Is More Competition the Cure in Pricing Debate?

Nov 02, 2016
Policymakers, payers and pharma companies weigh strategies for rationalizing drug prices
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Startling price hikes for Mylan’s EpiPen and other important therapies have put the spotlight on the many factors that protect prescription drugs from normal economic pricing pressures, at least for the first few years that an innovator medicine comes to market. Critics say too-high costs block patient access to critical therapies; industry executives claim that the prospect of strong return-on-investment is needed to drive innovation, and that price cuts for new hepatitis C treatments demonstrate that competition works.


 
There’s no shortage of factors influencing pharma markets. Common to all industry sectors are mergers and acquisitions that reduce competitors, and marketing and advertising programs designed to build market share. More unique to drugs are their opaque pricing practices and patent and exclusivity policies that can limit competition. Pharmacy benefit managers (PBMs) and payers, moreover, influence drug coverage, discounts and reimbursement, while more high deductible policies from insurers expose consumers to stiff out-of-pocket costs.

 
But the really big gorilla shaping pharma markets is the government. FDA policies and programs determine when and how products gain market approval. And while FDA strives to keep out of the pricing fray, its complex legal requirements greatly influence drug development, marketing and prescribing.

 
State and federal health programs, moreover, are leading purchasers of prescription drugs, as seen in the nearly $1.3 billion Medicare and Medicaid spent on EpiPens from 2011 to 2015. The Medicaid “best price” program affects drug prices for both the public and private sector, and Medicare Part B and Part D drug plans influence coverage decisions, particularly for expensive-cost therapies to treat serious conditions.

 
Congress also can have a major impact on the pharmaceutical market, as seen in multiple Committee hearings this fall on barriers to generic competition and specific cost issues for opioid abuse treatments and EpiPens. There’s much talk about changing the law to permit Medicare to negotiate drug prices, and several drug pricing proposals have bipartisan support on Capitol Hill.


 
Generating generics


The pharma market has been transformed over the last 30 years under rules hospitable to generic drugs, and these low-cost products now account for more than 80% of prescriptions in the US. New biosimilars are slated to have a similar impact once the competing parties work out disputes over patent infringement issues, exclusivity and claims about adequate “similarity” testing.  


 
The latest scuffle involves charges that brands use restricted distribution programs such as  Risk Evaluation and Mitigation Strategies (REMS) to block generics makers from drug supplies needed for comparative clinical testing. Similar to many brands, Mylan protected EpiPen’s market from generic competition by filing a citizens’ petition with FDA, challenging the comparability of other injectors and, most recently, promising a fast rollout of a half-price “authorized generic” (AG) version.

 
While pharma companies have produced thousands of AGs, this strategy has drawn criticism from the Federal Trade Commission (FTC). In a report issued in 2011, the FTC examined how AGs shape and limit generic competition. The agency also has raised concerns about the role of AGs in “pay-for-delay” agreements, where a brand promises not to market an AG as part of a deal for a generics firm to delay market entry.

 
Meanwhile, generics makers, too, have been criticized for steep price hikes on certain products, often related to M&As that reduce the number of producers in a class, and quality manufacturing problems that shut down facilities and create shortages for some widely-used sterile injectibles. Some members of Congress want to boost rebates for generics that raise prices over a certain level, and everyone is calling for FDA to do more to speed new generics and biosimilars to market.
 
FDA recently issued a lengthy final rule that clarifies regulations governing drug patent challenges, which aims to reduce unnecessary litigation that can delay generic market entry. Janet Woodcock, director of the Center for Drug Evaluation and Research (CDER), explained at a September hearing before the Senate Appropriations subcommittee that oversees FDA funding how added resources from user fees and internal organizational changes are improving FDA’s generic drug approval program. She noted that FDA is working with other manufacturers to bring additional epinephrine auto-injectors to market, but acknowledged that the testing and approval process for combination drug-device products is particularly complex.
 
Probing PBMs

The public clamor over high drug prices also has focused attention on the role of PBMs in managing formularies and patient co-pays and how manufacturer rebates and discounts shape drug coverage and distribution. Mylan claimed that rebates account for nearly half of EpiPen’s $600 list price, and pharma companies similarly complain that they have to raise prices a lot to gain even a small increase in actual revenues after rebates.


 
One marketer strategy to build market share despite high out-of-pocket costs for patients is to offer co-pay coupons and patient assistance programs. But PBMs and payers oppose such giveaways, claiming that they get patients hooked on more expensive new medicines and leave payers bearing higher costs over the long run.

 
Retail pharmacists are even more hostile to PBMs for steering consumers to select pharmacy networks and to mail-order services and eating up pharmacist profits. Pharmacy groups want Congress to investigate PBMs’ role in drug pricing and to press for more transparency in rebates. PBMs counter that they hold down drug prices by negotiating lower rates from manufacturers. But with three large PBMs controlling nearly 80% of the market, analysts have raised concerns about their ability to set payment policies that affect beneficiary access and costs.

 
Pharma marketers say they could work more effectively with PBMs and formulary committees if FDA revised rules that inhibit sponsors from discussing with payers the broader economic benefits of pending new drugs and unapproved indications. The issue may be considered in coming months as part of FDA’s long-anticipated examination of off-label communication policies, a contentious issue with great potential for shaping pharmaceutical markets 
 
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