Views Conflict on Trump’s Drug-Pricing Blueprint

P&T Journal - for the original article go HERE.  For a PDF version go HERE.
Most Actions Face Political, Legal, and Technical Roadblocks

Battle lines have been drawn and heavy political armaments have been moved to the front line as drug-industry partisans fight to protect the parts of their turf endangered by the policy advances proposed in President Donald Trump’s Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs.¹ Its aggressive concepts, such as forcing the posting of drug list prices, ending rebate payments to pharmacy benefit managers (PBMs), introducing formulary management to Part B of Medicare, and changing formulary requirements for Part D, have been the equivalent of a trumpet rallying call to manufacturers, PBMs, health insurers, pharmacy professionals, and patient groups, who are often on the opposite sides of any anticipated initiative.

The wide-ranging Blueprint includes 136 questions or possibilities of changes that cover Medicare most heavily, but also affect Medicaid and private plans. The spotlight on the president’s suggestions burns a bit more brightly after Pfizer, Novartis, and Merck claimed national headlines this summer for postponing plans to raise drug prices in the third quarter of 2017 with the intention of giving the Trump administration time to finalize details and actions stemming from the Blueprint.

Some in the pharmaceutical distribution chain have even proposed doing Trump one better. Fanning the flames of the controversy surrounding high list prices, Express Scripts, the giant PBM, thinks drug companies should “reintroduce their products as competing brand drugs, with new/different NDCs [national drug codes], that would allow the market to move to lower list price products.” A spokeswoman for Pharmaceutical Research and Manufacturers of America (PhRMA), the drug manufacturers trade group, declined to comment on that proposal, which goes beyond anything in the Blueprint.

P&T committees could take on both added responsibilities and added burdens as a result of any Trump administration initiatives, particularly with regard to Medicare. The Trump administration wants to allow PBMs to negotiate prices for some or all Part B drugs. Those are pharmaceuticals infused or injected in either a physician’s office or an outpatient clinic. Currently, Medicare pays the list price for those drugs and patients pay for them subject to a Part B deductible of $250. These are often expensive oncology drugs, which, if they were paid for under Part D, as the administration wants, would be subject to formulary management by P&T committees at Part D plans or their PBMs. There is no guarantee, however, that patients would pay less for oncology, hepatitis C, and other expensive drugs under Part D. They could conceivably (in some instances) pay more.

Part D is also under the microscope as far as its formulary and P&T committee policies are concerned. The American Medical Association (AMA) thinks that disclosure of P&T committee information for Part D Medicare plans would constitute “a critical step forward.” There are a few rules today governing P&T committee membership, but very few if any requiring significant “transparency.” An AMA spokesman did not respond to a query asking what kinds of disclosures the group has in mind.

Backing From Congress Unlikely

The fact that drug companies are sitting on the edge of their seats waiting for the administration to put a plan in place doesn’t mean a plan will evolve quickly. It clearly won’t. Health and Human Services (HHS) Secretary Alex Azur told the Senate Health, Education, Labor, and Pensions (HELP) Committee on June 26, six weeks after the Blueprint was released, that, for example, he believes his department, through the Food and Drug Administration, has the authority to force drug companies to disclose list prices in television advertisements. But he added that he would welcome legislation to “shore up” that authority because manufacturers will “certainly challenge” any new requirement in court. He went on to say that he would also welcome legislation eliminating the 100% cap on drug rebates imposed under the Patient Protection and Affordable Care Act, “which would create a significant disincentive for drug companies to raise list prices.”

Congress is unlikely to jump at those requests. Senator Dick Durbin (D–Illinois), the second-ranking Democrat in the Senate, introduced the Drug-Price Transparency in Communications Act (S. 2157) in November of 2017.² No Republican has cosponsored it and no hearings have been held. In March of 2017, Senator Ron Wyden (D–Oregon) introduced the Creating Transparency to Have Drug Rebates Unlocked (C-THRU) Act of 2017 (S. 637), which would require the HHS to publish rebates PBMs obtained from drug manufacturers under Part D and the Marketplace Exchange insurance program.³ Again, no action taken, no Republican co-sponsors obtained. Neither the House Energy and Commerce Committee nor the Ways and Means Committee, the two committees with jurisdiction over health care, have held hearings on drug prices, much less the Blueprint.

Taylor Haulsee, spokesman for the Senate HELP Committee, did not respond to an inquiry asking whether the committee had plans to take up the Durbin and Wyden bills or to develop its own drug-pricing legislation. If the Republican president expects help from the Republican Congress to smooth the way for some of his more controversial policy proposals, he may be waiting a long time. That said, there is no question that the Trump administration has already moved perceptibly in some minor areas on drug pricing. But the Blueprint raises the stakes for drug companies, pharmacy benefit managers, insurance companies, health professionals, and consumers. Here are some of the more flammable, high-profile possibilities:

• requiring drug manufacturers to include list prices in drug ads
• putting a ceiling on out-of-pocket payments by Part D participants
• reducing from two to one the number of drugs offered in the six Part D protected classes
• allowing state Medicaid programs to use formularies and P&T committees
• moving drugs now paid under Part B to Part D and subjecting them to utilization review
• reimbursing for drugs based on their indication
• charging higher prices for a drug when it is used off-label

How Out of Whack Are Drug Prices?

The premise of the Trump administration’s attempt to rein in drug prices is that those prices are out of control. As a general premise, that probably is inaccurate. The American Hospital Association (AHA) cites figures from National Health Expenditures data showing that retail drug spending increased by 1.3% in 2016. But the AHA argues that while that level of growth may appear low, it follows two consecutive years of expansive growth in retail drug spending: 12.4% in 2014 and 8.9% in 2015.⁴
What are particularly worrisome are launch prices for new brand-name drugs. The AHA cited:⁴

• Taltz (Eli Lilly), used for treating psoriasis, costs $50,000 a year.
• Keytruda (Merck), used for treating melanoma, costs $152,400 a year.
• Kymriah (Novartis), used for treating leukemia, costs $475,000 for a course of treatment.
• Spinraza (Biogen), used to treat spinal muscular atrophy, costs $750,000 for the first year of treatment and $375,000 per year thereafter.

Moreover, there has been a spate of exorbitant price increases for existing brand-name drugs. America’s Health Insurance Plans (AHIP) says that during June 2018 and the first two days of July, drug companies announced more than 100 separate price increases for prescription drugs with an average increase of 31.5% and median percentage increase of 9.4%. Seemingly unfathomable price increases for old generics have led to Congressional hearings.

High drug prices can also be untenable in some instances for hospitals, where drug prices are bundled into diagnosis-related group (DRG) reimbursement. In 2016, the AHA and the Federation of American Hospitals worked with NORC at the University of Chicago (a nonprofit research institute) to document hospital and health system experience with inpatient drug spending. Specifically, NORC found that, while retail spending on prescription drugs increased by 10.6% between 2013 and 2015, hospital spending on drugs in the inpatient space rose 38.7% per admission during the same period.⁵ In its comments to the HHS, the AHA stated: “These price increases, from the hospitals’ perspective, appeared to be random, inconsistent and unpredictable: large unit price increases occurred for both low- and high-volume drugs and for both branded and generic drugs.”

Is Value Pricing the Answer?

There are some who argue that seemingly unreasonably high drug prices themselves are not the problem. Jonah Houts, Vice President for Corporate Government Affairs at Express Scripts and the author of the company’s comments, suggested that lowering drug prices as an absolute goal might not even be the smartest thing to do. “The central flaw with focusing on incentivizing lower drug prices is that this concept necessarily assumes clinical efficacy of all drugs are equal across all classes and disease indications,” he wrote. “Incentivizing payments for lower-priced drugs comes at the expense of discouraging considerations of clinical effectiveness or other factors such as likelihood for adherence, then even the ‘cheapest’ drug ends up costing Medicare significantly by failing to potentially treat the patient’s condition according [to] their needs. Of course, such failures may eventually lead to more costly medical interventions in the future, or worse—patient harm.”

Certainly there is a good argument to be made for value-based drug pricing, which is in its infancy and has had trouble getting out of the crib because of, if one listens to the manufacturers, impediments ensconced in federal law such as the Anti-Kickback statute and the rules for reporting the Medicaid Best Price. That said, value-based drug pricing doesn’t help some patients, especially less well-heeled ones, who may have high deductibles and out-of-pocket costs. The fact that, in the long run, they may avoid the costs and terrible effects of a chronic disease such as hepatitis C may be hard to appreciate if they go bankrupt in the short term.

The HHS raises the possibility of “indication-based” pricing, in which consumer and payer costs are linked to the effectiveness of a drug’s indication. Joint comments submitted by a large number of patient advocacy organizations across many disease states said, “This is highly concerning for patients for a number of reasons. Patients using the medications in higher-priced indications would be discriminated against through higher cost-sharing and could have impeded access as a result.”

High List Prices and Their Link to Cost-Sharing

Those higher out-of-pocket costs are often linked to the “list prices” posted by the drug companies. The health insurers use those prices to determine coinsurance and deductible amounts. But the insurer doesn’t pay the list price because it, or its PBM, negotiates discounts and rebates, which don’t find their way to the pharmacy counter when the consumer reaches for his or her wallet. Patient out-of-pocket costs under Medicare Part D are distributed unevenly each year, such that patients face 100% coinsurance until they reach their deductible ($405 in 2018), up to 25% coinsurance until the patient reaches the initial coverage limit ($3,750 in 2018), 35% coinsurance in the coverage gap until the patient reaches the out-of-pocket threshold ($5,000 in 2018), and finally up to 5% coinsurance above that threshold. “For example, in 2015, beneficiaries without low-income subsidies who had spending above the catastrophic threshold (over 1,000,000 individuals) spent on average $5,200.92,” Bristol-Myers Squibb said in its comments. “These high out-of-pocket costs present affordability challenges that jeopardize patient adherence to needed medicines, which could in turn increase costs to the broader health care system.”

According to PhRMA, more than half of all new brand-name osteoporosis prescriptions, more than 40% of all new brand-name autoimmune and oral antidiabetic prescriptions, and more than 30% of all new brand-name antipsychotic prescriptions brought to a pharmacy in 2016 had cost sharing greater than $250. “Not surprisingly, many of these prescriptions went unfilled,” the group stated.

Two Part D reforms included in the president’s fiscal year 2019 budget proposal would provide much-needed financial relief for beneficiaries facing high cost-sharing and high annual out-of-pocket costs:

• Requiring plan sponsors to pass through a substantial share of negotiated rebates at the point of sale would immediately lower out-of-pocket costs for millions of beneficiaries.
• Establishing a maximum annual limit on beneficiary out-of-pocket spending would provide a true catastrophic benefit to protect the sickest patients.

The drug manufacturers have been pushing hard behind the proposal to force PBMs to fork over rebates at the pharmacy counter, a proposal the Trump administration appears to favor indirectly in the form of replacing rebates with a fixed price discounting model for PBMs. Big pharma believes rebates are bad, high list prices are not so bad. What they object to is the health insurers basing coinsurance and deductibles on those list prices. Manufacturers believe the health plans should pay all or a portion of all rebates off those list prices to the consumers who pick up that drug at the pharmacy counter instead of using the rebates to lower premiums for all members of a plan. Their argument appears to be that all plan members ought to suffer a little for high list prices rather than just those with expensive chronic conditions, who are suffering a lot.

Although the list price/rebate relationship is frequently cited as the main cause of high consumer drug prices, AHIP argues that rebates are not prevalent, including for the most expensive drugs. A report by the consultant Milliman found that nearly 90% of Part D drug claims were for drugs with no rebates. The Milliman report also found that, when measured on an individual drug basis (i.e., not a script count basis), approximately 70% of brand-name drugs did not have significant rebates. Further, physician-administered drugs paid for under Part B, which account for 30% of prescription drug spending, typically do not receive rebates.⁶

Power to the P&T Committee?

Insurance companies and their PBMs argue that with regard to the Part D program, the best way to cut costs would be to allow P&T committees more leeway in formulary development. That could entail decreasing from two to one the number of drugs that formularies have to offer in each class and category and doing away with the “all or almost all” language that forces Part D plans to offer all drugs in six categories, the so-called “protected” classes: immunosuppressants, antidepressants, anti-psychotics, anticonvulsants, antiretrovirals, and antineoplastics.

CVS believes Part D plans’ P&T committees are well qualified and structured to ensure that beneficiaries have an appropriate choice of drugs in these six classes on the plan’s formulary. Another reason CVS feels the six protected classes ought to be eliminated is that plans cannot impose any type of utilization management edits on the use of the drugs, even if these are based on clinical criteria. This is because Part D plans may only apply prior authorizations and transition fill limitations to beneficiaries who are considered new starters to these drugs. When beneficiaries are new to the plan, however, the plan frequently does not have enough claims history (at least 108 days) to determine whether the drug is considered new as opposed to ongoing therapy. In this case, the plan is required to assume that the drug is ongoing therapy and to provide it without the opportunity to recommend more cost-effective or clinically superior therapies.

Part B

While P&T committees are limited in certain respects, in terms of what they can do in Part D, they do not even have a role in Part B, which pays for physician-administered drugs, often expensive oncology medications. Part B drugs are provided “incident to” physician services and include some antigens, injectable osteoporosis drugs, erythropoiesis-stimulating drugs, blood-clotting factors, oral end-stage renal disease drugs, cancer medications, parenteral and enteral nutrition, nebulizers, immunosuppressive agents, intravenous immune globulin, and vaccines. Part D drugs are infused either in a physician’s office or a hospital outpatient clinic.

HHS Secretary Azar noted at a June 12, 2018, Senate HELP hearing that cost-savings are the key rationale for moving drugs from Part B to Part D, saying that “right now, we’re paying sticker price for these drugs, no discounting. We ought to be able to get 20 to 40% discounting, as we do in Part D, on those drugs. That’s $30 billion of spend.” The Blueprint, however, doesn’t specify which drugs might be switched to Part D, and what would happen if a Medicare recipient did not have a Part D plan.

For a variety of reasons, however, there are some categories of drugs now paid for under Part B that might have a smoother path than others into Part D, including insulin, antiemetics, inhalants, immunosuppressants, and oral anticancer medications, according to the Pharmaceutical Care Management Association, which represents PBMs and like seemingly every interest group—including PhRMA, which is totally opposed to the switch—has concerns about a Part B-to-D move.

Site Neutrality

A potential Part B-to-D shift for drugs brings up another potential Trump administration move likely to affect hospital outpatient clinics, where many Part B drugs are infused. The HHS is considering a site-neutral payment policy to account for differences in reimbursement between the outpatient prospective payment system and the physician fee schedule for drug administration services. In short, hospital outpatient reimbursement for Part B would be reduced.

The AHA opposes a site-neutral payment policy for drug administration services under Medicare Part B. Hospitals with newer off-campus hospital outpatient departments are already subject to significant payment reductions for the “nonexcepted” services they furnish in these settings.

The Blueprint has a host of other suggestions related to the uptake of biosimilars, risk evaluation and mitigation strategies (which have been cited as reasons to deny generic-drug companies samples of brand-name drugs), 340B, Medicaid, and so-called “gag clauses” imposed on pharmacists and other programs. For Medicaid, the Blueprint suggests a new demonstration authority for up to five states to test drug coverage and financing reforms that build on private-sector best practices. This would open the door to “closed formularies” developed by P&T committees, now absent from state Medicaid drug programs. But there is opposition to that limited initiative, as there is to everything the Blueprint considers, from one corner of the industry or another. As to formularies in Medicaid, GlaxoSmithKline says, “We strongly oppose any proposals that ration access to prescription drugs in Medicaid through a closed formulary.”

One thing stands out from reading through some of the 3,000 comments on the Blueprint. They all start out pledging fealty to the Trump administration’s efforts to lower drug prices. Then they all degenerate into opposition to most of the Blueprint’s suggestions. Normally that reaction—and it is broad and deep—would be enough to sink any significant reforms. Of course, President Trump has been known to remain impervious to any cloud of negativity surrounding him—witness trade tariffs or immigration, for instance. Will drug pricing be the next arena in which he upends conventional thinking?

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

Early Biosimilars Face Hurdles to Acceptance

P&T Journal - June 2016 for the original article go HERE.

The FDA Has Approved Few, So Lack of Competition Is Keeping Prices High

The Food and Drug Administration (FDA) approval of Inflectra (infliximab-dyyb) in March as the second bio-similar cleared for sale in the U.S. gave the agency a small victory in a war of sorts that it has been losing badly. But the agency’s green-lighting of a biosimilar is no guarantee that the market will receive the product with open arms, as the experience of Zarxio (filgrastim-sndz) proves.

Five years after Congress gave the agency the authority to approve supposedly cheaper alternatives to budget-busting biologics, the FDA has cleared only two. “I know people are anxious to see more progress and certainty,” admits Janet Woodcock, MD, head of the FDA’s Center for Drug Evaluation and Research. “Most of the progress so far has been under the hood.”

Pfizer’s Inflectra will compete with Janssen’s Remicade, the reference drug. Zarxio (marketed by Novartis subsidiary Sandoz) competes against both Amgen’s Neupogen (filgrastim) and Teva’s Granix (tbo-filgrastim); the latter was approved as a biosimilar in Europe but as a biologic in the U.S. Pfizer says it will be selling Inflectra by the end of 2016, once all legal barriers fall. Hospital pharmacists are eagerly awaiting its arrival. In usage, infliximab is typically at or near the top among the drugs in a hospital pharmacy. Hospitals use it for rheumatoid arthritis, Crohn’s disease, colitis, and a host of secondary and tertiary off-label purposes. Moreover, doses typically escalate. Remicade’s cost was $3,159 per administration and $18,129 per beneficiary in 2013, according to a June 2015 report from the Medicare Payment Advisory Commission.¹

But Zarxio’s early experience shows that biosimilars, when first introduced, face hurdles. “Our P&T committee has not reviewed Zarxio yet and we have not used it in patient care,” says John Fanikos, Executive Director of Pharmacy at Brigham and Women’s Hospital in Boston, Massachusetts. “Granix was not approved as a biosimilar but through the biologics license application pathway. Since its list of indications is comparable to Neupogen but not all-inclusive, we added it to the formulary as our preferred growth factor.”

When Zarxio first came to market, it was more expensive than Granix but less expensive than Neupogen. “We could not see a reason to use Zarxio on the inpatient or outpatient sides of care,” Fanikos explains. “Sandoz has recently come forward with a contract favorable in terms of pricing, but the other companies have made adjustments in their pricing, too.”

Moreover, physicians haven’t been clamoring for Zarxio. “I was somewhat shocked; many of physicians had no idea what the biosimilar process even is,” states one hospital pharmacist who did not want to be named. “Even those that do would have to be aware of the differences between Neupogen, Granix, and Zarxio. Physicians who have prescribed filgrastim for years are likely to keep prescribing Neupogen rather than going down the list to filgrastim alternatives with suffixes,” he adds.

Even if physicians were totally up to speed on biosimilars, neither Granix nor Zarxio is available in a vial. Because children use filgrastim in lower doses, children’s hospitals need it in a vial. Their only alternative is Neupogen. Pediatric hospitals such as St. Jude’s Children’s Hospital and Children’s Healthcare of Atlanta make up about 5% to 10% of the client base for Vizient, Inc. “That is very influential when organizations like those cannot use a product in question,” says Steven Lucio, Senior Director of Clinical Solutions and Pharmacy Program Development for Vizient, a large group purchasing organization that represents academic medical centers, pediatric facilities, community hospitals, integrated health delivery networks, and nonacute health care providers. Vizient represents almost $100 billion in annual purchasing volume.

Biosimilars in different therapeutic categories face different challenges. For example, Pfizer won’t have to deal with a Granix-like competitor once Inflectra comes to market. The biosimilar will go head-to-head with Remicade. However, infliximab is a mono clonal antibody and therefore a more complicated biologic than filgrastim. Infliximab patients are not immune-compromised, which means the prescribing physician has to be much more concerned about potential side effects. Filgrastim patients are already immune-compromised. “Rheumatologists, dermatologists, and other physicians using infliximab will have to have more of a clinical conversation with patients before using Inflectra since it is not an exact copy of Remicade,” Lucio says. “And that will pose a higher hurdle for its use.”

The FDA Is Part of the Problem

The FDA’s assignment of suffixes is one of a number of controversial regulatory issues that stymie acceptance of biosimilars. The agency published a proposed rule on suffixes² in the summer of 2015 and has still not produced a final rule. The agency received different opinions from different parties as to whether a suffix ought to mimic a biosimilar marketer’s name, as is the case with filgrastimsdnz, or whether the suffix should not conjure up the marketer’s name, or whether the reference drug ought to have a suffix, which is not now the case. Neupogen is simply filgrastim.

Numerous, important guidance documents are also stuck in the FDA’s maw. The FDA’s slow pace is not fully its own fault. Congress has never appropriated segregated funds for the biosimilars program. As part of the Patient Protection and Affordable Care Act (PPACA), the agency was allowed to charge companies user fees for submitting applications. But given the regulatory uncertainty, few applications have been submitted. Instead, the agency has charged companies for meetings during which the FDA advises them on what they need to do prior to submitting an application. Those fees totaled $6 million, $13 million, and $23.8 million in fiscal years (FY) 2013, 2014, and 2015, respectively. Meanwhile, a study by the consulting firm Eastern Research Group (ERG)³ commissioned by the FDA had the agency spending $23.6 million in FY 2013, $21.4 million in FY 2014, and $28.7 million in FY 2015. That $74 million total compares to the $42 million the agency raised in user fees. Still, the mismatch in funding only partly explains why the agency has missed quite a few deadlines it set for itself in terms of answering sponsors’ questions posed during user-fee meetings.

“The FDA infrastructure put into place for BsUFA I is insufficient to meet the objectives and manage the workload it currently faces,” says Hubert C. Chen, MD, Chief Medical Officer of Pfenex. “This is consistent with the experience of Pfenex, as we have worked with the agency across multiple programs in diverse therapeutic areas.” BsUFA is the Biosimilar User Fee Act included in the PPACA.

Dr. Woodcock paints the early troubles of biosimilars with the brush of perspective. She argues the small-molecule generic-drug approval program launched by the Hatch-Waxman law in 1984 took a while to gain momentum. “We didn’t have success overnight with that program,” she says. “But today, over 88% of prescriptions are filled by generics.”

Of course, three decades ago the eight leading drugs in U.S. sales were not expensive biologics, all costing Medicare, for example, more than $1 billion a year and sapping the savings of Americans in all walks of life. So the exigencies surrounding the need for faster biosimilar introductions are magnitudes greater than they were for chemical generics in the 1980s. Express Scripts, one of the largest U.S. pharmacy benefit management organizations, estimates potential savings of $250 billion in the next decade with the approval of just 11 biosimilar products.⁴ A 2014 RAND Corporation study estimates that biosimilars will lead to a $44.2 billion reduction in direct spending on biologic drugs from 2014 to 2024, with anti–tumor necrosis factor agents such as infliximab accounting for the largest chunk of savings (Figure 1).⁵

However, because of the shortage in funding, the FDA’s progress on biosimilars may well get worse before it gets better. As of January 21, 2016, 59 proposed biosimilar products to 18 different reference products were enrolled in the Biosimilar Product Development (BPD) Program. “What I am concerned about is that the program is going to explode and we will not have the staff to handle it,” Dr. Woodcock says.

At hearings of the House health subcommittee on February 4, 2016, Mary Jo Carden, RPh, JD, Vice President of Government and Pharmacy Affairs for the Academy of Managed Care Pharmacy expressed concern about the ability of biosimilars to reach their full potential in the United States because of incomplete guidance from the FDA, confusing federal and state regulatory guidance, and lack of clarity related to payment, coding, and reimbursement.

FDA Guidance Documents Are Coming Slowly

The FDA cleared Inflectra two months after the House subcommittee hearings. Manufactured by Celltrion, it is being marketed in the U.S. by Pfizer’s Hospira subsidiary. Inflectra is approved for a half-dozen uses, including psoriasis and five other conditions in which the immune system attacks the body’s tissues. The drug helps reduce inflammation and control the immune system, which slows those diseases. Remicade, first approved in 1998, is the top-selling medicine of Johnson & Johnson (Janssen’s parent company), with sales of $6.56 billion in 2015.

Inflectra and Zarxio were approved while many critical FDA guidance documents were incomplete. Although the Biologics Price Competition and Innovation (BPCI) Act does not require the FDA to issue guidances before approving a biosimilar application, the FDA understands the importance of guidances in helping to ensure successful implementation of this new pathway.

Perhaps the most important upcoming guidance concerns interchangeability. The FDA did not deem Inflectra interchangeable with Remicade; the same was true for Zarxio, which is not interchangeable with Neupogen. If they were interchangeable, a pharmacist could substitute the biosimilar for the reference product without checking with the physician first. The FDA has not yet established the standard it will use when judging whether a biosimilar is interchangeable.

The FDA expects to publish the eagerly awaited draft interchangeability guidance by the end of 2016. To meet the standard for interchangeability, an applicant must provide sufficient information to demonstrate biosimilarity and also to demonstrate that the biological product can be expected to produce the same clinical result as the reference product in any given patient. The applicant must also demonstrate that if the biological product is administered more than once to an individual, the risk in terms of safety or diminished efficacy of alternating or switching between the use of the biological product and the reference product is not greater than the risk of using the reference product without such alternation or switching.

“Interchangeability is the thing about biosimilars that makes a lot of physicians nervous,” explains Donald Miller, PharmD, a Professor of Pharmacy Practice at North Dakota State University. “Interchangeability means a pharmacist could switch products without physician authorization, and thus potentially expose a patient to a product with slightly different immunogenicity without the physician being aware of it.” Dr. Miller is a member of the FDA advisory committee that recommended approval of Inflectra in February.

While the FDA will determine interchangeability, the states will control automatic substitution—and states are already approving a variety of limits on that still-to-come process.

Even if pharmacists don’t have to notify physicians when a biosimilar is rated interchangeable, pharmacists could still be in an uncomfortable position. Pharmacists may feel that they are “under the microscope” when switching to a biosimilar based on their own judgment, and they may hope that any unilateral substitution doesn’t come back and cause trouble for them, for whatever reason.
However, the publication of draft guidance does not suddenly quiet controversy. That wasn’t the case after the FDA published its draft labeling guidance in March.⁶ The guidance says biosimilars can use the clinical data gathered by reference product sponsors. That is a point of controversy, with some companies and patient groups saying the company producing the biosimilar ought to include its own clinical trial data on the label. Regulators would also allow biosimilar labels to include the statement that the product is biosimilar to the reference product.

That doesn’t mean the biosimilar’s label has to be identical to the reference product label. It does not. It needs to reflect currently available information necessary for the safe and effective use of the product. Certain differences between the biosimilar and reference product labeling may be appropriate. For example, biosimilar product labeling conforming to the physician labeling rule and/or pregnancy and lactation labeling rule may differ from reference product labeling because the reference product labeling may not be required to conform to those requirements at the time of licensure of the biosimilar product. In addition, biosimilar product labeling might have to reflect differences such as administration, preparation, storage, or safety information that do not otherwise preclude a demonstration of biosimilarity.

The Generic Pharmaceutical Association (GPhA) and its Biosimilars Council praised the draft guidance. Chip Davis, Jr., GPhA President and Chief Executive Officer, says the guidance takes steps to avoid confusion and in many aspects mirrors the protocol for the labeling of generic drugs. For example, a statement defining biosimilarity would be included rather than lengthy and already established scientific data proving biosimilarity. And immunogenicity details would mirror the label content of the reference product. “GPhA and the council are especially pleased that the proposed label contents avoid causing confusion or raising unnecessary questions about the safety and efficacy of biosimilar products,” he adds. “We also commend the agency for postponing guidance on interchangeable biologic labeling at this time.”

Andrew Powaleny, Senior Manager of Communications for Pharmaceutical Research and Manufacturers of America, declined to provide his group’s views on the draft guidance in advance of the deadline for written comments.

The Undermanned FDA

The FDA’s tentative decision in the draft labeling guidance not to require biosimilar companies to cite their own data from their own clinical trials may be a practical necessity given that the FDA clearly does not have the staff to review all that data. Budget begets staff, of course, and budgets have not been kind to the FDA’s biosimilars program. The ERG study proved that.³ User fees have simply not been sufficient for the FDA to provide necessary staff resources for prospective biosimilar marketers who pay for one of five types of meetings the FDA offers under its BsUFA program. The number of those meetings has far outpaced what the FDA projected when the user-fee program was put in place. There were 59 BPD program participants as of November 2015. When the BsUFA went into effect, the FDA had anticipated a total of 11 participants in the BPD program by FY 2015.

In December 2015, the FDA held a meeting to get input on the changes it needs to the biosimilar fee program. Any modifications would be made by Congress when it reauthorizes the BsUFA. David R. Gaugh, RPh, Senior Vice President for Sciences and Regulatory Affairs at the GPhA, says the meetings the FDA holds with potential biosimilar sponsors are extremely useful, but at times there are uncertainties about the outcomes. “With that said, the meetings should have well-defined objectives, clear outcomes, and meaningful decisions about future development options,” he explains. “Where the outcome or guidance is unclear to the sponsor, there should be an opportunity for a timely follow-up teleconference to promote better understanding, communication, and transparency.”

Critics Complain About Medicare Policy, Too

Criticism over biosimilar policy has also encompassed the Centers for Medicare and Medicaid Services (CMS). In October 2015, the CMS clarified its policy on reimbursement for biosimilars, which are paid for mostly under Medicare Part B, where physicians administer the drugs in their offices or outpatient infusion clinics provide the drugs. But reimbursement also goes through Part D when patients are able to self-administer. The new policy managed to offend nearly every pharmaceutical sector; both generic and brand-name industry associations decried a number of aspects of the new policy, in some instances the same aspect.

The final rule clarifies that the payment amount for a biosimilar is based on the average sales price (ASP) of all National Drug Codes assigned to the biosimilars included within the same billing and payment code.⁷ So all biosimilars citing Remicade as their reference drug would be paid the same. This is the way Medicare pays for chemical generics, which are considered multiple-source drugs. The CMS would assign the first biosimilar, such as Zarxio, a code under the Healthcare Common Procedure Coding System (HCPCS). All other Remicade biosimilars would have the same HCPCS code. Zarxio’s code is Q5101 Injection, Filgrastim (G-CSF), Biosimilar, 1 mcg. Zarxio would then pick up a modifier to help track its use and potential adverse effects. For Zarxio, that would be ZA-Novartis/Sandoz.

Sandie Preiss, Vice President of Advocacy and Access for the Arthritis Foundation, says, “We believe that treating biosimilars as multiple-source products stands counter to other biosimilar policies and the intent of Congress in passing the Biologic Price Competition and Innovation Act. Further, this proposal is not consistent with other CMS reimbursement policies, which treat biosimilars as single-source drugs within certain Part D programs and Medicaid.”

The Cost of Biosimilars Is at Issue

Based on the experience in Europe, where biosimilars have been available longer, it had been a given that a biosimilar coming onto the U.S. market would have a price somewhere in the neighborhood of 15% to 25% lower than the reference drug. But early anecdotal experience with Zarxio doesn’t bear that out.

Vizient’s Lucio says the prices of Neupogen, Granix, and Zarxio have all come down between 15% to 20% since Zarxio’s introduction in September 2015. Typically Neupogen is the most expensive of the three, with Granix and Zarxio trading second and third place depending on the market they are selling to. But the price difference between the three is normally not great. “Until you have two or three biosimilar providers for same-molecule competitors to branded [products], biologicals will not be priced definitively lower,” Lucio says.

Some of the other biosimilars now in the application phase at the FDA (there are seven or eight, but the FDA doesn’t confirm those numbers) will be much more likely to be self-administered than Zarxio or Inflectra. That means they will ostensibly be available for retail purchase, and therefore reimbursed under Medicare Part D and outpatient drug plans in the private sector or through the PPACA. A study from the consulting firm Avelere, published in April, found that Medicare patients in Part D plans are likely to pay more for biosimilars than for the reference drug.⁸ That is because the Part D plans, under federal law, get a discount from the brand-name manufacturer when a Medicare recipient hits the so-called “doughnut hole,” the gap in Part D coverage where a senior must pay more of the cost of a drug. The reference-drug manufacturer must provide rebates to Part D plan members who fall into that coverage gap. Biosimilar marketers cannot match those rebates. “Any voluntary point-of-sale discounts would be viewed by the OIG [Office of the Inspector General] as a kickback and would likely lead to punitive action,” says Caroline Pearson, Senior Vice President at Avalere.

“The unintended consequence of the ACA is that consumers have a financial disincentive to switch to a lower-cost biosimilar,” Pearson adds. “While the Medicare program will save money if beneficiaries take biosimilars, higher consumer out-of-pocket costs are a barrier to patient adoption.”
It may be that biosimilars will become a boon to patients, payers, and providers. But until the FDA moves more quickly to approve biosimilars and they start to populate therapeutic categories in numbers that lead to lower prices, their success won’t be a given.

Author bio: 

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

Formulary Policies a Battleground In HHS Proposal on Nondiscrimination

P&T Journal - March 2016 for the original online article go HERE.  

Are Tiering and Cost Sharing Civil Rights Issues?

Is the federal government once more on the cusp of tweaking rules for marketplace, Medicare, Medicaid, and other federally funded health programs with regard to formularies and P&T committees? It could happen. Patient advocacy groups and drug companies are pushing for more aggressive requirements with regard to things such as pharmaceutical cost sharing and utilization management techniques. Health insurers and pharmacy benefit managers (PBMs) are fighting against that.

The political venue for this is the proposed rule the Department of Health and Human Services (HHS) issued last September on Section 1557 of the Patient Protection and Affordable Care Act.^1,2 It bans discrimination in health care and jumps off from previous nondiscrimination laws in the areas of voting rights, education, access to facilities, and much else. Those earlier, existing laws prohibit discrimination on the basis of race, color, national origin, sex, age, or disability.

However, the upcoming nondiscrimination rule from the HHS has prompted concerns from various quarters for a couple of reasons. The proposed rule extends the definition of sex discrimination to include discrimination based on gender identity. It will also require hospitals, health plans, physician offices, pharmacies, state and local programs, and others to do some things they currently do not do under existing civil rights laws in terms of notification, training, and translation services for patients. The HHS estimates the industry-wide cost at $558 million over a two-year period.

Interestingly, the proposed rule nowhere mentions the application of Section 1557 to “formularies.” That word doesn’t appear anywhere in the proposed rule’s text. Neither does “P&T committee.” The proposal concerns itself with such issues as access to facilities for the disabled, translation services for non-English speakers, and how health plans, hospitals, and other providers must describe and provide medical services for transgender and gay individuals. That said, many, if not most, of the 2,000-plus comments that arrived on the HHS doorstep in the wake of the proposed rule raise, among other concerns, the issue of formularies, either pressing for extension of Section 1557 to formularies or opposing it.

“It is our understanding that the department continues to face pressure from several patient advocacy groups and pharmaceutical manufacturers to prevent or severely restrict application of clinically based utilization management and formulary design processes under a pretext that use of step therapy, tiering, or other such tools are in fact discriminatory practices in and of themselves,” says Jonah Houts, Vice President of Corporate Government Affairs for Express Scripts, Inc.

Lisa Joldersma, Vice President of Policy and Research for Pharmaceutical Research and Manufacturers of America (PhRMA), says, “The evidence on today’s formulary landscape clearly indicates that too often plan formularies have designs that discourage individuals with certain disabilities from enrolling in their plans. Across HIV classes, certain cancer classes, and medicines that treat multiple sclerosis, many marketplace plans are putting all medicines, brand and generic, on the highest cost-sharing tier.”

Drug Access in Federal Health Plans Has Long Been a Controversy

The issue of formulary “discrimination” has come up over the past few years in the context of marketplace and Medicare Part D/Medicare Advantage guidance—which has no legal standing—and proposed rules dealing mostly with appeals to denials of particular drugs. Health plans have argued against the Centers for Medicare and Medicaid Services (CMS) addressing tiering and cost-sharing requirements and are doing so again with regard to the proposed 1557 rule.

“We recommend revising the rule to provide specific safe harbors with respect to pharmacy benefits, so that formularies designed by a pharmacy and therapeutics committee would not be considered discriminatory,” says David Schwartz, Head of Global Policy for Cigna Federal Affairs. “CMS has already issued detailed rules on drug formularies and the department should defer to CMS’s rules to ensure uniform, clinically based, sound formulary decisions.”

Again, the only rules the CMS has issued on formularies deal with time frames for health plans to respond to appeals of denials of specific medications, mandating that all drugs be provided in certain “protected classes” of drugs, and, with regard to marketplace formularies, establishing the standard for which drug classes must be made available.

That is not to say the CMS and the HHS are not worried about drug cost-sharing policies adopted by health plans and how P&T committees arrive at those formularies. The CMS has already been doing an outlier analysis that assesses marketplace plans’ cost-sharing requirements. Year 2015 and 2016 “Letters to Issuers in the Federally-facilitated Marketplaces” sent by the CMS promised to perform “an outlier analysis on QHP [qualified health plan] cost sharing (e.g., co-payments and co-insurance) as part of the QHP certification application process.” Both letters go on to say that “outliers may be given the opportunity to modify cost sharing for certain benefits if CMS determines that the cost-sharing structure of the plan that was submitted for certification could have the effect of discouraging the enrollment of individuals with significant health needs.” QHPs are required to ensure nondiscrimination in each of the 10 categories of essential health benefits they must provide, one of which is prescription drugs. In that vein, the 2015 letter said, “CMS intends to review plans that are outliers based on an unusually large number of drugs subject to prior authorization and/or step therapy requirements in a particular category and class. We encourage states performing plan management functions in an FFM [federally facilitated marketplace] to implement this type of review.” ^3,4

The 2017 draft “letter” went further. It said: “CMS is also concerned about adverse tiering, which occurs when a formulary benefit design assigns most or all drugs in the same therapeutic class needed to treat a specific chronic, high-cost medical condition to a high cost-sharing tier. Since adverse tiering is potentially discriminatory, this review may examine the tier placement of prescription drugs to determine whether QHPs are also consistently placing drugs used to treat these medical conditions on a high cost-sharing tier.” ⁵

These “letters,” whether to marketplace health plan or Part D providers, are advisory. They do not have the force of law. Moreover, while the CMS has apparently been applying outlier analyses to federally regulated formularies, the agency has never published the results of these, nor published a list, for example, of “bad practices,” which might guide health plans.

Timothy Jost, Emeritus Professor at Washington and Lee University, who has written widely on federal health policy, notes that the CMS and states review marketplace and Part D plans annually and, if they feel an individual plan uses drug tiering in a discriminatory fashion, they can kick the plan back for remediation. Jost adds that where states review marketplace plans, “they are all over the lot” in how they enforce marketplace essential health benefit standards as they apply to pharmaceutical access.

The CMS has, however, established federal policies related to P&T committees operating in Medicare Part D plans. There is some concern among PBMs and health insurers that the HHS might extend those policies, or even enrich them, in the context of a final Section 1557 rule. “As we share the department’s priorities in preventing discriminatory practices from occurring in health care, our concern focuses on whether any future proposals affecting the P&T committee process will enhance the protections already available to patients, or add only complexity and costs to plan compliance at the expense of patients and sponsors,” says Express Script’s Houts.

First in its Call Letter for 2015 and again in its 2016 letter for Medicare Part D plans, the HHS laid out refinements of “independence” requirements for P&T committees. A minimum of two members on each P&T committee must be independent from the plan sponsor and drug manufacturers, but not the PBM. The 2016 letter, for example, required that the sponsor’s P&T committee clearly articulate and document processes to determine that members who are supposed to be independent are indeed independent, and committees must have a policy to manage recusals due to conflicts. Those processes must be enforced by “an objective party,” which may be a representative of the PBM—as long as that representative is not also a member of the sponsor’s P&T committee.

Jost believes the HHS may have its work cut out for it in applying Section 1557 to formularies and P&T committees. He believes nondiscrimination in the context of disabilities, as is the case with Section 1557, is different than nondiscrimination with regard to health status, which is what the marketplace plans are charged with avoiding. Also, the proposed rule doesn’t raise the issue of discriminatory formularies. “The HHS is limited in going off in a new direction if that direction is not mentioned in the proposed rule,” Jost explains. “But it could issue a final rule and another proposed rule dealing with formulary discrimination.”

Allyson Funk, Senior Director of Communications at PhRMA, thinks the HHS could and should apply Section 1557 to formularies. “We would like to see additional clarification in the final rule which would be a logical outgrowth of the proposed rule’s prohibition on ‘benefit designs that discriminate on the basis of race, color, national origin, sex, age, or disability in a health-related insurance plan or policy, or other health-related coverage,’ ” she says.

Expansion of Current Nondiscrimination Policies ... or Not

Complaints about current discrimination have been loud from transgender advocacy groups, who have been among those pressing for formulary expansion provisions. But they have been equally concerned about availability of medical services. In the proposed rule, the HHS said “coverage for medically appropriate health services must be made available on the same terms for all individuals, regardless of sex assigned at birth, gender identity, or recorded gender.” It used pelvic exams as an example. They cannot be denied for an individual for whom a pelvic exam is medically appropriate based on the fact that the individual either identifies as a transgender man or is enrolled in the health plan as a man.

The HHS goes on to say that coverage cannot be denied for gender transition. If, for example, a health plan or state Medicaid agency denies a claim for coverage of a hysterectomy that a patient’s provider says is medically necessary to treat gender dysphoria, the HHS Office of Civil Rights (OCR), if it gets a complaint, will evaluate the extent of the plan’s coverage of hysterectomies under other circumstances. The OCR will also carefully scrutinize whether the covered entity’s explanation for the denial or limitation of coverage for transition-related care is legitimate and not a pretext for discrimination. But the HHS makes it clear that a final rule will not require covered entities to cover any particular procedure or treatment for transition-related care; nor do they preclude a covered entity from applying neutral standards that govern the circumstances in which it will offer coverage to all its enrollees in a nondiscriminatory manner.

However, the HHS proposed policy on transgender access to services is not totally clear to everyone. “As it is currently worded, the proposed rule suggests that clinicians who recommend screening tests and similar services usually performed only on those of the individual’s birth gender may be acting in a prohibited manner. We do not believe this was HHS’s intention,” says Ashley Thompson, Acting Senior Executive of Policy at the American Hospital Association.

Nondiscrimination Beyond Medical Services

Whatever the HHS decides in the final rule, any edicts will affect not just the kinds of services that hospitals, physicians, and pharmacies will have to provide, but potentially even the continuation of certain federally funded health programs. For example, Unite for Reproductive & Gender Equity (URGE) wants some federally funded health programs to be canceled because they do not square with Section 1557. It cites abstinence-only-until-marriage (AOUM) programs currently funded by HHS and administered by the Family and Youth Services Bureau within the Administration for Children and Families. “AOUM programs are inherently discriminatory against LGBTQ [lesbian, gay, bisexual, transgender, and queer] young people,” says URGE. According to the Society for Adolescent Health and Medicine, “in addition to abstinence-only classes being unlikely to meet the health needs of LGBTQ youth, as they largely ignore issues surrounding homosexuality, they often stigmatize homosexuality as deviant and unnatural behavior.”

But insurance companies worry about how antidiscrimination laws newly applied to transgender individuals might adversely affect them. According to Cigna’s Schwartz:

While Cigna supports measures of diversity and inclusivity, there are operational procedures today that may be construed as violating Section 1557, albeit unintentionally. Claim adjudication programming helps to protect against abusive billing practices by using edits, such as gender identifiers, to identify an anomaly; such as a male gender indicator on a claim for an annual well-woman exam or a female gender edit for a prostate exam. Medical claim adjudication procedures as well as pharmacy claim adjudication procedures would be impacted by the proposed rule. Furthermore, based on the language in the proposed rule, it is unclear if a gender question on an application is even acceptable or if it could be construed as sex stereotyping.

Disability groups are concerned that Section 1557 regulations would allow private entities to essentially decide for themselves when their provider network is “readily accessible” to people with disabilities. “A large for-profit insurance carrier could arbitrarily decide that, among the great majority of its providers who operate in existing facilities, only 10% need to be physically accessible or have accessible equipment,” says the Consortium for Citizens with Disabilities (CCD). “Moreover those accessible providers could be clustered together in some central location, and whenever a member calls member services and mentions the need for accessibility, that member will be actively directed toward ‘the accessible provider offices.’ ”

Groups representing the deaf also cite shortcomings in interpretation services currently available and thus the need for Section 1557 regulations to specify more rigorous requirements than those in the current nondiscrimination laws. “Too often, patients who use ASL [American Sign Language] are denied access to health care because most providers do not provide qualified ASL interpreters,” reports the National Association of the Deaf. “Furthermore, the department should emphasize that by no means should family members act as interpreter for the deaf or hard of hearing patient. Many health care entities mistakenly believe that it is perfectly acceptable to utilize family members as interpreters. In fact, the website for the American Medical Association states that ‘qualified interpreters may include: family members or friends,’ which demonstrates an incorrect understanding of the regulatory definition for a ‘qualified interpreter’ (QI).”

Implications for Pharmacies and Hospitals

As opposed to formularies, the Section 1557 proposed rule does have specific requirements for brick-and-mortar health facilities covered by the upcoming rule. They would have to notify patients that they offer auxiliary aids and services, free of charge, in a timely manner, to individuals with disabilities. The notice would need to be translated into at least 15 different languages.

Another requirement would force hospitals, pharmacies, and health plans to provide language assistance services, including interpreter and translation services for non-English speakers and similar services for the deaf. Those have to be available at the point a service is being provided.

In the case of an individual with limited English proficiency, the covered entity must offer that individual an on-the-spot, qualified, oral interpreter, who generally may not be a family member and almost never a child. There is an exception which is narrow in scope. Interpreters at a remote location can be used.
The American Pharmacists Association (APhA) is making the argument that pharmacies shouldn’t be covered (though hospital pharmacies, as part of a hospital’s corporate structure, would be) to the same extent as other “covered providers.” Retail pharmacies do not get marketplace, Medicare, or Medicaid reimbursement, though, in the latter case, they do receive dispensing fees. The APhA believes the amount of federal financial assistance a covered entity receives for a particular service should be a determinative or heavily weighted factor when imposing requirements related to Section 1557 and in OCR’s determinations related to nondiscrimination claims. Scaling down the requirements on pharmacies is important, in the APhA’s view, because of the mandates related to things such as translation services for customers, to give one example.

“APhA is very concerned that OCR requires the notice to include a statement that the covered entity provides auxiliary aid and services and language assistance services, free of charge, and makes no mention of the inclusion of a disclaimer or caveat related to the fact that the provision of services is balanced against the burden placed on the entity,” says Thomas E. Menighan, Executive Vice President and CEO of APhA. “Such a notice basically provides a guarantee of the services and fails to factor in the burden on the entity which OCR claims to consider.”

Pharmacies currently providing translation services (written or oral) have noted that costs may be considerable. Additionally, written translation services are effective only if the patient is literate. Pharmacists may also have difficulty identifying which language the patient is speaking, further exacerbating the difficulty of connecting the patient to a qualified QI. Even if a QI can be found, those without the appropriate medical training may be unable to accurately translate technical information, making such services less meaningful to patients and a source of potential liability for pharmacies.

At least hospitals and pharmacies know what they are in for when the Section 1557 final rule is published. The rule’s impact on QHP and Part D formularies is harder to predict. The political pressure has been building on the HHS to take a stronger stand on tiering and associated practices. But given the very recent disclosures of the money major health insurers are losing on their marketplace plans, it may be hard to justify putting out of reach what the plans have long argued are major, justifiable cost-control practices.

Author bio: 

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

Health Care Consolidation Continues Apace

P&T Journal - December 2015 - for the original online article go HERE.

The Impact on Providers and Patients Is Either Mixed or Unclear

A potential reduction in pharmacy costs to insurance plan members is a key rationale underlying the most recent proposed mega-mergers in the health care industry. The Anthem/Cigna and Aetna/Humana combinations, now under scrutiny at the U.S. Department of Justice (DOJ), theoretically would benefit consumers by lowering drug costs, given the increase in covered lives the new companies would have as leverage when negotiating with pharmaceutical manufacturers. Those drug-cost savings might be boosted further by the secondary consolidation of pharmacy benefit managers (PBMs). Anthem uses Express Scripts, while Cigna uses Catamaran. Catamaran itself was merged with UnitedHealth’s OptumRx PBM in 2015. Aetna uses the CVS Health PBM (which acquired Caremark PBM in 2007), while Humana has an in-house PBM.

The deals are likely to have repercussions in other sectors, too, extending to drug wholesalers, retail drugstores, and hospitals. “The biggest potential impact for us is if we are locked out of additional payer networks due to the consolidation,” says Kyle Skiermont, PharmD, Director of Specialty Pharmacy Operations for Fairview Pharmacy Services. “These groups often want to use their own specialty pharmacies, which make it difficult for health systems to care for their own patients.”

The dizzying pace of mergers within the health care industry drew a reaction from presidential candidate Hillary Clinton, who said on October 21, “As we see more consolidation in health care, among both providers and insurers, I’m worried that the balance of power is moving too far away from consumers.” But Robert Berenson, MD, an Institute Fellow of The Urban Institute, says he doesn’t see health care consolidation becoming a front-rank political issue during the 2016 presidential campaign. While he views it as a very legitimate policy issue, he explains, “It is not as if there are clean solutions. It is murky, complicated stuff.”

The Causes of Merger Mania

The phrase “fast and furious” has already been taken (by Vin Diesel as the title of his skein of action movies), but it could also be used to describe the pace of mergers in all sectors of the health care industry. Walgreens joined the merger mania at the end of October when it announced that Boots Alliance wants to absorb Rite Aid. The deal would unite two of the country’s three biggest drugstore owners. Boots Alliance is composed of the Walgreens and Duane Reade retail pharmacies in the U.S. and Boots retail pharmacies in the United Kingdom and other foreign countries.

The health industry merger trend has probably been hastened in the past few years by the Patient Protection and Affordable Care Act (PPACA), which included a number of provisions aimed at encouraging “integrated care”—a concept in which success depends on the provision of a broad range of medical services by a single institution. “The national health care law reinforces the trend of providers, including doctors and hospitals, to merge into large regional health systems that dominate local markets,” Christopher Pope wrote in a 2014 issue brief published by the Heritage Foundation. “The law also introduces new rules and restrictions that will reduce the degree of competition in the insurance market.”

But the push toward integrated care doesn’t explain consolidation among pharmaceutical manufacturers, which has more to do with filling in gaps in research and development pipelines. Only 11 of the original 43 members of the industry lobbying group Pharmaceutical Research and Manufacturers of America (PhRMA) exist today. The big deals of 2015 so far have been the acquisition by Valeant Pharmaceuticals International, Inc., of Salix Pharmaceuticals, Ltd.; the acquisition by Impax Laboratories, Inc., of CorePharma, LLC; and the purchase by Sun Pharmaceutical Industries Ltd. of Ranbaxy Laboratories Ltd. In the Impax/CorePharma and Sun/Ranbaxy cases, the Federal Trade Commission (FTC) ordered some divestiture of assets. These deals followed the Actavis PLC takeover of Allergan PLC in the fall of 2014. But whatever the rationale for drug company mergers, no one could argue that they have led to lower consumer prices for drugs, which have risen rapidly—in some cases geometrically—over the last few years.

Nor does the PPACA explain consolidation of PBMs, such as the 2015 acquisition by UnitedHealthcare, which operates the OptumRx PBM, of Catamaran. Express Scripts swallowed the Medco PBM in 2011, turning the Big Three in that industry into the Big Two. CVS ate CaremarkRx in 2007. The proposed Anthem/Cigna and Aetna/Humana mergers are partly about the presumed ability to obtain lower drug costs. The degree to which those costs will drop, much less whether the savings will be passed along to consumers, won’t be established for some time.

Theoretically, to the extent consolidation promotes integration, the trend has positive potential, both in terms of saving money for consumers (not to mention the federal government, through Medicare, Medicaid, and Tricare) and promoting higher-quality care. But the evidence so far from accountable care organizations (ACOs)—the PPACA’s major contribution to integrated care—is very mixed on both cost and quality metrics.

In a post on the Health Affairs blog on July 16, 2015, Thomas Greaney, Co-Director of the Center for Health Law Studies at the St. Louis University School of Law and a former FTC antitrust official, wrote that mergers within an industry can be self-perpetuating, without any particular benefit to consumers. “History also teaches that mergers often tend to beget mergers,” he wrote. “Mergers are not always driven by efficiency considerations; sometimes a merger ‘cascade’ occurs simply because the other guy is doing it, hubris, or even ‘empire-building.’ ”

Finger-Pointing on Insurers’ Mergers

The current political flashpoint is the two insurance-company mergers, Aetna’s acquisition of Humana and Anthem’s of Cigna. Advocates and detractors are in the midst of a heated “he said, she said” debate, hoping to influence the DOJ, which has taken the lead in investigating possible antitrust problems with both mergers. These prospective mega-mergers would result in larger companies competing in numerous markets, both in terms of the services provided and the geographic areas.

For example, the insurance companies provide administrative services to large, self-insured companies and offer health care services to individuals through the PPACA marketplaces, Medicare, and Medicaid. In both potential mergers, the new partners would have some overlap in products sold in particular geographic markets, but the overlap is not extensive. It appears likely that the DOJ will approve both mergers but require the two new giants to divest some business lines in some states.

Aetna’s $37 billion acquisition of Humana is almost entirely about enlarging its Medicare Advantage business. Aetna has traditionally been a large commercial health-insurance company. By appending Cigna and its Medicare Advantage business, Aetna would balance itself out between private and public health plans. The resulting combined Medicare Advantage market for the new company would be only 8%, which is not likely to cause DOJ angst. Moreover, the Medicare Advantage population is half of the Medicare fee-for-service population: 18 million versus 37 million. Aetna CEO Mark Bertolini explains:

We believe that the combination of Aetna and Humana will enhance competition at the local level by giving consumers a strong alternative to Blue Cross Blue Shield plans and other competitors. In this way, this combination is actually strongly procompetitive. Even after the acquisition, Aetna will continue to face significant competition from a large number of health plans and other new market entrants such as ACOs.

The Anthem/Cigna combo would also have a relatively small Medicare Advantage footprint—about 6%, according to a recent analysis by the Kaiser Family Foundation. Anthem does business in 20 states, primarily in New York, Ohio, and California. Cigna, meanwhile, does business in 15 states and the District of Columbia, primarily in Florida, Tennessee, Pennsylvania, and Texas. The companies thus have a highly complementary geographic footprint. As for the purchase of individual plans, where consumers obtain coverage directly for themselves (often through the exchange marketplaces or a broker), Anthem has a presence in 14 states and Cigna has a presence in 12 states. “The combined company would only share a limited number of rating regions within just five states, where there is now and will continue to be robust competition,” states Joseph Swedish, President and CEO of Anthem, Inc. “Underscoring this is the fact that consumers can now choose from an average of 40 health plans in states participating in the insurance exchange marketplace—an increase of 25% in 2015.”

Paul B. Ginsburg, PhD, Norman Topping Chair in Medicine and Public Policy at the University of Southern California, says the potentially problematic impacts of the Aetna/Humana merger appear mostly in the Medicare Advantage arena, where some local markets would become substantially more concentrated. These impacts can be addressed through divestitures, he believes.
However, the hospital and physician lobbies aren’t buying that procompetitive claim. Rick Pollack, President of the American Hospital Association (AHA), says:

The unprecedented level of consolidation these deals threaten could make health insurance more expensive and less accessible for consumers. This applies to health insurance purchased in the commercial market as well as Medicare Advantage (MA) plans. These deals also could further entrench the power of the Blues plans, which currently dominate the market in nearly every state.

The American Medical Association produced an analysis showing that there has been a near-total collapse of competition among health insurers, with seven out of 10 metropolitan areas rated as highly concentrated based on the DOJ and FTC Horizontal Merger Guidelines (2010) used to assess market competition. Moreover, 38% of metropolitan areas had a single health insurer with a commercial market share of 50% or more. Of course, just because one company holds 50% of any one market, that doesn’t necessarily guarantee market dominance.

Hospitals on the Defensive

While the hospitals are playing offense against the proposed insurance-company mega-mergers, they are more accustomed to playing defense because of antitrust issues in their own industry. The FTC has been very active in opposing hospital mergers in local markets for years. Ginsburg says: “The effects of mergers in health care on prices and quality of care have received a great deal of attention from economists. Much of the research has focused on mergers among providers, especially hospitals, and clearly shows that hospital mergers have led to higher prices without measurable effects on quality.” The United States has roughly 5,000 hospitals. Between 1998 and 2012, there were 1,113 mergers and acquisitions involving a total of 2,277 hospitals, according to the AHA’s Trendwatch Chartbook 2012: Trends Affecting Hospitals and Health Systems.

Although no high-profile hospital merger is in the works at the moment, such mergers have clearly been multiplying faster in the wake of the PPACA’s passage than they were before it. Health insurers have been sharply critical of hospital consolidations across the country, such as those in recent years between Trinity Health and Catholic Health East and between the Baylor Health Care System and Scott & White Healthcare. America’s Health Insurance Plans, the industry’s lobbying group, has said that when hospitals merge, it “comes with a price that consumers and employers simply cannot afford.”

Not only are hospitals combining, they are taking over the ambulatory surgical centers that provide less-expensive medical services than the hospitals’ outpatient wings. There are about 5,300 Medicare-certified ambulatory surgical centers across 50 states, according to the Ambulatory Surgery Center (ASC) Association. Medicare now pays ASCs about 56%, on average, of the hospital outpatient department payment rate for providing identical services. An analysis conducted by the association found that of 179 ASC closures since 2009, about one-third were a result of purchase by a hospital.

This disparity will worsen because reimbursements for outpatient surgery in general hospitals are automatically indexed to medical costs, while those in independent centers are adjusted by much-lower general inflation rates. That disadvantage for ASCs was compounded by the PPACA, which requires that payments to independent surgical facilities be further reduced in line with annual improvements in “medical productivity.”

The PPACA has, in some minds, greased the skids for mergers in a number of ways. Pope’s 2014 paper for the Heritage Foundation cited, for example, the medical loss ratio (MLR) requirement imposed on marketplace insurers. It dictates that they spend at least 85% of premium revenues for large groups (80% for small groups and individuals) on claims or “activities that improve health care quality.” The need for sufficient scale to comply with MLRs is likely to impede start-up providers, Pope wrote, while the requirement to minimize administration costs as a percentage of revenues can be expected to induce mergers.

In addition, the PPACA created barriers to physician-owned hospitals. The act requires that such hospitals must obtain a federal certificate of need. A so-called “Stark exception” had allowed physicians to have an ownership or investment interest in a hospital where they referred patients, but Section 6001 of the PPACA eliminated that option for physicians who did not have such provisions in place as of December 31, 2010. A physician-owned hospital also cannot expand its treatment capacity unless certain restrictive exceptions can be met. According to Greaney: “The ACA all but put an end to one source of new competition in hospital markets by banning new physician-owned hospitals that depend on Medicare reimbursement.”

A Dose of Pharmaceutical Mergers

Merger mania has characterized the pharmaceutical sector, too, with acquisitions by both brand-name and generics companies. A March 2015 Reuters story stated that 2015 pharmaceutical deals had “reached $59.3 billion, a 94% increase over that same period a year ago, and the highest value for this stage in any year since 2009.”

The battle cry for drug-company mergers may have been sounded in 2014 by Actavis CEO Brent Saunders, who said his company’s purchase of Allergen made Actavis a pioneer “in a new industry model: growth pharma.” Then came 2015. Valeant beat out Endo for the absorption of Salix. Valeant had tried and failed the year before to acquire Allergan. Endo lost out on Salix, licked its wounds, and vowed to look for other deals. It announced in late September that it was spending $8 billion to buy Par Pharmaceutical Holdings, which would make it a top-five generics company in the U.S. based on sales.

Two of the early 2015 mergers brought FTC-imposed divestitures. Impax agreed to divest all of CorePharma’s rights and assets to generic pilocarpine tablets and generic ursodiol tablets to settle FTC charges that Impax’s proposed $700 million acquisition of CorePharma would likely be anticompetitive. Another 2015 consent decree forced Sun to divest Ranbaxy’s interests in generic minocycline tablets after Sun bought Ranbaxy for $4 billion.

Consolidation of Pharmacy Benefit Managers

Valeant announced it was pulling back in its expansionist drive and focusing more on research and development (R&D). Health insurance companies such as Anthem and Aetna don’t have any basic-science R&D to fall back on. They do plenty of marketing R&D, however, and those efforts have informed their two mergers—especially, it appears, in the area of the benefits of pharmacy synergy. It is not clear whether one current PBM will win out in each of the mergers, or whether Anthem/Cigna will ditch both PBMs and start its own, for example. In the case of Aetna and Humana, Humana already runs its own PBM, but would it have to be scaled up to accommodate the lives Aetna brings to the combined companies? Could it be scaled up?

Steve Miller, Chief Medical Officer at Express Scripts, said in an interview last January that his company covers about 85 million people, for whom Express Scripts simply administers pharmacy benefits. About 25 million of those members are on the national preferred formulary, mostly for commercial clients. That group’s prescription drug choices are determined by Express Scripts. But Miller noted that noncommercial clients tend to follow the Express Scripts national formulary, too.

“Express Scripts has 85 million covered lives,” notes Berenson. “Will another 10 million increase its clout? I have trouble accepting that argument.”

Anthem’s Swedish was somewhat opaque about potential pharmacy benefits during a conference call this summer with investment analysts. “Regarding the PBM, I’d like to highlight that we do believe there is significant value and opportunity for the combined company and our customers from a better pharmacy contract.” But he seemed to indicate that there were some uncertainties around that “potential value” by adding, “That being said, we really want to take advantage of the time for our integration to look at the optionality that is available to our companies. And we think this requires a lot more research beyond that done through our due diligence.”

An Anthem spokesman did not respond to a question about what Swedish meant by “optionality.” Perhaps it was a reference to efficiencies in pharmacy operations that the new, larger company could achieve. However, David Balto, a Washington antitrust lawyer who formerly worked on health care issues at the FTC, says Anthem and Cigna, and Aetna and Humana, don’t have to combine their PBMs in order to have smarter pharmacy operations. “Target doesn’t have to combine with Walmart to become smarter,” he says. “It just has to roll up its sleeves and get better. Maybe that means hiring better managers away from rival companies. It doesn’t need a merger to do that.”

It is probably reasonable to assume that, given the size of the two prospective mergers, the DOJ may be a bit more severe in its requirements for letting the Aetna/Humana and Anthem/Cigna deals go through. That assumes the department doesn’t reject one or both deals. The DOJ showed its skepticism toward industry-changing mergers when it turned down Comcast’s acquisition of Time Warner Cable. In that case, according to Balto, the two companies did not compete in the same markets geographically and product-wise. The DOJ’s thumbs-down was the result of concerns that the new company would have a stranglehold as “gatekeeper” on “Internet-based services that rely on a broadband connection to reach consumers.” Such a concern, if translated to the health care mergers up for review, could result in a rejection of the mergers because of their impact as gatekeepers on hospitals and physicians, not because of any consolidation in Medicare Advantage or PPACA marketplace offerings.

Author bio: 

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

Congress Likely to Rein in 340B Drug Discount Program

P&T Journal - October 2015 - for the original online article go HERE or for a PDF go HERE.

The HRSA’s Draft Guidance and a Proposed Rule Give Legislators an Opening

Congress appears to be considering reining in a federal program that lets safety-net hospitals and community clinics use outpatient prescription sales to generate revenue. Repeated negative reports from federal watchdog agencies depict the 340B drug program as running off the rails for numerous reasons. The Health Resources and Services Administration (HRSA), the agency of the Department of Health and Human Services (HHS) that supervises the program, says it does not have the legal authority to provide the kind of oversight that is required. As of February 28, 2015, 11,180 providers were participating in the 340B program, according to HHS.¹ Hospitals buy 78% of the drugs purchased by those providers.

The HRSA Office of Pharmacy Affairs (OPA), which runs the 340B program, published a long-awaited “omnibus” draft guidance in late August ² ostensibly clarifying some key issues that the Government Accountability Office (GAO) and the HHS Office of the Inspector General (OIG) have highlighted as undermining program integrity. But guidance is not enforceable.

“Rulemaking allows us to be more specific about our regulations and gives us stronger enforcement ability,” states Diana Espinosa, HRSA Deputy Administrator. However, a 2014 federal court decision severely limited the OPA’s rulemaking authority, a situation only Congress can correct.

The omnibus draft guidance hit the street at about the same time that 340B players were commenting on a proposed rule from the HRSA having to do with the prices drug companies can charge eligible hospital patients.³ The omnibus draft guidance would limit the patients who would be eligible for discounted drugs. These latest events give Congress, which has long ignored the 340B program, a chance to legislate, taking into account complaints about the draft guidance and proposed rule and giving the OPA a stronger legal footing that can be translated into enforceable regulations.

Stephanie Silverman, spokeswoman for the Alliance for Integrity and Reform of 340B, a group composed of drug companies, pharmacy benefit managers (PBMs), and some patient groups, points out that there was bipartisan support for 340B reform legislation to be included in the 21st Century Cures bill the House passed in July by a vote of 344–77. But a 340B amendment came up late in the game, and legislators dropped it out of fear that stakeholders had not had enough time to vet the language.

Now that the draft guidance is out, “we’ll see where the holes are, and any legislation will be faster-moving,” Silverman states. “There is clearly bipartisan appetite for moving legislation.”

Josh Trent, a staffer at the House Energy and Commerce Committee, which held oversight hearings in March 2015, says he cannot comment on whether 340B remedial legislation is imminent. But the House has approved a new 0.1% fee on participants that is expected to generate $7.5 million in fiscal year 2017 to be used for program integrity (that is, additional audits). This would be added to an annual budget that in fiscal 2015 amounted to about $10 million.

Complaints About 340B

About one-third of the hospitals in the country and a large number of federally funded health clinics use the 340B program to generate revenue, in some cases millions of dollars, by selling discounted prescription drugs at outpatient clinics. Hospitals and clinics love the program. Pharmaceutical manufacturers, PBMs, and others hate it. John J. Castellani, President and CEO of Pharmaceutical Research and Manufacturers of America, says:

Current hospital qualification criteria is misaligned with Congress’ goal of supporting vulnerable patient access to prescription medicines. We owe it to these patients to ensure that the program remains sustainable in the future and, as such, it is critical to revise the eligibility criteria for hospitals and improve accountability and oversight.

The push by drug manufacturers to convince Congress to reform the 340B program gained support in June from a newly released GAO report.⁴ The GAO looked at a sample of 340B hospitals and found they were billing Medicare for higher drug costs under Part B than non-340B hospitals. Part B drugs are typically provided in a physician’s office; a considerable percentage of those drugs are oncology medicines. “This indicates that, on average, beneficiaries at 340B disproportionate-share hospitals were either prescribed more drugs or more expensive drugs than beneficiaries at the other hospitals in GAO’s analysis,” the GAO said.

Hospital groups disputed the GAO’s methodology. Bruce Siegel, MD, CEO of America’s Essential Hospitals (a trade group for safety-net hospitals), said in a statement: “We’re surprised not only by the lack of evidence and data for GAO’s conclusions and recommendations, but also by its suggestion that physicians in our nation’s essential hospitals would ignore patient needs to enrich hospitals.”

For their part, hospitals have complained about manufacturers overcharging and refusing to provide pricing information required by the 2010 Patient Protection and Affordable Care Act (PPACA). One of its provisions mandated that manufacturers report 340B prices to the HHS, which would make those prices public. That has not happened. HRSA’s Espinosa says the new pricing system will be operational in late 2015.

340B Program Details

Congress established the 340B program in 1992. To qualify to sell discounted 340B pharmaceuticals, hospitals and clinics, called “covered entities” in the program’s argot, must serve a large number of uninsured patients. The qualification standard relies on an indirect measure of the percentage of hospital patients covered by Medicaid. Covered entities include safety-net hospitals (referred to as disproportionate-share hospitals) owned or operated by state or local governments, as well as federal grantees such as federally qualified health centers (FQHCs), FQHC look-alikes, family planning clinics, state-operated AIDS drug-assistance programs, Ryan White CARE Act grantees, sexually transmitted disease clinics, and others as identified in the Public Health Service Act.

Drug companies must sell their medicines to 340B out patient pharmacies at discounts of 25% to 50% if they want to sell to state Medicaid programs. The 340B cost for a drug paid by covered entities—sometimes referred to as the 340B ceiling price—is based on a statutory formula and represents the highest price a drug manufacturer may charge covered entities. It is based on the price companies charge Medicaid programs for that drug. Manufacturers are permitted to audit covered entities’ records if they suspect product diversion or multiple discounts are taking place. Occasionally, the formula results in a negative price for a 340B drug. In these cases, HRSA has instructed manufacturers to set the price for that drug at a penny for that quarter—a directive known as HRSA’s penny pricing policy.

The covered entities make their revenue by encouraging qualified patients—and the definition of patient is among the rubs—with commercial insurance to use those 340B pharmacies. There is no family income cap on patient eligibility; millionaires with or without health insurance and the destitute are both eligible to visit 340B pharmacies. The hospital or clinic then bills the insurance company of insured patients for the full price of the drug, and pockets the difference between that price and the discounted price.

Some programs provide 340B drugs to prison inmates, a fact that appeared to take one House subcommittee chairman by surprise. David Bowman, an HRSA spokesman, explains that under current law, correctional facilities are not 340B covered entities eligible to purchase drugs under the 340B Drug Pricing Program. However, these facilities and their patients may be eligible for the 340B program under certain circumstances:

• In the case of hospitals, if the clinic at which the covered entity provides health care services to incarcerated persons is an integral part of the hospital and the clinic is listed as reimbursable on the entity’s most recently filed Medicare cost report, then the clinic may be eligible.
• For other covered entities, if the clinic where the covered entity provides health care services to incarcerated persons is within the scope of its grant, then the clinic may be eligible.

“There are a very small number of 340B covered entities, 29, that currently operate sites within a prison, jail, or detention center,” Bowman says.

Criticism of the Program

The OIG has evaluated and audited the program for more than a decade, focusing on the impact of 340B on federal Medicaid and Medicare spending. From the start, the OIG found numerous deficiencies in HRSA’s oversight of the program.¹ These deficiencies included inaccurate information about which providers were eligible for the discounted prices and a lack of systematic monitoring to ensure that drug manufacturers were charging 340B providers the correct prices. In the latter case, confidentiality protections prevented HRSA from sharing the ceiling prices with the 340B providers, leaving them in the dark as to whether they were being charged correctly by drug manufacturers. The PPACA provision was supposed to eliminate that problem.

The lack of price transparency can result in the federal government and states paying more for drugs for Medicaid patients than otherwise necessary. Medicaid patients are eligible to receive 340B drugs. States pay for 340B-purchased drugs when 340B providers dispense them to Medicaid patients. Many states have established Medicaid policies to pay for 340B-purchased drugs at 340B providers’ actual acquisition cost; these policies ensure that Medicaid realizes savings from the discounted 340B prices. However, OIG found that without access to 340B ceiling prices, states are unable to implement automated, prepayment edits to enforce these policies. A decade ago, the OIG found that 14% of prices charged by drug companies were too high, resulting in overcharges of $3.9 million a month.⁵ That report has never been updated.

Apart from the impact of opaque and excess pricing on Medicaid expenditures, the increasing number of contract pharmacies used by covered entities—first allowed by HRSA in 2010—has made it difficult for state Medicaid programs to determine which 340B claims are actually eligible for reimbursement at the higher rate. A corollary to this problem is that confusion over claims can result in drug manufacturers having to offer discounts for the same patient and drug twice. Duplicate discounts occur when drug manufacturers pay state Medicaid agencies rebates under the Medicaid drug rebate program on drugs they sold at the already-discounted 340B price.

The contract pharmacy expansion the OPA allowed in 2010 also complicates a pharmacy’s ability to know whether a particular customer is eligible for 340B pricing. The pre-2010 guidance specifies that an individual is an eligible patient only if he or she has an established relationship with the 340B provider, he or she receives health care services from the 340B provider, and those services are consistent with the service or range of services for which federal funding is being granted. That determination was much easier to make prior to 2010, when eligible patients could obtain 340B drugs only from the hospital’s inpatient pharmacy.

Now covered entities send their ostensibly eligible patients to retail pharmacies, which have a much more difficult time determining whether their customer is 340B-eligible. Most do that after the fact, often matching information from the 340B providers, such as patient and prescriber lists, to their dispensing data. “Depending on the interpretation of HRSA’s patient definition, some 340B provider eligibility determinations would be considered diversion and others would not,” says Ann Maxwell, OIG’s Assistant Inspector General for Evaluation and Inspections.

The GAO has focused more on the impact of 340B idiosyncrasies on Medicare spending. The GAO’s latest report in June reported higher spending by Medicare for drugs sold to patients at 340B hospitals than at non-340B hospitals.⁴ The Centers for Medicare and Medicaid Services, which administers the  Medicare program, uses a statutorily defined formula to pay hospitals for drugs at set rates regardless of hospitals’ costs for acquiring the drugs. The report states:

Therefore, there is a financial incentive at hospitals participating in the 340B program to prescribe more drugs or more expensive drugs to Medicare beneficiaries. Unnecessary spending has negative implications, not just for the Medicare program, but for Medicare beneficiaries as well, who would be financially liable for larger copayments as a result of receiving more drugs or more expensive drugs. In addition, this raises potential concerns about the appropriateness of the health care provided to these beneficiaries.

“The federal government doesn’t know where the dollars are going,” says U.S. Representative Renee Ellmers (R-North Carolina). She cites a study by the IMS Institute for Healthcare Informatics that found the cost of 10 chemotherapy infusion drugs was 189% higher at the 340B hospitals than at private physicians’ offices.⁶

The HRSA in many cases does not have the legal authority to respond to these programmatic weaknesses. In May 2014, a ruling by the U.S. District Court for the District of Columbia said HRSA could issue legally binding, enforceable regulations in only three areas, which did not include the definition of a patient, participation of contract pharmacies, and hospital participation in the program. U.S. Representative Fred Upton (R-Michigan), Chairman of the House Energy and Commerce Committee, says HRSA’s inability to issue regulations is “hampering the ability of the agency to manage the program as we’d like.”

Congress Becomes More Attentive to 340B

The GAO and OIG reports, with their negative implications for federal health care spending, along with the federal court decision, have apparently forced Congress to revisit a program it has long ignored. Moreover, the PPACA’s support for expansion of state Medicaid programs—28 states have done that so far—means that far fewer poor individuals are uninsured and that uncompensated care at hospitals is falling sharply as a result.

At hearings in March—the first 340B oversight hearings the committee had held since 2005—U.S. Representative Joe Pitts (R-Pennsylvania), Chairman of the House Energy and Commerce health subcommittee, asked Debbie Draper, Director of Health Care at the GAO, whether the PPACA’s Medicaid expansion means the access of hospitals to the 340B program should be circumscribed. Her response: “That is an interesting question, and difficult to answer because much has changed in the health care landscape the last few years. The bigger question is, what is the intent of 340B? There is lack of clarity around that.”  HRSA’s Espinosa agrees. “The law doesn’t specify how the savings hospitals earn from 340B should be used,” she says.

Aside from the kind of technical, definitional, and accounting shortcomings plaguing the program, there is also the matter of the program’s objective. When Congress established the 340B program in 1992, the rationale was that hospitals and community clinics serving low-income patients needed a way to stretch scarce resources, allowing them to reach more eligible patients and provide more comprehensive services. Rather than set up a grant program using federal dollars, Congress forced drug manufacturers to sell medications at a discounted price and allowed hospitals to raise revenue via the differential between the discounted price and the price they billed insurance companies when an insured person purchased those drugs. It was not clear, however, which patients were eligible to purchase the discounted drugs, and whether the program’s purpose was to help the poor and uninsured afford expensive drugs or to allow hospitals in poorer communities to fund their operations.

The GAO’s Maxwell, when asked by Pitts about the impact of the reduction in uncompensated hospital care, replied, “The bigger problem is the intent of the 340B program.” Echoing Draper, she added: “There is a lack of clarity on that.”

This lack of clarity looms larger every year as the program expands almost geometrically, with the result that both hospitals, for their reasons, and drug manufacturers, for their reasons, complain louder and louder about unqualified patients using the program and about rogue drug company pricing. In 2010, Congress in the PPACA allowed states to expand the number of Medicaid patients they serve, which had the contradictory effect of first boosting the number of hospitals that are eligible (because eligibility is tied loosely to a hospital’s Medicaid population) and simultaneously reducing uncompensated hospital care.

The PPACA also expanded the kinds of health care settings that could qualify for the 340B program to: 1) certain children’s and free-standing cancer hospitals excluded from the Medicare prospective payment system; 2) critical-access hospitals; and 3) certain rural referral centers and sole community hospitals. In 2011, the number of hospitals participating in the program was nearly three times what it was in 2005, and the number of these organizations, including their affiliated sites, was close to four times what it was in 2005, according to the GAO. Hospitals’ participation in the 340B program has grown faster than that of federal grantees; the number of participants increased almost threefold from 2005 to 2011. Disproportionate-share hospitals alone represent about 75% of all 340B drug purchases.

In 2010, HRSA pumped up the program by allowing hospitals to sell discounted drugs from outpatient pharmacies located off a hospital’s main grounds. Before, sales were only allowed where a pharmacy was located next to an inpatient facility.

HRSA’s Response

It wouldn’t be fair to blame the OPA entirely, or even mostly, for the shortcomings of the 340B program. Congress provided some weak underpinnings initially and then piled more program complexities on top of that shaky foundation. Congressional appropriations for the program have been anemic, particularly until 2009, when the program’s budget was $1.5 million. It has risen to $10 million a year, but that still makes it one of the worst-funded federal agencies with enforcement responsibilities. The program’s visibility is almost nil. The OPA, whose sole responsibility is the 340B program, isn’t even listed with the other “offices” on the HRSA organizational chart.

Additional congressional appropriations over the past few years have allowed the OPA to begin auditing—mostly hospitals and not many drug manufacturers. The OPA has conducted about 50 to 100 audits a year since fiscal 2011, according to its website. Looking through the summaries of the most recent audits in fiscal 2015, the vast majority of hospitals that were audited either terminated their contract pharmacies or repaid manufacturers because of diversion of 340B drugs to unqualified patients.

Some of that diversion will go away based on the proposed restrictions in the draft guidance on patients eligible for 340B drugs. Hospital groups aren’t happy about the new restrictions. 340B Health, a trade group representing safety-net hospitals who take advantage of the program, says it hopes “safety-net health care providers will not find themselves limited in their ability to meet their mission to treat the underserved.” So there will be pushback, undoubtedly, against the proposed definitional changes to “patient.” And in any case, whatever the language in the final guidance, it will still just be guidance. The HHS won’t be able to enforce it unless Congress encodes the changes into law.

Author bio: 

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