Pharma's Big Tradeoff - Pharmaceutical Executive

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Pharma's Big Tradeoff


Pharmaceutical Executive


Encouraging Innovation

Manufacturers aren't complaining too loudly about the new costs because they gain an attractive pathway for the Food and Drug Administration to authorize follow-on biologics (FOBs). Despite strong opposition from powerful legislators and the White House, innovator firms won a record 12-year data-exclusivity period for reference biotech products, with a possible six-month extension for sponsors that conduct pediatric studies. The Congressional Budget Office says the program will save the government—and cost manufacturers—$7 billion over ten years. But generics makers counter that the gains could have been over $50 billion, and that this is just a big giveaway to Big Pharma.

All manufacturers could benefit from clarity for developing and marketing "biosimilars" and "biobetters." FDA now has the task of issuing guidance on what assays and clinical studies will be needed to document FOB safety, purity, and potency, as well as what criteria could support product interchangeability—a critical issue for marketing and reimbursement. Sponsors will pay FDA user fees; there's a process for innovators to challenge patent infringement; and Medicare Part B will pay for biosimilars at average sales price plus 6 percent—an amount considered high enough to encourage physician prescribing of less costly FOBs.

Another plus for industry is language limiting use of comparative effectiveness research (CER) sponsored by the new non-government Patient-Centered Outcomes Research Institute. The legislation rules out using quality-adjusted life years (QALY) to establish cost-effectiveness, a specific that distinguishes this program from the United Kingdom's National Institute for Health and Clinical Excellence (NICE). CER data alone can't support government coverage or reimbursement decisions, studies have to recognize differences in patient populations, and all information has to be made public. Funding for the new entity starts small, but increases to $150 million in 2012 and subsequent years by tapping into the Medicare trust fund and collecting fees from insurance companies. The Institute will form a governing board this September, including at least one pharma representative, and will issue methodology guidelines next year.

More Transparency, Oversight

At the same time, reform creates new headaches for pharma. Beginning in 2013, "sunshine" provisions will require national disclosure of industry payments to physicians, plus submission of detailed data on drug sample distribution. Physician payment information will be made public, and there will be hefty fines for noncompliance. Federal pre-emption of state transparency laws is fuzzy.

Pharmacy benefit managers also have to report to HHS on drug rebates and discounts as well as generic drug dispensing rates for Medicare drug plans. These reports, will be kept confidential, but will be available to Medicare analysts and Congress to help shape payment policies.

Looming on the horizon is a new Independent Medicare Advisory Board that will propose ways to slow the growth in Medicare spending. PhRMA has raised concerns about the broad powers of this entity, noting that it could institute "sweeping Medicare changes" affecting Part D reimbursement without legislative review. The board won't be up and running until 2014, which allows time for industry to press for modifications to its charter. Policymakers might choose not to kill the board, as they are anxious to gain any and all savings from healthcare providers.

The new law does very little to "bend the cost curve" on the nation's healthcare system. Instead, it pays for expanded coverage and other reforms through cuts in Medicare provider fees, which Congress often rescinds, and by taxes on high-income consumers and health care companies, which traditionally don't cut costs.

One sticking point for pharma is that the higher rebates and discounts go into effect right away, while most of the features that expand coverage won't kick in till 2014. It will take some time before anyone can determine if added revenues do offset added costs for drug makers.


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