatement of some of the program’s substantive failings. The CMS argues that the program encourages hospitals to supply more expensive drugs than are necessary to too many patients. Some of the hospitals in the program that are profitable and serve mostly well-off clienteles, such as academic hospitals, earn substantial revenue from the program while providing limited charity care, raising questions about whether they deserve the discounts. Moreover, reports from the GAO establish that, on average, beneficiaries at 340B DSH hospitals were either prescribed more drugs or more expensive drugs than beneficiaries at the other non-340B DSH hospitals. In fact, it is possible for 340B hospitals to supply any billionaire with discount drugs. At the same time, it is perfectly legal for a 340B hospital to charge an uninsured patient full price for a 340B drug. The program is run by the Office of Pharmacy Affairs (OPA) within HHS’s Health Resources and Services Administration (HRSA). The OPA, one of Washington’s backwater agencies, has struggled to administer and enforce jumbled rules with just 16 staffers and a severely anemic $10 million budget.

How a Medicare Reimbursement Reduction Would Affect Hospitals and Patients

Part of the rationale for the proposed Medicare reimbursement reduction, according to Thomas E. Price, MD, Secretary of the HHS, is to reduce the price of pharmaceuticals. Democrats have lampooned that stance, and even some Republicans are skeptical of it. Theoretically, Medicare beneficiaries could see lower prices since they are required to pay a 20% copay for outpatient drugs they receive under Part B. That copayment is based on the Medicare reimbursement rate, which is ASP plus 6%. If that dropped precipitously to ASP minus 22.5%, the “Medicare price” would fall, reducing copayments for Medicare recipients, who are currently paying whopping copayments in some instances.

In the Federal Register notice announcing the prospective change in Medicare outpatient reimbursement in calendar year 2018, the CMS explained, citing an OIG report from November 2015: “Based on an analysis of almost 500 drugs billed in the hospital outpatient setting in 2013, the OIG found that, for 35 drugs, the ‘difference between the Part B amount and the 340B ceiling price was so large that, in a least one quarter of 2013, the beneficiary’s coinsurance alone … was greater than the amount a covered entity spent to acquire the drug.’ ” 5

Of course, to the extent a 340B hospital provides discounted drugs to Medicaid patients and then bills Medicaid, that will not affect the consumer prices those patients pay because the reduction to ASP minus 22.5% will not apply to Medicaid reimbursement. Medicaid patients do not pay much, if at all, for their prescription drugs. In an email response, Margaret Kemeny, MD, Director of NYC Health & Hospitals/Queens Cancer Center, a 340B participant, says the majority of her patients do not have insurance. “If they have cancer, we can put them on emergency Medicaid. Very few patients have Medicare,” she writes. “The hospital gets their drugs through 340B. All patients are not charged for the drugs.”

The fact that a high percentage of 340B patients are either uninsured or on Medicaid raises the question of how badly a reduction in Medicare payment would hurt hospitals generally, and 340B hospitals specifically. According to 340B Health, which lobbies for 340B “covered entities,” total sales to 340B covered entities in 2015 were $4.2 billion, or 0.9% of total U.S. drug spending. So the program itself has a minimal impact on drug pricing nationally. Tom Mirga, Editorial Director for 340B Health, says there are no statistics that shed light on the percentage of that $4.2 billion that went to Medicare patients, so it is hard to estimate the impact a reduction of ASP minus 22.5% would have on 340B providers.

One pharmacy manager for a chain of hospitals, who did not want to be identified, said the cut would affect the local 340B hospitals and nationally within his system in a big way, depending upon each site and their percentage of Part B Medicare patients. That varies from hospital to hospital. He guesses it averages perhaps 30%. Another worry is whether commercial insurances will try to negotiate these types of payment rates in the future.

Drug manufacturers have been the loudest complainants about the program. Discounts to 340B hospitals and clinics are mandatory if manufacturers want to sell drugs to state Medicaid programs. They are required to set discounts at whatever level they chose as long as it is below the ceiling price established by HRSA. Would the 600 or so drug manufacturers who participate in the program lower their prices to 340B hospitals if the CMS reduces reimbursement? Nicole Longo, Senior Manager of Public Affairs for the Pharmaceutical Research and Manufacturers of America (PhRMA), declines to answer the question about how reform of the program would affect the prices drug manufacturers charge 340B hospitals. “PhRMA cannot speak to how individual companies might react and whether any companies would adjust drug prices,” she says. For companies to increase their prices to 340B participants, Congress would either have to change the calculation HRSA is required to make to establish ceiling prices for each drug or drug companies now selling below the ceiling price could theoretically raise their price.

“The 340B program is in need of fundamental change that is beyond the scope of the Medicare proposed payment reduction,” Longo says, “and the congressional hearing held in July was an important first step toward modifying the 340B program to ensure it returns to serving the vulnerable or uninsured patients it was intended to help.”

If Congress finally makes an effort to reform the program, it will find a willing partner in the Trump administration beyond Medicare officials determined to slash reimbursement. Krista Pedley, PharmD, MS, CDR, USPHS, Director of the OPA, says, “In the fiscal year [FY] 2018 president’s budget, we did propose to intend to work with Congress on a legislative proposal to ensure the benefit of the program does benefit the low-income uninsured populations.”

340B Expansion Since PPACA

Reducing Medicare reimbursement would save the agency about $900 million a year based on the agency’s preliminary estimates, which could change going forward. Medicare’s proposal in July to severely reduce what it reimburses hospitals is the result of its soaring 340B costs, which are in part the result of Congress’s decision in the PPACA to greatly increase the number of health facilities, including types of hospitals, eligible to participate in the 340B program.

To be eligible for the 340B program, a hospital must be: 1) owned by a state or local government, 2) a public or nonprofit hospital that is formally delegated governmental powers by a state or local government, or 3) a nonprofit hospital under contract with a state or local government to provide services to low-income patients who are not eligible for Medicare or Medicaid. A 2015 report from the Medicare Payment Advisory Commission (MedPac) said regarding the third option for eligibility, for example, that HRSA has not specified criteria for contracts between nonprofit hospitals and state or local governments, such as the amount of care that a hospital must provide to low-income patients under such a contract.7 Thus, hospitals with contracts to provide a relatively small amount of care to low-income individuals could be eligible for 340B discounts, which may not have been what HRSA intended.

Several types of hospitals as well as clinics that receive certain federal grants from HHS (e.g., federally qualified health centers and Ryan White grantees) may enroll in the program as covered entities. In addition to DSH hospitals, which were always the key participant in the program since its creation, the PPACA greatly expanded the covered entities eligible to purchase 340B drugs to critical-access hospitals, rural referral centers, sole community hospitals, children’s hospitals, and freestanding cancer hospitals. The number of unique participating covered entities has grown from 3,200 in 2011 to 11,180 in February 2015 to 12,148 in October 2016. The number of hospitals in particular has grown significantly from 591 in 2005 to 1,673 in 2011 to 2,871 as of July 2017.
In addition, the number of contract pharmacies has grown greatly since HRSA issued its 2010 guidance on contract pharmacies.

Contract pharmacies are retail pharmacies in the community that allow a 340B hospital to expand the number of its patients, if properly qualified, who have access to discount drugs. The more patients getting 340B drugs, the more revenue the hospital gets. Prior to 2010, hospitals could only supply 340B drugs from one outpatient pharmacy, typically located in the hospital. In 2011, the GAO reported that while HRSA did not track individual contract pharmacies in use, there were more than 7,000 contract pharmacy arrangements through the program. In its 2018 Budget Justification, HRSA reported that 27% of covered-entity sites have contract pharmacy arrangements, resulting in approximately 18,078 unique pharmacy locations. The OIG found that contract pharmacy arrangements created difficulties for covered entities in preventing the diversion of drugs and duplicate discounts.

Once a hospital has determined it is eligible and has been accepted by HRSA for participation, it supplies discounted drugs to “eligible patients,” a term that has been murky from the start. The definition of “patient” was established in 1996 and includes three criteria:
  • The covered entity must have a relationship with the individual, which HRSA defines as maintaining the individual’s health care records;
  • The individual receives health care services from a health care professional who is employed by the entity or who provides care under contractual or other arrangements (e.g., referral for consultation), such that responsibility for the individual’s care remains with the entity; and
  • The individual receives a service or range of services from the covered entity that is consistent with the service or services for which grant funding or federally qualified health center look–alike status has been provided (this criterion does not apply to hospitals).
HRSA audits from FY 2012 to FY 2016 demonstrate that noncomplying entities violate program requirements in at least one of three ways: duplicate discounts, diversion to ineligible patients and facilities, and incorrect database reporting. In FYs 2012, 2015, and 2016, close to half of HRSA’s audited entities diverted benefits to ineligible patients: 31% of covered entities in FY 2012, 47% of covered entities in FY 2015, and 44% of covered entities in FY 2016 were found to have diverted drugs. Diversion violations reached a 54% high in FY 2014 and FY 2015, when more than 50 audited entities offered drug-pricing benefits to ineligible patients.8

HRSA has issued guidance on the definition of “patient.” According to part of the guidance, the individual must receive health care services from a health care professional who is employed by the entity or who provides care under contractual or other arrangements, such that responsibility for the individual’s care remains with the entity.9 But the MedPac report of 2015 stated HRSA has not clarified the meaning of “other arrangements” or “responsibility for the individual’s care.”7 The lack of specificity in the guidelines for who is an eligible patient makes it possible for covered entities to interpret this term either too broadly or too narrowly, according to the GAO. For example, HRSA has expressed concern that some covered entities may consider individuals to be eligible patients even when the entity does not have actual responsibility for their care.

Drug Pricing

Drug manufacturers have been vocal critics of the elasticity of the 340B program definitions, such as who are eligible patients and whether hospitals are providing adequate charity care. The hospitals, in turn, have criticized drug pricing within the program. HRSA establishes the ceiling price as the difference between the drug’s average manufacturer price and its unit rebate amount (URA). HRSA calculates URAs using a statutory formula that is based on the formula used to calculate Medicaid drug rebates. The statutory formula for the URA varies based on whether the drug is a single-source or innovator drug, a multiple-source drug (e.g., a brand-name drug), a noninnovator multiple-source drug (e.g., a generic drug), or a clotting factor or exclusively pediatric drug. According to statute, HRSA is allowed to disclose ceiling prices to covered entities but not to the general public.

Hospitals buy their drugs either directly from the manufacturer or from a company called Apexus, which manages the 340B Prime Vendor Program (PVP). By pooling the purchasing power of covered entities, Apexus negotiates subceiling prices on many 340B drugs with manufacturers, which allows covered entities to pay less than the ceiling price. By the end of FY 2013, Apexus had more than 7,000 drugs under contract, with an estimated average savings of 10% below the ceiling price. Apexus also negotiates discounts on other pharmacy products and services not eligible for 340B pricing, such as vaccines, billing software, and contract pharmacy vendors. As of April 2014, about 82% of covered entities participated in the PVP and accounted for $5 billion in 340B drug purchases, according to Apexus.7 DSH hospitals, children’s hospitals, and freestanding cancer hospitals that participate in 340B are prohibited from purchasing covered outpatient drugs through a group purchasing organization.

What the Hospitals Do With 340B Revenue

The premise of the 340B program is that the covered entities will use the revenue they earn to improve health care for low-income individuals and families in their communities. Mirga of 340B Health says nearly three-quarters (71%) of 340B Health members report that savings from participation in 340B increase their ability to provide free or discounted drugs to low-income patients. But it is not clear what levels of discounts are passed on to whom. No statistics on that exist. There is no denying that poor cancer patients at venues such as Dr. Kemeny’s Queens Cancer Center are able to obtain treatment at rock-bottom prices or for free. But the serious shortcomings of the program are starting to overshadow the “good” the program does.

Author bio: 
Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.