Biopharma execs most concerned about Medicare pricing, reimportation and rebates

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Ben Comer Senior Manager, Health Research Institute, PwC US May 22, 2019

In the US, executives are closely watching as ideas presented in the Trump administration’s American Patients First drug pricing blueprint move forward. Biopharmaceutical industry executives surveyed by HRI were most concerned about the adoption of an international price index (IPI) for physician-administered drugs in Medicare Part B, which could lead to hundreds of millions of dollars in lost revenues annually.

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"The Trump administration’s proposal to tie Medicare Part B pricing to an international price index would put patients’ access to lifesaving medicines at risk and threaten companies’ abilities to pursue current or future research and development projects,” according to a senior executive at an industry trade group. If the IPI becomes law, manufacturers could decide to delay launching new products into international markets included in the price index reference group, or forego launches in those countries altogether.

One senior pricing executive at a top 20 pharmaceutical company told HRI that drug manufacturers might consider moving physician-administered products into self-administered delivery mechanisms as one option for avoiding risk associated with a Medicare Part B international price index.

Seventy-eight percent of executives surveyed by HRI said their companies would need to make organizational changes or management and process changes if public health plans began using international prices as a benchmark for reimbursement.

Importing cheaper drugs directly from outside of the US and changing the rebate safe harbor to lower drug list prices were the second and third chief concerns among surveyed executives. In 2018, Vermont passed a law allowing for the importation of high-cost drugs from Canada.

In Florida, Republican Gov. Ron Desantis has made importing drugs from Canada an early priority of his administration. However, the US Department of Health and Human Services (HHS) must approve state importation programs before they can proceed.

The agency has never granted such an approval to date. HHS Secretary Alex Azar, formerly president of Lilly USA, has called importing cheaper drugs a “gimmick” that won’t effectively lower prices, but has also suggested that drug importation from Canada could potentially be allowed for single-source products that lack competition and undergo extreme price hikes. Several companies have raised the prices of single-source products by orders of magnitude, or thousands of percentage points, in the last five years.

In January 2019, HHS released a proposal to make significant changes to safe harbors that protect rebates from the anti-kickback statute. Rebates on list prices are offered by manufacturers to insurers and pharmacy benefit managers in exchange for formulary placement and market share. Despite having a potentially disruptive impact to stakeholders across the health care system, these changes are widely supported by the biopharmaceutical industry.

If the proposed rebate rule is finalized and implemented, drug wholesale acquisition costs, also known as list prices, are expected to come down. Actuaries at CMS estimate an $83 billion saving in out-of-pocket costs for patients across Medicare plans between 2020 and 2029. HHS noted in its proposal fact sheet that average rebates are between 26 and 30 percent.

In testimony given before the Senate Finance Committee in February, a prominent biopharma CEO said that despite rising list prices, the average rebate across his company’s portfolio of products is nearly 50 percent, and the company’s primary care products’ net prices are flat to declining. The CEO also said he was prepared to reduce list prices by the previously rebated amounts. By doing so, patient out of pocket costs would be lowered without cutting into product revenues. Other CEOs testifying at the committee hearing also suggested extending rebate reforms to the commercial market.

Perhaps the most interesting aspect of the proposed changes to the rebate safe harbor—aside from substantially lowering out-of-pocket costs for US Medicare patients taking specialty drugs and paying a percentage of the list price—is the degree of transparency it would bring to drug prices. Global executives surveyed by HRI said price transparency is putting the highest amount of pressure on traditional drug pricing models.

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In the rebate and list price system, rebate amounts are shielded from public view by proprietary contracts between drugmakers and purchasers. If the proposed rebate rule is finalized, it will mean full product-level net price transparency in the Medicare Part D context. 

Along with price transparency, changes to the way Medicare and Medicaid pay for drugs, the emergence of curative therapies, global health technology assessment groups and private insurers round out the top five pressure points on pricing practices, according to surveyed executives.

Of these five, only curative therapies are a source of pressure originating from the innovative center of the industry. The development of curative therapies for diseases previously treated with maintenance therapies creates a substantial disruption to established pricing and reimbursement practices. Biopharmaceutical companies will need to build the capabilities necessary for entering new financial arrangements for drugs, and strong data strategies for supporting product value.

For citations, implications and insights, please read our full report, Creating a stable drug pricing strategy in an unstable global market.

For more of HRI’s insights and content, visit our Regulatory Center and report library.

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Ben Comer

Senior Manager, Health Research Institute, PwC US

Benjamin Isgur

Health Research Institute Leader, PwC US

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