Employers and Drugstores Press for PBM Transparency

P&T Journal - March 2015 - for the original online version of this article go HERE or a PDF version HERE.

Six years ago, Robert Schenk, who administered drug prescriptions for the Meridian Health Systems employee health plan, started to scratch his head over medication costs. Meridian, a nonprofit that owns and operates six hospitals in northern New Jersey, had hired Express Scripts in hopes that the pharmacy benefit manager (PBM) would reduce the system’s spending on drugs for employees, according to a 2013 article in Fortune magazine.

Schenk had once owned two small-town drugstores, so he knew some of the arcane practices underlying PBM pricing. He discovered that Express Scripts was charging the Meridian health plan $92.53 for a generic amoxicillin prescription filled at an outside pharmacy. Schenk was able to do something that others in his position could not: figure out the “spread,” the difference between what the PBM charges the health plan and what it pays the pharmacy. Most health plans do not have access to the PBM’s payment to the pharmacy, so they can’t compare the two. But Schenk could determine what Express Scripts was paying Meridian’s outpatient pharmacy to fill the same prescription: $26.91. That meant a spread of $65.62 on one bottle of a generic antibiotic. PBMs argue that spreads are part of a revenue balancing act. “When evaluating spread pricing, it is important to take into account all drugs, including those that the PBM takes a loss on,” says David Whitrap, an Express Scripts spokesman.

It is perfectly legal for a PBM to charge a spread of any size. But the extent of that spread is not disclosed pursuant to a contract, nor is the price per prescription the PBM pays a retailer or its direct-mail pharmacy. “Most PBMs do not disclose to employers either the price that they pay to retail pharmacies or drug acquisition costs for their mail operations, which makes the PBM spread nontransparent to sponsors,” explains Patricia M. Danzon, PhD, Celia Moh Professor at the Wharton School of the University of Pennsylvania.

Nor does a PBM disclose the rebates it receives from a drug manufacturer, often as a reward for privileged placement on the PBM formulary—although contracts sometimes guarantee a health plan a specific percentage of that rebate. Then the transparency issue becomes the degree to which the plan can audit the PBM rebates. In certain circumstances, that can be difficult to do. Susan A. Hayes, an accredited health care fraud investigator who is Principal of Pharmacy Outcomes Specialists, has consulted with more than 1,000 plan sponsors. She says the $15,000 to $200,000 cost of audits can be prohibitive for smaller firms. “PBMs make it near impossible to audit both their ‘secret agreements’ for rebates with pharmaceutical companies and retail network agreements with pharmacy chains,” Hayes explains. “If the PBM is acting on behalf of the plan sponsor to negotiate rebates or network arrangements, why keep the rebate agreements secret from the entity you are working for?”

Therein lies the controversy over PBM transparency, or the lack thereof, which appears to be headed for a higher profile because of recommendations from a U.S. Department of Labor (DOL) committee. An upcoming report and recommendations in September 2014 from the DOL’s ERISA Advisory Council¹ give new life to efforts by the business community and the retail pharmacy industry to convince the DOL to require more transparency from PBMs. ERISA (the Employee Retirement Income Security Act) is the federal law that covers corporate pension and health care plans. For a decade, employer groups, backed by pharmacy trade organizations, have been trying to convince the DOL to issue regulations requiring PBMs to provide more information about the compensation they receive from pharmaceutical manufacturers and other suppliers.

Under current law, PBMs serving ERISA health plans have to file a Schedule C that includes a Form 5500. The kinds of reportable data include dispensing fees the PBM pays to a pharmacy and payments the PBM makes for ancillary administrative services such as record-keeping, data management, information reporting, formulary management, participant health desk service, benefit education, utilization review, claims adjudication, participant communications, reporting services, website services, prior authorization, clinical programs, and pharmacy audits.

“However, PBMs generally do not currently disclose the specific details of their arrangements with pharmaceutical manufacturers,” concedes William Kilberg, a Washington attorney with Gibson, Dunn, & Crutcher, LLP, who represents the Pharmaceutical Care Management Association, the PBM trade group. He adds that it is the retail pharmacy industry, not employer health plans, that is pushing the DOL to ramp up PBM transparency requirements. “They want to obtain information regarding PBMs’ arrangements with pharmaceutical manufacturers because they believe it would allow them to obtain better deals from PBMs for their benefit,” he argues. “ERISA plans and other consumers would not obtain any benefits from this outcome.”

Amanda Beck, Vice President of Public Affairs for the HR Policy Association, which represents human resource officers at Fortune 500 companies, says large corporations are very interested in seeing the DOL continue to investigate, although she notes that PBMs serve an important role in keeping employees healthy and productive. “But the industry is beset with a lack of transparency that is difficult to deal with even for the largest employers,” she adds. “Unfortunately, benefit consultants, who are often relied upon to help employers with complex situations, are often aligned with specific PBMs, thereby limiting their independence.”

The DOL has been paying more attention to ERISA transparency issues lately, making it more likely the department will move into PBM rule-making. Rules for covered service providers (CSPs) to pension plans were upgraded in 2012. These rules go beyond the Schedule C disclosure standards. CSPs must give responsible fiduciaries information they need to assess the reasonableness of total compensation, both direct and indirect, received by the CSP, its affiliates, and/or subcontractors. That compensation must be expressed as a monetary amount, formula, percentage of the covered plan’s assets, or per capita charge, or by another reasonable method when compensation cannot be expressed in such terms. CSPs can provide “good faith estimates” when they cannot otherwise describe compensation or cost, but the methodology and assumptions used to prepare such estimates must be explained.

Is a DOL Regulatory Initiative Coming Up?

CSP rule-making in 2012 provided momentum for the DOL to move forward on PBM transparency—hence the hearings held in June 2014 by the ERISA Advisory Council. In September 2014, the ERISA Advisory Council made two recommendations:¹

• The DOL should consider making Section 408(b)(2) regulations—the 2012 enhanced disclosure rules that cover CSPs—apply to welfare plan arrangements with PBMs. That would deem such arrangements reasonable only if PBMs disclose direct and indirect compensation, including compensation paid among related parties such as subcontractors.
• The DOL should consider issuing guidance to assist plan sponsors in determining whether and how to conduct a PBM audit of direct and indirect compensation.

“In the past, some council recommendations have led to regulatory projects,” says Michael Trupo, a DOL spokesman. “The department looks forward to reviewing the council’s final reports when they are submitted.”

At the council hearings last June, several corporate representatives and the National Community Pharmacists Association (NCPA) pressed for greater PBM transparency. Allison Klausner, Assistant General Counsel on Benefits for Honeywell International Inc., says her company “would support a Department of Labor effort to draft new or modify existing regulations that demand PBMs to provide greater transparency with respect to how PBMs provide their services and with respect to their sources of fees and compensation.” And when the council’s recommendations were released, B. Douglas Hoey, RPh, MBA, the NCPA’s Chief Executive Officer, said: “We commend the ERISA Advisory Council on its action and we are also excited that U.S. Labor Secretary Thomas Perez has indicated his desire to ensure those long-overdue changes are implemented.” Pharmacies have argued they are victims of spread pricing.

One could argue that transparency is even more important as PBMs sign deals with drug manufacturers for formulary placement of expensive specialty drugs. Both independent PBMs such as Express Scripts and PBMs owned by insurance companies have announced deals with Gilead Sciences and AbbVie for placement of their hepatitis C drugs. Gilead’s Sovaldi and Harvoni cost $84,000 and $94,500 per treatment cycle, respectively. AbbVie’s Viekira Pak costs more than $83,000. None of the PBMs or insurers has disclosed what they would be paying per patient, what the rebate structure will be, or what portion of any rebates health plan customers will receive.

Kilberg says that there is enthusiastic competition among PBMs for ERISA health plan business and that the competition assures companies of getting fair pricing and maximum contract transparency, an assertion the Federal Trade Commission (FTC) has backed repeatedly over the past decade. “The FTC has consistently opposed regulatory initiatives that would mandate PBMs to disclose their trade secrets and other proprietary information, such as their arrangements with pharmacies and pharmaceutical manufacturers,” he adds. “As the FTC has concluded, there is no reason to believe that mandatory disclosures of PBM-related information will help consumers. In fact, they almost certainly would have the unintended effect of driving up prescription drug prices, further increasing the costs borne by ERISA health care plans.”

Transparency Rules for Federal Health Plans

Three PBMs control the lion’s share of the market: Express Scripts, CVS/Caremark, and Catamaran. Health plans such as Aetna, Humana, and UnitedHealthcare also own PBMs. Mid-size PBMs include EnvisionRxOptions, MedImpact, and Benecard.

Massive fines paid by PBMs in the past decade, often concerning rebates from drug manufacturers, fuel the concern among health plans and pharmacies that PBMs are not trustworthy. These cases were initiated by federal and state law enforcement officials because federal health plans such as Medicare and Medicaid were involved. Different laws apply to those health plans and the PBMs that serve them compared with employer health plans. At least that has been true to date.

AdvancePCS, which is now part of CVS/Caremark, paid $137.5 million in damages for kickbacks, submission of false claims, and other rebate issues in 2005; the violations predated Caremark’s acquisition of AdvancePCS in 2004. “These kinds of rebates and hidden fees disguise the true cost of what we’re paying,” U.S. Attorney Patrick L. Meehan said at the time. In 2008, Express Scripts paid a $9.5 million fine for drug-switching and for illegally retaining rebates, spread profits, and discounts in cases involving federal health plans, not ERISA health plans.

The difficulty that federally sponsored health plans have had with PBMs probably influenced the inclusion of PBM transparency rules in the Patient Protection and Affordable Care Act (PPACA); those rules apply to federal and state marketplace and Medicare Part D health plans. The Department of Health and Human Services (HHS) requires qualified health plans to provide HHS with the following information:

• The percentage of prescriptions provided through retail and mail pharmacies
• Generic dispensing rates by type of pharmacy
• The aggregate amount and type of rebates, discounts, or price concessions attributable to patient use under the plan
• The aggregate amount of rebates, discounts, or price concessions passed through to plan sponsors
• The aggregate amount of the difference between what a plan pays the PBM and what the PBM pays pharmacies
• The total number of prescriptions dispensed

Even these PPACA transparency rules leave something to be desired from a consumer standpoint. “The limited nature and strong confidentiality protections for these disclosures was an intentional decision of Congress, following input from the FTC, because of the negative impact such disclosures would have on the marketplace,” Kilberg states.

The Centers for Medicare and Medicaid Services has gone further by adopting new transparency rules for Medicare Part D drug plans, many of them run by or through PBMs. The new requirement mandates that Part D plans and their PBMs make available to all contracted pharmacies the reimbursement rates for drugs under maximum allowable cost (MAC) pricing standards. This requirement takes effect for the 2016 contract year.

The Arcane World of PBM Pricing

Knowledge of a basic lexicon is required just to begin deciphering the complex world of PBM pricing. Typically, generic drugs are priced on a MAC basis and brand-name drugs on an average wholesale price (AWP) basis. An AWP is set by a private company, Medi-Span, which takes the drug price manufacturers charge the wholesaler, called wholesale acquisition cost (WAC), and increases it, typically, by 20%. Wholesalers distribute and sell drugs to pharmacies, adding a small margin (roughly 2% to 3%).

Unlike AWP, which is a list price set by third-party database companies, each PBM sets its own MAC reimbursement prices for pharmacies. These PBM-generated MAC lists include the upper limit or maximum amount that a PBM will pay for generic drugs and brand-name drugs for which generic versions are available. There is no standard methodology for deriving MAC lists. Neither plan sponsors nor retail pharmacies are told how products are added or removed from a MAC list or the methodology that determines how the maximum cost is calculated or adjusted. “Essentially, the PBMs reimburse low and charge high with their MAC price lists, pocketing the significant spread between the two prices,” says David Balto, former Policy Director of the Office of Policy and Evaluation for the FTC’s Bureau of Competition. “Most plans are unaware that multiple MAC lists are being used and have no real concept of how much revenue the PBM retains.”

Brand-name manufacturers pay rebates for formulary placement, but those rebates have become much less of a factor in the PBM revenue stream as generic drugs have grown to account for around 80% of prescriptions dispensed. As PBMs have made less money on rebates for brand-name drugs, they have pumped up the spreads they earn on generics.

“Spread pricing” is one of the two methods PBMs use for billing clients. The other is called “transparent pricing.” In spread arrangements, PBMs negotiate with drug marketers to get aggressive, low contracted rates for retail and mail-order drugs and invoice their plan-sponsor clients at higher contracted rates, profiting from the difference, or “spread.” The spread is kept by the PBM and usually not disclosed to the plan sponsor.

Transparent or “pass-through pricing” arrangements involve a contract in which a PBM charges a client a flat administrative fee per claim or per member, and the client pays the exact purchase price or reimbursement rate for the drug that the PBM has negotiated. However, it is important to define the terms subject to the transparency arrangement. For example, market share rebates or payments the PBM receives from a manufacturer for placing a drug on a formulary may be subject to the transparency arrangement, but fees paid to the PBM for clinical programs might not be.

The FTC Has Opposed PBM Transparency

The FTC has given the PBM industry considerable cover in its efforts to ward off new transparency requirements. In 2009, the FTC strongly objected to a proposed New York statute that would have required PBMs to make substantial disclosures to health plans during contract negotiations and annually thereafter. The FTC noted that “health plans appear able to protect themselves … through arm’s-length contracts.” The FTC concluded that “[a]llowing competition among PBMs is more likely to yield efficient levels of payment sharing, disclosure, and price than contract terms regulated by government regulation.”

“In short,” Kilberg argues, “the FTC’s longstanding position with respect to each state’s proposed PBM disclosure regime has been clear and consistent: Mandated disclosures can lead to tacit collusion, which can lead to higher prices. Far from benefiting ERISA plans and consumers of prescription drugs, it is the consumers, including health-plan participants and beneficiaries, who are the ultimate losers in such a scenario.”

The problem with rebates is not so much what the PBM receives, but whether the PBM is transferring to the ERISA plan whatever the contract obligates it to provide (assuming the contract requires some transfer, as most do). Large corporations are much more likely to be able to negotiate access to information about rebates and other payments the PBM receives. And studies have shown that PBMs are transferring about 60% to 80% of rebates to clients. But to ascertain that the PBM is doing what its contract mandates, the company has to be able to audit the PBM. That can be a problem.

Plan sponsors may use a variety of techniques to audit PBMs. These may include a pre-implementation audit, which tests the PBM plan design and financial set-up before it goes into effect; a plan design audit, to ensure plan rules are being followed; and a financial audit, which reviews pharmacy claims-level data to verify that all contractual financial guarantees are met. PBM audits can be effective, but they are limited by a number of factors.

The plan sponsor can only audit those items to which the PBM will allow access under the contract terms. Consequently, for example, in a traditional PBM arrangement, the plan sponsor would not be allowed to audit the “spread” because that is not a financial term that is disclosed to the sponsor as part of the arrangement. Plan sponsors may, however, be able to audit rebates if that was negotiated in the contract. In addition, PBMs generally refuse to allow audits unless they pre-approve the auditor. Consequently, the plan sponsor’s choice of auditors is often limited. Finally, PBM audits can be time-consuming and costly, and many plan sponsors have limited resources for this process.

It is true that the drugstore industry and ERISA employers with health plans have somewhat different problems with PBMs. But both are on offense while PBMs are on defense, given the Labor Department’s perceived receptivity to new regulations as shown by its expansion of pension-provider transparency, PPACA transparency rules, and Medicare Part D initiatives. All of these changes (except the covered service provider rules) forced PBMs to disclose more than they really wanted to.

ERISA Advisory Council, U.S. Department of Labor. PBM compensation and fee disclosure. November 2014;Available at: http://www.dol.gov/ebsa/publications/2014ACreport1.html. Accessed January 22, 2015.

Author bio: 

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

In Turnaround, FERC Proposes to Allow Surcharges to Fund Modernization

Pipeline & Gas Journal - February 2015 - for the original online version of this article go HERE.

In a departure from past policy, the Federal Energy Regulatory Commission (FERC) is considering allowing interstate pipelines to recoup the costs of complying with federal environmental and safety regulations.

FERC would allow pipelines to insert simplified mechanisms, such as trackers or surcharges, into contracts with shippers. FERC allowed trackers in an isolated case involving Columbia Gas Transmission when it issued a final order in January 2013. Prior to that, the Commission stated that recovering those costs in a tracking mechanism was contrary to the requirement to design rates based on estimated units of service.

Joan Dreskin, the general counsel for the Interstate Natural Gas Association of America (INGAA), called the proposal a "very positive" development. She said that once it becomes final, it won't open a  floodgate of requests for a number of reasons, for example, because some pipelines face more competitive marketplaces than others.

Also, the timing of new environmental and safety requirements may not parallel one another, raising a question about the best timing to negotiate a "tracker" into a contract with a shipper. And those contracts, as was the case with Columbia, will require pipelines to make extensive shipper rate concessions, and provide consumer protections.

It appears FERC's tentative decision to change policy and allow trackers stems in good part from passage of the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011. That law requires transmission companies to undertake new maintenance initiatives. Even prior to passage of that law, the federal Pipeline and Hazardous Materials Administration (PHMSA) had issued a first-step regulatory proposal, never finalized, which could lead to broadened integrity management requirements, including expanded high-consequence areas. Moreover, the Environmental Protection Agency is considering a regulatory proceeding meant to decrease methane emissions from compressors.

Giving certain and potential new federal requirements, the Commission says it is proposing the proposed Policy Statement "in an effort to ensure that existing Commission ratemaking policies do not unnecessarily inhibit interstate natural gas pipelines’ ability to expedite needed or required upgrades and improvements."

The FERC order approving the contested Columbia settlement (the state of Maryland was among the most vociferous opponents) came in January 2013. The Columbia system stands out because both its pipelines and compressors are, for the most part, of pre-1970 vintage, before pipeline safety rules went into effect.

The majority of its system cannot accommodate inline inspection and cleaning tools. Fifty-five percent of its more than 300 compressor units were installed before 1970. FERC approved a capital cost recovery mechanism (CCRM) allowing Columbia to raise up to $300 million annually for a modernization program. The $300 million is being collected via a rate base multiplier of 14%.

In 2013 and 2014, Columbia spent $626 million to place 73 modernization projects in service including 82,692 horsepower at eight compressor stations and retired 92 miles of bare steel and wrought-iron pipeline.

All Columbia shippers supported the tracker, which was cushioned by substantial rebates, including an annual $35 million rate reduction (retroactive to Jan. 1, 2012), and an additional base rate reduction of $25 million each year beginning Jan. 1, 2014, both reductions to end on the effective date of Columbia’s next section 4 general rate case, or a subsequent NGA section 5 rate adjustment.

Columbia also agreed to initial refunds to firm shippers of $50 million in two equal installments, a rate moratorium through Jan. 31, 2018 and an NGA section 4 general rate filing obligation no later than Feb. 1, 2019. Only the Maryland Public Service Commission (MPSC) opposed it, arguing the tracker would shift the burden of investment costs from Columbia to its customers, and its approval could start down a slippery slope toward such mechanisms replacing rate cases as the primary method  for recovering major investment costs.

But Regina Davis, spokeswoman for the MPSC, said those objections would not be voiced today. That is because the Maryland General Assembly enacted the Strategic Infrastructure Development and Enhancement (STRIDE) legislation in 2013 which authorizes tracker-based infrastructure investment rate proceedings.

That STRIDE statute and the policy underlying it were recently applied in a number of Maryland PSC cases. "Therefore, the Maryland PSC precedent relied upon in opposing the Columbia Gas would no longer be argued in the way that it was if a case similar to the Columbia case came up today," she explained.

Author bio: 

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

Insurance Companies Struggle to Balance Medical and Pharmacy Networks

P&T Journal - January 2015 - for a PDF copy of the published version go HERE.

Cost and Access Are Often at Odds; Enrollees Are Caught in the Middle

As of January 1, 2015, the facilities and physicians of the University of Pittsburgh Medical Center (UPMC) are no longer available to members of the Highmark health plans offered on the marketplace exchange in Pennsylvania and through Medicare Advantage. Or maybe they are available, at least in some cases. Highmark and UPMC, which has its own health plan, are going through a messy divorce. The split has left the region’s health insurance customers wondering whose network is a better deal—that is, if they can figure out which physicians and hospitals are “in network” for each plan.

That is the situation confounding Highmark members, especially, in the new year as UPMC facilities, part of UPMC’s health plan, partly depart from the Highmark plans as a result of consent decrees signed by the UPMC and Highmark plans. UPMC decided to pull its 22 hospitals out of the Highmark plans after Highmark in 2011 bought the West Penn Allegheny Medical Center, whose eight hospitals compete with UPMC’s 22 hospitals in several counties in the western Pennsylvania area. Highmark bought West Penn to lessen its dependence on UPMC hospitals, where services presumably cost more. UPMC sought a divorce, but there were legal problems—hence the consent decrees.¹ As of January 1, Highmark patients have access to some UPMC physicians and hospitals in network, but others will be out of network. In fact, some UPMC doctors at UPMC hospitals will be in network for Highmark subscribers, while that same doctor at a different UPMC hospital may be out of network. Some employers have thrown up their hands and dropped Highmark for a national insurer with an open network. Westinghouse, for instance, left Highmark, which it used for employees who wanted a preferred provider organization (PPO), and went with Aetna.

Steven Shapiro, MD, UPMC’s Executive Vice President, explains, “We now are spending a lot of time trying to educate the patients so that they know that, for example, the UPMC doctors within the greater Pittsburgh region are out of the network except if it’s [a] children’s hospital, psychiatric, oncology, or emergency services. The same physician who is out of network in Pittsburgh could be in network outside of Pittsburgh, so you get the point. It’s very confusing,” confusion over which physicians, facilities, and pharmacies are in networks put together by insurance companies appears to be an issue among enrollees in marketplace plans under the Patient Protection and Affordable Care Act (PPACA) and Medicare Advantage plans. But signs of uneasiness about networks, which health plans use to control costs and keep premiums from exploding (though rarely for ensuring quality), have spread far and wide. Even members of accountable care organizations (ACOs) are apparently restive. Seniors in Medicare Part B whose physicians are members of ACOs are automatically assigned to an ACO, although they can opt out. But ACO patients are not required to visit the network’s providers; there is no penalty, in terms of copayments or deductibles, for going out of the ACO’s network. Patients who do so make it a lot harder for the ACO to manage patient costs and quality. That flight of ACO patients to non-ACO physicians has made it much more difficult for Pioneer ACOs (which have the strictest requirements from Medicare) and even more conventional ACOs to earn profits, which is why many ACOs are leaving the program.

The dissatisfaction with Medicare Part D drug plan networks has a different nature. The Centers for Medicare and Medicaid Services (CMS), which runs Medicare, reports that seniors are choosing—not departing—plans based on the availability of a preferred network offering lower prices. However, these networks may not include pharmacies convenient for the enrollee, and they may not offer lower prices than pharmacies outside of the preferred network. Often, the Part D plans use mail-order options through pharmacy benefit managers (PBMs) as their preferred option. Pharmacies at mega-retailers such as Walmart are also often included in the preferred tier. Members who want to drive around the corner to their neighborhood pharmacy, or to the on-site pharmacy at their nearby hospital—in effect going out of the preferred tier, which is a second cousin to going out of network—are charged a higher price for the prescription. Groups such as the Consumers Union, Medicare Rights Center, and National Senior Citizens Law Center are supporting congressional legislation that would allow community pharmacies in medically underserved areas to participate in all Medicare drug plan networks, including plans’ discounted or “preferred” networks.

Making Networks More Attractive

Consumer dissatisfaction with networks has registered with some providers. Kaiser Permanente dominates California, for example, handling health care for about 40% of employees in the state. But as a health maintenance organization (HMO), Kaiser offers members limited choice within its network and covers out-of-network services only in certain emergency situations. In September, some of the biggest hospitals in the Los Angeles area announced the formation of a new health plan called Anthem Blue Cross Vivity, which hopes to lure Kaiser patients by giving them more choice. Anthem is a division of WellPoint. The venture will market a new health plan to employers with no deductible and premiums 10% below competitors, according to Anthem.² So not only will the plan be cost-competitive with Kaiser, it will offer a broader network—this is the important part—that will include two of Los Angeles’ leading academic and research medical centers: Cedars-Sinai Health System and UCLA Health. Those two hospitals are known for their high prices. All the hospitals will assume financial risk, à la ACOs. Whether they will profit in a Vivity network that capitates payments, to vie with Kaiser, remains to be seen. The California Public Employees’ Retirement System (CalPERS), the state’s giant pension plan, has agreed to include the Vivity network in its HMO plan.

Some health plans are offering a menu of networks, giving subscribers an option to pay higher premiums for more choice. Marc Barclay, Vice President of Provider Networks and Contracting at BlueCross BlueShield of Tennessee, says his company has 90% of the subscribers to marketplace policies in the state. “We do offer a broad network that includes everybody in the state of Tennessee for these members, and we have a smaller network, and then an even smaller network, and there’s a tier premium,” he says. “The one size fits all … is probably not going to work in the future, so we offer our members choices.”

Insurers are generally fine with state and federal laws (more on those in a moment) that allow them to cherry-pick providers when forming networks, within some general boundaries. But what health insurers generally oppose are state efforts to legislate the ability of providers to force their way into a network. On November 4, 2014, voters in South Dakota agreed by a vote of 62% to 38% to allow any provider to be in network if that provider is willing to accept the payment the health insurer gives its preferred providers for a particular service. Such measures are called “any willing provider” (AWP) laws. Opposing the initiative were, among others, the South Dakota Association of Healthcare Organizations, Avera Health System, and Sanford Health System; the latter two are the state’s biggest health insurers.

While AWP laws are in one sense proconsumer, they can also be anticonsumer. Last March, responding to a proposed CMS plan to apply an AWP standard to the Part D program, the Federal Trade Commission wrote:³

The proposed any willing pharmacy provisions threaten the effectiveness of selective contracting with pharmacies as a tool for lowering costs. Requiring prescription drug plans to contract with any willing pharmacy would reduce the ability of plans to obtain price discounts based on the prospect of increased patient volume and thus impair the ability of prescription drug plans to negotiate the best prices with pharmacies. Evidence suggests that prescription drug prices are likely to rise if prescription drug plans (“PDPs”) are less able to assemble selective pharmacy networks.

Proliferating Definitions of ‘Network’

Most states have laws dictating what a health care network should include, but those laws are all over the place, and they either fall short of or exceed federal regulations that pertain to marketplace exchanges, Medicare Advantage, and Medicare Part D plans, which themselves are subject to different standards. So there’s a Wild West feeling to network standards.

The CMS changed its standard for marketplace qualified health plans (QHPs) in 2015.⁴ The agency will no longer simply use issuer accreditation status, identify states with review processes of a minimum stringency, or collect network access plans as part of its evaluation of plans’ network adequacy. Rather, CMS will assess provider networks using a “reasonable access” standard, and will identify networks that fail to provide access without unreasonable delay. In making that analysis, the CMS will focus most closely on areas that have historically raised network adequacy concerns. These areas may include the following:

·         Hospital systems

·         Mental health providers

·         Oncology providers

·         Primary care providers

One month before the CMS announced its 2015 standard last May, the National Association of Insurance Commissioners (NAIC) wrote to Mandy Cohen, the Interim Director of the CMS Center for Consumer Information and Insurance Oversight, asking her not to increase federal scrutiny of plans’ provider networks, which the letter said “will add an additional layer of review and duplicate much of the work of states. We believe prescriptive federal regulation of network adequacy standards will lead to conflicting standards between state and federal requirements and that network adequacy regulation will be most effective at the state level where the needs of consumers, the cost of care, and the standards of the area, can best be evaluated,” the NAIC wrote.⁵

The NAIC Model Act requires covered health care plans to maintain a network that is sufficient in numbers and types of providers to ensure that all services to covered persons will be accessible without unreasonable delay. So it is somewhat less demanding than the PPACA standard for QHPs in 2015. Neither the Model Act nor the PPACA’s final rules include specific requirements for minimum geographic distances or time frames for access to providers.

Because of the perceived shortcomings of both the Model Act and the QHP standard, some states have come up with more detailed definitions of network. Take California, for example. It has two state agencies that regulate health plans, depending on the nature of those plans. One is the Department of Managed Health Care (DMHC), the other the California Department of Insurance (CDI). The DMHC regulates QHPs, HMOs, and Blue Cross PPOs. The CDI regulates all other PPOs. The California marketplace is called Covered California. All its QHPs must provide access to primary care and hospitals available within 15 miles or 30 minutes of an enrollee’s home or workplace. In addition, DMHC plans must provide ancillary services—that is, “laboratory, pharmacy, and similar services and goods dispensed by order or prescription on the primary care provider”—within “a reasonable distance” of primary care facilities. CDI-licensed plans (which are a very small percentage of QHPs) must provide access to specialty care within 30 miles or 60 minutes, and access to mental health care within 15 miles or 30 minutes. In addition, CDI-licensed plans must ensure that “facilities used by providers to render basic health care services are located within reasonable proximity to the workplaces or the principal residences of the primary covered persons, are reasonably accessible by public transportation, and are reasonably accessible to people with disabilities.”

California, as is normally the case when it comes to regulation, is an outlier among states, not to mention the federal government. Its network requirements are much more stringent than anyone else’s. Again, the CMS rules for QHPs don’t come close. Neither do the CMS rules for Medicare Advantage plans,⁶ although they are more detailed than the federal QHP rules.

For Medicare Advantage plans, the CMS first specifies the minimum number of providers that firms must include in their network in order to offer plans in each county. The CMS also specifies the maximum time and distance that can separate providers from beneficiaries in the county. Specifically, 90% of beneficiaries in a county must have access to at least one provider of each type within the required time and distance. The time and distance requirements vary across provider types and by the counties’ population size and density. For example, in urban Philadelphia, a primary care provider must be within a 10-minute drive or five miles, while in Galena, Illinois, a small, rural town, a primary care provider must be within a 40-minute drive or 30 miles. The time and distance requirements for hospitals are longer. In Philadelphia, a hospital must be within a 20-minute drive or 10 miles, while in Galena, a hospital must be within a 75-minute drive or 60 miles.

Even in the Golden State, with its relatively tough laws specifying network accessibility, problems arise. At least three lawsuits have been filed since the summer of 2014 alleging problems with physician and/or hospital accessibility in plans offered by Anthem Blue Cross, Blue Shield of California, and Cigna. “Blue Shield and Cigna lied to patients about the most important aspect of their health care plans: which doctors and hospitals they could visit under their new health coverage. As a result, many patients were left without coverage when they needed treatment,” says Laura Antonini, Staff Attorney for Consumer Watchdog, the group coordinating the lawsuits.

In November, the California DMHC released reports confirming that the directories issued by Anthem Blue Cross and Blue Shield of California contained numerous errors.^7,8 Those directories list the physicians and hospitals that are in network for the health plans, which are marketplace plans under the Covered California umbrella. None of the three health plans being sued by Consumer Watchdog responded to requests for their side of the story.

Preferred Provider Networks in Part D

Network adequacy has also been an issue in the Medicare Part D outpatient drug plans (also referred to as prescription drug plans, or PDPs). Many of them are run by big insurance companies such as Aetna, Humana, and UnitedHealthcare, often through their own PBM subsidiaries. The AARP is a major player, too, through UnitedHealthcare. In almost all of those plans, there is a “preferred provider” network of pharmacies, typically made up of certain retail pharmacies (often big-box chains) and a mail-order option. The big-box alternative is often Walmart, Walgreens, Safeway, or another large player in the drugstore business. Members of the plan are supposed to pay lower prices for prescriptions filled at those preferred pharmacies. But those networks sometimes exclude independent, mom-and-pop pharmacies, which can be a problem for seniors—particularly in rural areas. Those seniors might have to pay higher prescription prices for using an out-of-network pharmacy.

The PBMs have argued, through their industry association, the Pharmaceutical Care Management Association (PCMA), that they are better able to keep costs in check by giving members incentives to use direct mail or favored retail pharmacies, with whom the PBMs have contracts that contain price concessions.

The CMS published a study on April 30, 2013, taking issue with that argument.⁹ “We have determined that negotiated prices are sometimes higher in certain preferred networks— contrary to our expectations,” the study concluded.

Preferred networks are proliferating in both PDPs and Medicare Advantage-Prescription Drug plans. The number increased significantly in the past few years, from 163 in 2011 to 853 in 2014, according to the CMS. In 2014, more than 70% of stand-alone Part D plans offered preferred cost-sharing, according to the CMS.

In early 2014, the CMS proposed two significant changes to PDP operations in 2015 as part of its “Call Letter.”¹⁰ The first would have allowed “any willing provider” to join a PDP’s preferred network. The second required PDPs to provide cost sharing at least as attractive for all preferred drugs as for any one drug. Typically, that attractive cost sharing is available only at preferred pharmacies.

Explaining why it was making the proposal, the agency said: “We are concerned that offers of preferred cost sharing may be influencing beneficiaries to enroll in plans in which they do not have meaningful and/or convenient access to preferred cost sharing. This may have the effect of misleading or otherwise making material misrepresentations to beneficiaries in violation of our marketing requirements.”

But Part D plans objected to the proposed changes. “Adding ‘any willing pharmacy’ requirements will also result in federal government cost increases of up to $9.3 billion over the next 10 years if plans can no longer use preferred pharmacy networks,” said Steve Nelson, Chief Executive Officer, UnitedHealthcare Medicare & Retirement. “Additionally, the proposed rule interferes with plan/pharmacy contracting relationships, contrary to statute and the competitive principles that have kept this program affordable for beneficiaries.”

When the CMS published its final 2015 Call Letter three months later, the AWP proposal was gone.¹¹The agency said it would instead award a contract to study beneficiary access to preferred cost sharing. Since then, dueling surveys have been released by the National Community Pharmacists Association and the PCMA showing diametrically opposite results, i.e., rural seniors have plenty of access to lower-cost preferred pharmacies, or they have very limited access.

Ferment with regard to networks will continue across the health plan landscape. But proving network adequacy is close to an unwinnable argument: Either networks are narrowed, with lower costs to enrollees, or they are broadened, with higher costs to enrollees. To borrow a line from the classic film Network, it’s enough to make anyone yell in frustration: “I’m mad as hell and I’m not going to take this anymore.”

Pennsylvania Insurance Department. Stay informed: document and historical resourcesAvailable at:http://www.portal.state.pa.us/portal/server.pt/community/industry_activity/9276/stay-informed_-_document_resources/1923594. Accessed December 3, 2014

Vivity. Introducing Anthem Blue Cross VivityAvailable at: http://www.vivityhealth.com. Accessed December 3, 2014

Gavil AI, Gaynor MS, Feinstein D. Federal Trade Commission staff comment to the Centers for Medicare and Medicaid Services regarding proposed rule March 72014;Available at:http://www.ftc.gov/system/files/documents/advocacy_documents/federal-trade-commission-staff-comment-centers-medicare-medicaid-services-regarding-proposed-rule/140310cmscomment.pdf. Accessed December 2, 2014

Center for Consumer Information and Insurance Oversight, Centers for Medicare and Medicaid Services. 2015 letter to issuers in the federally-facilitated marketplaces March 142014;Available at:http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2015-final-issuer-letter-3-14-2014.pdf. Accessed December 2, 2014

Hamm A, Consedine MF, Lindeen MJ, Clark SP.National Association of Insurance Commissioners letter to Center for Consumer Information and Insurance Oversight, Centers for Medicare and Medicaid Services Available at:http://www.naic.org/documents/index_health_reform_comments_140423_naic_letter_cciio_network_adequacy.pdf. Accessed December 2, 2014

Center for Consumer Information and Insurance Oversight, Centers for Medicare and Medicaid Services. Qualified health plans Available at:http://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/qhp.html. Accessed December 2, 2014

California Department of Managed Health Care, Help Center, Division of Plan Surveys. Final report: non-routine survey of Blue Shield of California. November 18, 2014. Available at:https://www.dmhc.ca.gov/desktopmodules/dmhc/medsurveys/surveys/043fsnr111814.pdf. Accessed December 3, 2014

California Department of Managed Health Care, Help Center, Division of Plan Surveys. Final report: non-routine survey of Anthem Blue CrossNovember 182014;Available at:https://www.dmhc.ca.gov/desktopmodules/dmhc/medsurveys/surveys/303fsnr111814.pdf. Accessed December 3, 2014

Centers for Medicare and Medicaid Services.Part D claims analysis: negotiated pricing between preferred and non-preferred pharmacy networksApril 302013;Available at: http://www.cms.gov/Medicare/Prescription-Drug-Coverage/Prescription-DrugCovGenIn/Downloads/PharmacyNetwork.pdf. Accessed December 3, 2014

Centers for Medicare and Medicaid Services.Advance notice of methodological changes for calendar year (CY) 2015 for Medicare Advantage (MA) capitation rates, Part C and Part D payment policies and 2015 call letter February212014;Available at: http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Advance.2015.pdf. Accessed December 3, 2014

Centers for Medicare and Medicaid Services.Announcement of calendar year (CY) 2015 Medicare Advantage capitation rates and Medicare Advantage and Part D payment policies and final call letter April 72014;Available at: http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/downloads/Announcement.2015.pdf. Accessed December 3, 2014

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

NTSB Considers Tire Registration Changes

Aftermarket Business World - January 2015 - for the original online version of this article go HERE.

The National Transportation Safety Board (NTSB) has picked up the issue of tire safety, and its concern could well lead to recommendations for regulatory changes affecting tire dealers.

The NTSB is investigating some 2014 tire blowout accidents that resulted in deaths, which were discussed at a meeting in Washington in early December. The meeting served as a forum for the Rubber Manufacturers Association (RMA), which represents tire manufacturers, to push a proposal that Congress change the tire registration law to require dealers to electronically register the TIN (tire identification number) with NHTSA at the point of sale.

If Congress doesn't act, a NTSB recommendation to the National Highway Traffic Safety Administration (NHTSA) could result in a regulatory change. The NTSB will be making recommendations of some sort in the near future.

Four serious accidents in 2014 resulting from disabled tires resulted in the NTSB two-day symposium on tire safety on December 9 and 10. The accidents occurred one week apart in February, in Florida and Louisiana, and resulted in multiple deaths in both instances. The NTSB has not released reports on those accidents yet.

In one case, a poorly maintained, 10-year old tire separated at high speeds. In the second, the separated tire had been the subject of a recall a year and a half earlier. NTSB staff members at the workshop cited two additional accidents in 2014 that are not the subject of investigations.

Kevin Rohlwing, senior vice president of training for the Tire Industry Association (TIA), believes more has to be done to prevent tire separation accidents. That includes improving the NHTSA tire registration/recall process and informing consumers about the need to register tires and maintain them. And the TIA is willing to do its part. However, Rohlwing emphasizes the entire burden for improving tire safety should not be laid on the back of dealers. He opposed requiring dealers to electronically register new tires.

Moreover, Roy Littlefield, TIA executive vice president, is miffed the RMA sprang its electronic registration proposal on the TIA. "We are incredibly disappointed that RMA supports a legislative solution to the problem of low tire registration rates rather than educational," he says.  "TIA has been working with RMA on a number of legislative issues like tire repair and used tires over the past few years, but there have been no discussions related to mandatory tire registration. We had talked about working together to educate and improve voluntary numbers, so it was a total shock to hear that they are proposing legislation over education."

The Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act was the last piece of tire safety legislation Congress passed. That was in 2000. The TREAD Act was passed because of problems with Firestone tires. The TREAD Act included directives to NHTSA to improve the endurance and resistance standards for tires, to improve the information labels on tires, and to require a warning system to indicate to drivers when a tire is significantly under inflated.

The tire registration system was established in 1970. It gives independent dealers who sell multiple brands of tires three options, all involving registration cards they are suppose to obtain from each of their manufacturers. The dealer can give the consumer the card, have them fill it out and return it to the dealer. Or the dealer can fill out the card and either mail it in, or register the information electronically with the dealer. In most instances, dealers go the first route. That has resulted in registration of no more than 20 percent of new tires, according to the RMA, a figure Rohlwing does not dispute, although the NHTSA has never sought data on that.

Tracy Norberg, general counsel and senior vice president for regulatory affairs at the RMA, points out that the return rate for tire registration cards is 100 percent by retailers in tire manufacturer-owned retail stores.

Rohlwing argues that while retailers can do better, consumer apathy is also a big part of the problem, and NHTSA could do more too, by making available lists of TINs associated with recalled tires that retailers could post in their shops, helping technicians identify recalled tires on cars which come in for service.

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

Generic Prices Take Flight

P&T Journal - December 2014 - for a PDF copy of the published version go HERE.

The FDA Is Struggling to Ground Them

Over the past few years, safety and effectiveness have been the issues plaguing generic pharmaceuticals. But concern has largely faded about the quality of active pharmaceutical ingredients manufactured in places such as India or China, or the bioequivalence of products such as Budeprion XL 300 mg. Now a new series of question marks hovers over generic drugs.

The price of generics looms largest. Still prized for their low cost, some generics have lifted off into the dollar stratosphere—though admittedly they haven’t reached the moonlike some new brand-name drugs, such as Gilead’s Sovaldi. That said, the number of generics posting higher prices, and the height of those leaps, worry consumers, payers, and some members of Congress.

A variety of reasons account for the increases. Loss of momentary competition in a category because one manufacturer stops producing, for any number of reasons, comes into play. So does the dropping of product lines. New products in existing generic markets find the door to entry barred, sometimes by competitors already selling into that market, sometimes by a Food and Drug Administration (FDA) besieged by applications and understaffed to handle them.

The FDA must approve abbreviated new drug applications (ANDAs) filed by generic drug companies, and the agency was thought to be making big strides in light of $300 million a year in new user fees from generic companies thanks to the 2012 Generic Drug User Fee Amendments (GDUFA). The fees were supposed to guarantee faster approval, leading to lower costs to companies and lower prices for new drugs that would be introduced more quickly.¹ But some industry experts think that GDUFA has failed to deliver, and that the FDA has gone backward on approval speed.

Walter Jump, President of Cornerstone Regulatory (a consulting firm that works with both generic and brand-name companies), says that costs for industry have increased since the passage of GDUFA. “Nothing provided for in GDUFA will decrease costs to industry. Although the Generic Drug User Fee Amendments propose to reduce the current delays in the drug approval process, currently there is no proof that the delays in the current approval process are being addressed,” Jump says. In fact, the FDA’s ANDA backlog has increased. Currently, Mylan Inc. has 288 ANDAs awaiting FDA approval that represent $111.5 billion in annual brand sales, according to IMS Health. Forty-three of these pending ANDAs are potential first-to-file opportunities, representing $28.7 billion in annual brand sales for the 12 months ending June 30, 2014, IMS Health adds.

During a meeting at the FDA on September 17, 2014, called to air a number of GDUFA issues, David R. Gaugh, RPh, Senior Vice President for Sciences and Regulatory Affairs of the Generic Pharmaceutical Association (GPhA), said that in 2013, the median time for generic drug approvals jumped to 36 months and is projected to reach 43 months in 2014 once the final numbers are in.

Jump hypothesizes that the slowdown in approval times may be related in part to the need for more-experienced FDA drug reviewers to spend part of their time training new drug reviewers who have been hired thanks to the $300 million infusion. Such training will take time to ensure that all these new employees are consistent in their reviews.

“The generic supply chain has become very fragile. For many generic drugs, there are only a few suppliers,” says Adam J. Fein, PhD, of Pembroke Consulting, Inc. “Any supply shock to the system, such as a manufacturing problem or FDA action, can rapidly create a shortage because alternative capacity isn’t ramping up to meet demand.”

Tetracycline shortages, for instance, have resulted in much higher generic prices. Watson Pharmaceuticals stopped producing tetracycline tablets in December 2013 and was acquired by Activis PLC in 2014. Activis has not restarted production. As of October 2014, Teva Pharmaceutical Industries Ltd., a one-time producer of tetracycline, was no longer selling the product because of a raw material shortage. Heritage Pharmaceuticals Inc. markets the brand-name version of tetracycline, called Achromycin V. In October 2013, Heritage announced it was making available generic tetracycline HCl capsules in 250- and 500-mg strengths. Not surprisingly, then, with only one manufacturer in the game, the price of tetracycline 500-mg and 250-mg tablets increased from $0.05 and $0.06 per capsule in July 2013 to $8.59 and $4.26 in July 2014. Those are increases of 17,714% and 7,340%, based on pricing data from Drug Channels, a website written by Dr. Fein.²

The Importance of Generics

The importance of generics to slowing the growth of health care costs is obvious. The FDA has approved more than 8,000 generic equivalents to brand-name drugs; as a result, generics represent more than 85% of all U.S. prescriptions and have saved U.S. consumers and the health care system $1.5 trillion in the past decade alone, according to the GPhA.

For years, the discounted price of generics was the glittering jewel in their crown. Not any more. Escalating prices have hit hospital pharmacies, drug stores, and consumers alike. This year, Walgreens fired its chief financial officer and the president of its pharmacy, health, and wellness division because they underestimated the cost of generic drugs and overestimated pharmacy unit earnings for the fiscal year ending in 2016.

Insurance plans are responding in order to mitigate the price pressures. Dr. Fein states, “Some payers are already establishing a ‘nonpreferred’ or ‘more costly’ generic tier for products that have experienced significant inflation. If generic inflation continues, I expect to see more plans with multiple generic tiers.”

Hospitals are suffering from generic drug price increases, too, since drug costs for any inpatient “event” are bundled into the cost of reimbursement for that patient, whether Medicare, Medicaid, or a private insurer is paying. Any generic drug price increase will not be reflected in the global payment from private or public insurers, paid on the basis of a diagnosis-related group (DRG)—at least not any time soon. True, generic costs make up a tiny percentage of any DRG reimbursement. But over the course of a year, they may add up. Hospitals also face potential cost implications on the outpatient pharmacy side. “The average selling price for the generic will not be updated for up to six months after the actual price increase, meaning hospitals will have to pay the difference for that six-month period,” explains Bill Woodward, MS, RPh, Senior Director of Pharmacy Contracting for Novation, a contracting and information company that serves 100,000 members and affiliates of VHA Inc. and UHC, two national health care alliances; Children’s Hospital Association, an alliance of the nation’s leading pediatric facilities; and Provista, LLC.

Generic price increases have caught the attention of some in Congress. On October 2, Representative Elijah Cummings, ranking member of the House Committee on Oversight and Government Reform, and Senator Bernard Sanders, Chairman of the Subcommittee on Primary Health and Aging of the Senate Committee on Health, Education, Labor, and Pensions, sent letters to 14 generic drug manufacturers requesting information about the escalating prices they have been charging for generic drugs.³ “When you see how much the prices of these drugs have increased just over the past year, it’s staggering, and we want to know why,” says Cummings.

Huge Generic Price Increases

In their letters, Cummings and Sanders cited data from the Healthcare Supply Chain Association on purchases of 10 generic drugs by group purchasing organizations for which prices have skyrocketed in the past year. Among the citations:

• Albuterol sulfate, used to treat asthma and other lung conditions, increased 4,014% in price, from $11 to $434 for a bottle of 100 2-mg tablets.
• Doxycycline hyclate, an antibiotic used to treat a variety of infections, increased 8,281% in price for a bottle of 500 100-mg tablets (from $20 to $1,849).
• Glycopyrrolate, used to prevent irregular heartbeats during surgery, increased 2,728% in price for a box of 10 0.2-mg/mL, 20-mL vials (from $65 to $1,277).

It doesn’t appear that any of the 10 drugs cited in the letters are marketed by only one company, so competition should keep prices from breaking through the roof. But in some instances, that competition is limited. Albuterol sulfate is sold by Mylan and Mutual Pharmaceuticals. Doxycycline hyclate is sold by 10 companies, with three representing most of the market share. West-Ward, Inc., dominates the market for glycopyrrolate.

Mylan, Teva, and Lannett Company, Inc., are among the companies that received the Cummings/Sanders letter. The first two did not respond to a query asking for a response. In its 2013 annual report, Lannett said: “Gross profit improved considerably to $57 million from $39 million. As a percent of net sales, gross margin rose to 38% from 32%, with the increase primarily due to favorable sales mix, price increases, and enhanced manufacturing efficiencies.” Asked about the extent of product price increases, spokesman Robert Jaffe says, “Lannett’s management respectfully declines to be interviewed.”

Why the Price Hikes?

A number of factors can cause a spike in a generic price, justifiable or perhaps not. There are also reasons why drug prices won’t drop. A number of mega-consolidations have taken place in the industry over the past few years. One by one, generic companies are disappearing. Competition in each category is diminishing. Earlier this year, Mylan acquired Agila Specialties Private Ltd., giving Mylan a strong hold on the generic injectables market. In that instance, the FDA forced Mylan to divest drugs in a number of categories before it approved the acquisition. For example, Mylan divested etomidate injection, ganciclovir injection, and some other injectables to JHP Pharmaceuticals. Earlier this year, Par Pharmaceutical Companies, Inc., acquired JHP. Valeant Pharmaceuticals International, Inc., is trying to acquire Allergan, Inc., and promises, if successful, to put a plug in its research pipeline. Teva acquired Cephalon, Inc., in 2012. Also in 2012, Valeant bought Ortho Dermatologics, Inc., from Johnson & Johnson and Dermik Laboratories, Inc., from Sanofi.

New products are not entering the market as quickly as had been hoped in the wake of GDUFA passage. And when they do enter the market, it is after the manufacturer has spent more in development and regulatory costs than might otherwise have been necessary. The GDUFA was supposed to pave the way for eliminating ANDA approval backlogs by mandating, for the first time, that generic suppliers pay “user fees” to the FDA. In return, the agency committed to approving ANDAs—submitted when a generic company wants to sell a copy of a patented pharmaceutical—according to specified time frames. The fees amount to about $300 million a year. The GDUFA required the FDA to publish five guidance documents that lay out how the agency planned to meet the approval deadlines in its GDUFA “commitment letter.” For example, the FDA has committed to review and act on 90% of original ANDA submissions within 10 months from the date of submission in year 5 of the program, which begins on October 1, 2016.

Of course, generic companies themselves are responsible for many delays. They fight like Hatfields and McCoys over whether one or the other should have its ANDA approved, whether as the “first-time” generic in a category or as a new competitor to an existing generic. One example is Apotex Corporation’s filing of a citizen petition with the FDA in January 2014 to block Forest Laboratories’ generic version of Apotex’s Namenda XR (memantine hydrochloride extended release capsules). The Apotex drug was approved in June 2010 and first became available in June 2013. Apotex argued that since its drug only became available in June 2013, it would have been impossible, time-wise, for Forest to conduct the required bioequivalence studies. The FDA rejected the petition on June 12, 2014. Ross Maclean, PhD, Senior Vice President for Scientific and Regulatory Affairs at Apotex, did not return a call asking for comment.

In filing its citizen petition, Apotex was trying to prevent Forest from claiming 180-day market exclusivity, which has price implications, too. (Forest disappeared last February when it was swallowed by Actavis). The 180-day period was put into law in 1984 as part of the Hatch-Waxman Drug Price Competition and Patent Term Restoration Act of 1984. It is supposed to function as an incentive for a generic company to be the first to submit an ANDA for a brand-name drug coming off patent. Since GDUFA was signed into law, at least 19 first applicants have forfeited 180-day exclusivity because they failed to get timely FDA approval, according to the GPhA. Typically, once a paragraph IV ANDA is filed, a 30-month clock starts if the brand-name company challenges the generic company’s right to sell a product because of patent infringement. If the FDA fails to review an ANDA prior to the expiration of the patent being challenged, the 180-day exclusivity may be lost. With the patent or patents expired, any generic company can sell a copy of that brand-name drug. So that 180-day “incentive” is not much of an incentive these days.

The confusion over exclusivity can affect pricing in opposite directions. Michael D. Shumsky, an attorney for Kirkland and Ellis, LLP, and an outside counsel to Teva, explains that if a first generic applicant believes it is entitled to exclusivity, it typically will produce enough product to satisfy the entire market. But it could wind up with substantial inventories that it will never be able to sell if the FDA subsequently holds that the applicant is not entitled to exclusivity. The resulting losses are then passed on to consumers in the form of higher prices, which undermines the statute’s basic goal of lowering prescription drug costs.

The reverse is also true. If a first generic applicant believes that the FDA will find it has forfeited or otherwise lost its exclusivity, it may not prepare sufficient quantities of a product to supply the market—leaving it unable to fulfill consumer demand in the event that the FDA finds the applicant has maintained its eligibility for exclusivity. That likewise increases costs for consumers.

The GDUFA: Promises and Pitfalls

The 180-day exclusivity period and the FDA’s policies for granting it were among the topics on the agenda of the FDA’s September 17 meeting. Also up for discussion were the five draft guidance documents the agency has issued as follow-ups to its GDUFA commitment letter. At the time of the GDUFA’s passage in 2012, more than 2,700 generic applications were awaiting FDA approval, and the average approval time for an application stretched beyond 30 months—five times longer than the statutory six-month review time called for by the Hatch-Waxman Act. That backlog had been reduced to about 2,100 when Greg Giba announced his departure as director of the FDA’s Office of Generic Drugs (OGD) in March 2013. Giba, whose appointment had been announced only the previous July, quit because a reorganization left him with less resources than he felt he needed. A new permanent director has not been appointed.

But the ANDA backlog (Figure 1) remains a cause célèbre for the generics industry. So does its impact on company costs, which affects product pricing. The FDA has said several times that one objective of GDUFA was to reduce costs to generic manufacturers. But Jump, of Cornerstone Regulatory, says that costs for industry have increased since GDUFA’s passage:

In fact, since the law has gone into effect, user fees have been instituted, requirements for the production and submission of three registration batches for each product strength, and the refusal to accept stability data with less than six months of stability data have all increased the costs to industry. The potential for earlier approvals, which has not been seen to date, can at best only potentially increase industry revenue, but it cannot decrease development costs.

The September 17 meeting, held as the October 1, 2014, start of the first iteration of GDUFA timetables was looming, touched on five guidance documents the FDA had issued in draft form. They are supposed to give the industry a clearer idea of what the FDA expects in an ANDA in various areas. The five guidance documents are:

• ANDA Submissions—Content and Format of ANDAs⁴
• ANDA Submissions—Refuse to Receive for Lack of Proper Justification of Impurity Limits⁵
• ANDA Submissions—Amendments and Easily Correctable Deficiencies Under GDUFA⁶
• ANDA Submissions—Prior Approval Supplements Under GDUFA⁷
• Controlled Correspondence Related to Generic Drug Development⁸

Most of these draft guidances were published this past summer. They are too mind-numbingly arcane to discuss here. Suffice it to say that the response to most of the draft guidance documents has not been particularly positive. With regard to “Content and Format of ANDAs,” Jump complains, for example, that his clients “are dismayed” that the FDA is requesting that the cover letter contain the same information contained in the common technical document (CTD) and the 356h form. This is an unnecessary duplication of information. “Repeating the same information in multiple places only increases the chances that inadvertent mistakes can be made,” Jump states. “These inadvertent mistakes are frequently the cause of deficiency comments from the agency asking which information is correct.” The CTD is the international format for what should be included in the ANDA. For instance, manufacturing site and contact information are requested in the FDA 356h form and specific sections defined within the ANDA. Now companies will have to include that same data in a third place, the cover letter, increasing the chances that there may be inadvertent discrepancies among the three. An FDA reviewer might kick back the application for that reason.

The problem these days is that reviewers aren’t “kicking out” approved applications. “I agree there are some major issues at the Office of Generic Drugs,” says Bob Pollock, Senior Advisor and Outside Director to the board of Lachman Consultants. Pollock, who left the FDA in 1994 as Acting Deputy Director of the OGD, writes a blog on the Lachman website. “One thing that surprises me is that there is more emphasis on process, policy, and procedure. They also need more attention to moving the freight. Folks in the industry are scratching their heads, wondering when things are going to improve.”

Author bio: 

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