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From Health Law Daily, October 18, 2017

Participants in drug delivery system testify to impacts on patient prescription drug costs

By Rebecca Mayo, J.D.

The cost that patients pay for prescription medications is affected by a number of different things. Experts testified about their roles in the drug delivery system and where they felt changes needed to occur at a hearing titled "The Cost of Prescription Drugs: How the Drug Delivery System Affects What Patients Pay, Part II" in front of the U.S. Senate Committee on Health, Education, Labor & Pensions. According to the testimonies, understanding the drug delivery system and the negotiations that take place as the drugs exchange hands as they work their way through the system is critical to understand how this process has an impact on the final price that patients pay for their medications.

Market approaches. The Executive Vice President of Policy, Research, and Membership of Pharmaceutical Research and Manufacturers of America (PhRMA), Lori M. Reilly, testified that market-based approaches are the best solution for addressing health care affordability. Reilly pointed out that while there are a lot of rebates and other cost negotiations in the marketplace, rarely do the discounts obtained from those negotiations get passed down to the patients. Approximately half of the spending on prescription drugs is realized by brand manufacturers and the rest goes to generic manufacturers or is captured as earnings by entities along the supply chain.

Over the past 10 years, workers with employer-sponsored health insurance saw a 230 percent increase in deductible payments and 89 percent increase in coinsurance payments while health plans only had a 56 percent increase in payments. One study showed that if health plans directly passed on savings negotiated from rebates, commercially insured patients enrolled in plans with high deductibles and coinsurance could save "between $145 and $800 annually, while increasing premiums by 1 [percent] or less." Reilly also attributed increased costs to patients to hospital markups which causes higher coinsurance payments from patients as well as hospital abuse of the 340B program. The 340B program incentivizes hospitals to prescribe more medicines and higher cost medicines, and it also incentivizes them to buy community-based physician practices so that prescriptions written by those physicians qualify for 340B discounts. Because of the abuse of this program, manufacturers are likely to increase list prices for drugs to "offset revenues losses incurred as a larger number of drug sales become eligible for 340B discounts."

Biosimilars. Chester "Chip" Davis, Jr., President and CEO of the Association for Accessible Medicines (AAM) testified that a critical solution to reducing the costs of medications for patients, is the availability of generic and biosimilar medications. Generic and biosimilar medications face a number of challenges in getting their medications into the marketplace and are at risk of manufacturers abandoning production all together. Similar to points made by Reilly, Davis points to revenue captured by the supply chain as a major factor in drug costs claiming that "for every $100 spent on dispensing generic medicines in this country, approximately $65 goes to the distribution and reimbursement of those products by the members of the supply chain." Davis also explained the unique challenges that generic medication manufacturers face such as implementation of legislation that is created without considering how the nature of generic drug manufacturing is different from brand drug manufacturing. Currently the Medicare Part D "50 [percent] discount required of brand biological is counted towards a patient’s out of pocket costs, but competing biosimilar are barred from providing such a discount." This creates an uneven playing field and encourages health plans to use brand biologics. Additionally, abuses of the Risk Evaluation and Mitigation System (REMS) by brand manufacturers that significantly delays generic manufacturers’ ability to develop generic medications. A 2014 study showed that REMS abuse costs consumers $960 million, Medicare and Medicaid $1.8 billion and private insurers $2.4 billion each year.

Distribution. Senior Vice President of Government Affairs and General Counsel for the Healthcare Distribution Alliance (HDA), Elizabeth Gallenagh testified that pharmaceutical distributors are vital to the drug delivery system, but hold very little power over prices of drugs. A recent 2017 study showed that "pharmaceutical wholesale distributor profit on overall branded drug costs was just under one percent." The role of the distributors is more a functional one to assist manufacturers in getting their drugs to pharmacies, with very little impact on costs or price negotiations.

Innovator strategies. President and CEO of the Pharmaceutical Care Management Association (PCMA), Mark Merritt testified that pharmacy benefit managers are a crucial part of assisting employers, unions, and health insurers keep prescription drug costs down, but they do so outside of the "pharmacy supply chain" and therefore have a lesser impact on the overall drug prices. Merritt claims that while PBMs do negotiate rebates, discounts and other price concessions, those savings are passed through to the clients and the clients then decide whether to pass those savings along down the supply chain. The solution to reducing drug costs should instead focus on marketplace solutions such as reducing innovator biological exclusivity to seven years, eliminating REMS abuse, and making biosimilar subject to the 50 percent Part D coverage gap discount.

Pharmacists. Thomas E. Menighan, Executive Vice President and CEO of the American Pharmacists Association (APhA) testified that pharmacists have limited options to impact patients’ final drug costs because they are at the bottom of the supply chain. Menighan also pointed out that pharmacists are underutilized in the patient care process and that pharmacists are trained to do more than fill a bottle of pills. The APhA believes that if pharmacists were allowed to provide some basic services to patients under the Medicaid and Medicare programs, it would give more people access to basic services and lower overall costs to patients. Additionally, pharmacists are usually tasked with calling health care providers to find treatments that are covered and that the patients can afford. "APhA supports a transparent pricing framework which would eliminate such mechanisms as hidden discounts, free goods and post point-of-sale price fees imposed on pharmacies."

Companies: Pharmaceutical Research and Manufacturers of America; Association for Accessible Medicines; Healthcare Distribution Alliance; Pharmaceutical Care Management Association; American Pharmacists Association

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