Has DC Crossed the Rubicon in Curbing Drug Prices?

Drug companies will have to think twice before pricing new medications.

Public outrage over higher and higher prices has reached a boiling point. Seventy-two percent of Americans believe drug costs are unreasonably high, according to a recent Kaiser Family Foundation poll.

This September, Democratic presidential frontrunner Hillary Clinton echoed the public’s sentiment with a drug pricing tweet that contributed to wiping away about $145 B in market capitalization from biopharma companies.

But recent headlines haven’t been dominated by the cost of the best-known brand name drugs. Consumers and government officials are infuriated by exorbitant price increases for off-patent, short supply and generic drugs. Valeant (NYSE: VRX) and Turing have come under fire for their practice of acquiring existing drugs and jacking up the prices overnight, in some cases by 500% or even 5,000%.

So, how is Washington responding? With nothing meaningful (in the short term). But subtle changes have begun to take place that could reshape how pharmaceutical pricing is managed in the future.

In part due to its pro-business and pro-pharma stances, a Republican-controlled Congress is unlikely to take legislative action to address rising drug costs between now and the 2016 election.

However, the Obama administration has signaled it is mulling options that could be executed by the Centers for Medicare and Medicaid Services (CMS) Center for Innovation or possibly with another executive action.

This November, the Department of Health and Human Services convened a “listening session” to discuss the issue in a forum that included policymakers, manufacturers, patient groups, payers, PBMs and providers.

The fact is that even if no big policy changes are implemented over the next few months, a regulatory climate has formed that could allow for more stringent drug reimbursement and future legislative decisions.

For example, even a few months ago few believed that the Medicare program would finalize a 2016 policy regarding biosimilar reimbursement, the potential effect being a chill on future biosimilar development. Despite pushback from several corners including manufacturers, patient advocates, providers and members of Congress, CMS finalized a proposal to group similar biologics together to determine a single ASP (average sales price) calculation.

This means that multiple biosimilars that use a common reference product will be reimbursed using a single ASP payment (versus multiple ASPs, which is what industry preferred). CMS believes that for payment purposes, biosimilars with a common reference product are analogous to multiple source (generic) drugs.

Another example of a new legislative & regulatory environment involves a little-noticed provision in the November “debt ceiling” bill. Democratic Presidential candidate and Senator Bernie Sanders (D-VT) again put forward a bill that requires drug manufacturers to pay additional rebates if they raise prices at an annual rate higher than generic drug inflation. A bill like this would never have been taken seriously in the last Congress – or at any time in the last decade for that matter. Instead, the Sanders legislation was included in the October budget deal to address the debt limit and 2016 budget. The Bipartisan Budget Act of 2015 was signed by the President on November 2, 2015.

What may happen longer-term on drug pricing? The answer is probably a mix of value-based payments, transparency initiatives and cost-effectiveness models.

Value-based pharmaceutical pricing is likely the future for drug payments according to CMS Acting Administrator Andy Slavitt, who made the case at the HHS listening session held in November. The “value” of drugs on the market varies tremendously when one compares the price to the expected impact or outcome for patients. Value-based or outcome-based pricing takes into account prior evidence, cost effectiveness and patient results.

Consumer advocates have called for increased drug price transparency. They claim that it is difficult to figure out a drug’s value when most pharmaceutical pricing information is not publicly available, and that this harms consumers’ ability to weigh their treatment options.

The outcome of the 2016 elections will impact the pharmaceutical pricing debate. Democratic Presidential candidates have seized on public concern and have made drug costs a top campaign issue.

While HHS can take steps to transform payments for drugs and make prices more transparent, it will take a change in party leadership for Congress to take meaningful action.

Former Secretary of State Hillary Clinton, the Democratic frontrunner for President, unveiled drug policies that include: Endorsing Medicare Part D negotiations and reimportation, capping out of pocket drug costs at $250 a month, reducing biologic exclusivity to 7 years, dual eligible pharmaceutical rebates, providing dollars back to NIH (companies that benefit from federal support), fully funding the FDA’s Office of Generic Drugs, ending tax breaks for direct-to-consumer (DTC) advertising, simplifying the R&D tax credit, prohibiting so-called pay-for-delay agreements, and ensuring Americans are receiving value for their medications.

Republicans are less likely to intervene legislatively. Finding ways to make the generic market work better and value-based payments are avenues Republicans may pursue.

Meanwhile, pharmaceutical companies will have to be more cautious with price hikes and launch prices, knowing that there will be payer pushback as well as front page news stories vilifying “profit-hungry” companies.

Private payers, Congress and CMS will feel increasingly comfortable enacting policies that reward lower cost pharmaceuticals, as they are already starting to do.

It would seem that we have crossed the Rubicon into a point of no return on drug pricing. The issue is here to stay and policymakers are doing what they can to rein in pharmaceutical costs. The rubber could meet the road in a Democratic administration (2017+), though some argue that a GOP Congress could hinder any true price control mechanisms. Others argue that a Republican Congress may acquiesce to certain policies that they would not have previously endorsed.

Morning Consult