Unwrapping the drug pricing mystery & understanding solutions Sean Dickson NASTAD with Tim Horn Treatment Action Group on behalf of the 1 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Webinar Instructions • All attendees are in listen-only mode • Everyone can submit questions at any time using the chat feature • This webinar has too many attendees for questions to be submitted over the phone. • During Q & A segment the moderators will read selected questions that have been submitted • If you are having audio or webinar trouble go to preventionjustice.org for troubleshooting help 2 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Use the Question Feature to Ask Questions, or email questions • You may also email your questions to AKennedy@aidschicago.org 3 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Join the conversation • Follow us on Twitter @HIVPrevJustice. • Join the conversation by using #FixTheFormulas and #PullBackTheCurtain • Download the slides for the webinar at www.preventionjustice.org. 4 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Tackling Drug Costs A 100 Day Roadmap Sean Dickson NASTAD with Tim Horn Treatment Action Group on behalf of the 5 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Fair Pricing Coalition • Fair Pricing Coalition (FPC) is an ad hoc group of activists who advocate with the pharmaceutical industry regarding the price of HIV and hepatitis drugs, both in the private insurance market and for government programs. • Overarching goal of ensuring that the prices set for new HIV and hepatitis drugs do not increase the net cost of treating people living with those diseases. Also works to ensure that price increases do not detrimentally affect a patient’s ability to access drugs. • The FPC has negotiated co-pay programs with virtually every major HIV drug manufacturer and continues to advocate for the broadest possible co-pay programs and patient assistance programs. 6 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Roadmap • Drug Pricing 101 • Recommendations • Fix the Formulas • Enhance Existing Penalties • Pool Purchasing Power • Pull Back the Curtain • A Roadmap for Action 7 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Drug Pricing 101 • Drug prices have minimal relation to the costs of development and production • Complex negotiations between insurers, hospitals, and manufacturers set confidential prices that attempt to reflect the drug’s value • Federal payers attempt to harness the power of these negotiations by requiring manufacturers to sell their drugs at the average price negotiated in secret • Understanding these negotiations and averages creates opportunities to influence the system for lower prices across the board 8 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Drug Pricing 101: Medicaid • Medicaid Drug Rebate Program is at the center of all drug pricing • Established in 1990 with a formula that harnesses private negotiations to ensure the government gets the best price • Medicaid does not buy drugs – it reimburses pharmacies as an insurer, then it receives a rebate from manufacturers to offset costs • Rebate is 23.1% of Average Manufacturer Price (AMP) for brand name drugs; 13% for generics or • The difference between the AMP and the lowest commercial price (Best Price) 9 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Drug Pricing 101: Medicaid • The Average Manufacturer Price calculation appears simple – the average of net prices paid by retail community pharmacies • Manufacturers have worked to define what prices and discounts are included in that average and the Best Price analysis, resulting in a formula that excludes most discounts • Inherent tension – manufacturers want to include discounts in the average to reduce the base rebate paid (23.1%), but don’t want to include discounts that could set Best Price 10 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Drug Pricing 101: Supply Chain 11 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Drug Pricing 101: Medicare • Each Medicare Part pays for drugs differently • Part A – Included in bundled rate for inpatient services based on average total costs submitted by hospitals • Part B – Based on Average Sales Price, an average of commercial prices; only applies to physician- administered drugs • Parts C & D – Act as private insurance, negotiating commercial prices; must report and refund any savings back to Medicare 12 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Drug Pricing 101: Veterans Administration • The Veterans Administration (VA) coordinates drug price negotiations for the rest of the Federal government • Non-Federal Average Manufacturer Price (non- FAMP) establishes prices for the VA, Department of Defense, Indian Health Service, and Coast Guard • Other government agencies receive a negotiated price based on the Most Favored Customer • Agencies can negotiate their own additional discounts 13 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Drug Pricing 101: Focus on Medicaid • Medicaid calculations drive all other prices • Statute creates categories for inclusion and exclusion of certain sales in AMP that are referenced by other formulas • Best Price penalty drives how manufacturers offer discounts • Inflation penalty (discussed later) can encourage lower prices for other payers • We will discuss policy solutions for other payers, but Medicaid is the central policy 14 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Fix the Formulas 15 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Fix the Formulas • AMP only includes sales and discounts that accrue to retail community pharmacies • To avoid including these discounts in the averages, manufacturers offer discounts to insurers and Pharmacy Benefit Managers (PBMs) • Insurers reimburse pharmacies for the full cost of the drug • According to PhRMA, rebates to insurers were $22B in 2015 – rebates that were excluded from AMP 16 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Fix the Formulas • Manufacturers changed the Medicaid statute as part of the Affordable Care Act to exclude these discounts • “The average manufacturer price for a covered outpatient drug shall exclude…payments received from, and rebates or discounts provided to, pharmacy benefit managers, managed care organizations, health maintenance organizations, insurers, hospitals, clinics, mail order pharmacies, long term care providers, manufacturers, or any other entity that does not conduct business as a wholesaler or a retail community pharmacy” 17 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
18 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
19 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Fix the Formulas • Manufacturers will argue that they cannot include these discounts, but they are already required to do so for drugs that are inhaled, infused, instilled, implanted, or injected • These discounts must also be able to set Best Price • In addition to lowering government payer costs, these policies remove the incentive to only offer back-end discounts, which could result in lower prices at the pharmacy level • Lower prices for uninsured patients and for calculating co-insurance 20 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Fix the Formulas: Recommendations • Legislation required to make changes to Medicaid (AMP) and VA (non-FAMP) formulas • Administration could include these discounts in Medicare (ASP) immediately • The Government Accountability Office estimates that including only some of these discounts in ASP would save at least $69M annually • Changes to Best Price and Most Favored Customer must exclude any discounts offered to prisons and other safety net entities 21 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Enhance Existing Penalties 22 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
Enhance Existing Penalties • Medicaid and VA pricing programs both contain protections against drug price increases greater than the rate of inflation • Currently, these policies only serve to protect government payers, but they could be expanded to deter price gouging in the private market • As part of the Affordable Care Act, manufacturers capped the impact of the Medicaid inflation penalty – a change which must be reversed 23 Fair Pricing Coalition – Tackling Drug Costs: A 100 Day Roadmap
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