Costs, Coverage, and Court Decisions

Sep 01, 2012

Jill Wechsler
It seems that there's news about drug prices and reimbursement every day, whether it's savings for Medicare drug plans, questionable marketing deals, or court decisions on coverage policies. Last month, for example, the Generic Pharmaceutical Association trumpeted that its medicines saved patients $193 billion last year and more than $1 trillion over the past decade, with utilization rising to 80% in 2011, according to IMS Health.

Yet, some generic drugs raise cost issues. Prices for generic skin creams and ointments have skyrocketed recently, a trend that reflects challenges in demonstrating bioequivalence for absorbed products to gain FDA approval. Generic dermal companies consequently have become attractive acquisitions for larger firms, as seen in the recent $1.5 billion purchase of Fougera Pharmaceuticals by Novartis' Sandoz division, and a long campaign by India's Sun Pharmaceuticals to gain full control of Taro.

Boosting Medicare

There's also a stream of reports about savings for the Medicare Part D drug benefit from the Centers of Medicare and Medicaid Services as part of the Obama administration's effort to highlight benefits of the Affordable Care Act. Last month, Medicare officials announced that Part D premiums would hold steady in 2013, averaging about $30 a month for basic coverage.

CMS also cheered that discounts on drugs prescribed to beneficiaries caught in the Part D "donut hole" have saved seniors more than $4 billion since the reform law was enacted in 2010: $946 million in 2010 from $250 one-time rebates to beneficiaries who hit the coverage gap; over $2.3 billion last year from the 50% discount on gap drugs provided by pharma and biotech companies; and $687 million in discounts as of late July this year.

Savings from patent deals?

One reason generic makers rolled out the data on big savings from their products is to generate support for pay-for-delay settlements that now face renewed court challenges. After a decade of rulings from federal courts that support brand-generic patent settlements, the Philadelphia circuit court of appeals decided last month that this kind of arrangement is an illegal restraint of trade.

Both brand and generic manufacturers claim that pay-for-delay agreements save money and bring competitive products to market months faster. However, the Federal Trade Commission, insurers, and pharmacy benefit managers object that patent settlements merely enable branded firms to extend their monopolies and maintain high prices.

Now, the conflicting decision from Philadelphia could lead the Supreme Court to weigh in on the issue. The contrary ruling may also prompt pharmacists and payers to file more suits claiming that pay-for-delay arrangements boost what they pay for drugs. And there could be renewed efforts by Congress to enact legislation blocking brand-generic deals, as has been proposed by several Senators. Last year the Congressional Budget Office estimated that a Senate bill taking such action would lower drug outlays by $11 billion, and that tidy sum could be attractive to legislators struggling to balance the federal budget.

Europeans also are looking seriously at the legality of similar marketing arrangements as part of a larger investigation into anticompetitive practices in the pharmaceutical industry. The European Commission recently announced a challenge to a pay-for-delay agreement involving Danish drug company Lundbeck and four generics makers, and several other cases are under review.

Drug pricing and the legal process come together quite visibly in the case of KV Pharmaceutical's marketing of Makena to prevent preterm births. The company gained notoriety last year by jacking Makena's price up to $1,500 per treatment, compared to $10 or so for the long-used compounded version of the product, after KV sought and won FDA approval for its drug ["Washington Report," May 2011]. Outrage over the price from obstetricians and state Medicaid agencies, however, prompted FDA to take the unusual step of encouraging physicians to continue to use unapproved compounded versions. KV sued FDA and state Medicaid agencies for favoring compounders, charged that some compounded products were unsafe, and also declared bankruptcy a few weeks ago when it appeared that high revenues from Makena would not be available to solve its ongoing financial problems.

Now KV may get bailed out by the courts. A federal judge in Georgia ruled last month that the Georgia health department erred in adopting a prior authorization policy that makes it very difficult for physicians to prescribe Makena over a compounded product. The judge declared that the compounded version is not a "covered" outpatient drug because it lacks FDA approval, and that the state must halt its prior authorization policy, provide Medicaid coverage for Makena, and post information on its website explaining the new policy. Georgia Medicaid can cover and pay for the cheaper compounded version, moreover, only when a physician documents specific patient medical need for the product.

Charging executives

Although self-serving, KV's price hike is not illegal, nor are brand-generic patent settlements, so far. But these strategies provide ammunition for industry critics that pharma marketers will ignore the rules and public health needs just to boost sales and profits. GlaxoSmithKline, with its recent $3 billion settlement, now tops the list of firms negotiating huge fines to stay out of court and avoid potentially more serious legal action—beating Pfizer's $2.3 billion deal in 2009 and Johnson & Johnson's recent $2.2 billion agreement.

The critics and prosecutors insist that illegal pharma sales schemes won't stop until more company officers go to jail or face "exclusion" from doing business with the federal government. Industry thus took notice in July when a federal appeals court affirmed that the government has authority to impose a 12-year exclusion on three former Purdue Pharma executives involved in promotion of OxyContin, which was settled in 2007 with $600 million in fines and guilty pleas to misdemeanor charges. The exclusion penalty came up later and it essentially removes the individuals from the pharmaceutical industry, which relies on sales to Medicare and other public health programs.

The Justice Department says it's putting more resources into pharma fraud cases and will continue efforts to hold individual corporate leaders personally responsible for company transgressions—even though it's admittedly difficult to obtain evidence that an executive is responsible for illegal actions by underlings.

Jill Wechsler is Pharmaceutical Executive's Washington correspondent. She can be reached at

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