4

Strategies to Improve Affordability and Availability

Without the major advances in biopharmaceutical research and development that have taken place over the past several decades, there would have been far fewer of the tangible improvements in public health that our society has enjoyed. Researchers and developers in the biopharmaceutical sector share the societal goal of bringing useful products to patients who need them. Nevertheless, many aspects of how drugs are developed and delivered to the public today have made it more difficult to achieve that goal and threaten to dampen the promise of the field.

In developing policy solutions to the challenges in the biopharmaceutical supply chain, high priority should be place on optimizing the health and well-being of the people—including relief from the burden of unaffordable medical bills. It is important to reward private industry for supporting research and development, which are high-risk endeavors with serious financial consequences in the case of failure. The government has played and continues to play a significant role in improving the understanding of human health and diseases by supporting basic and translational research and new technology development and by fulfilling regulatory responsibilities. Investments by the government should benefit the public that financed them. Today, there is a critical need for policy changes that will ensure the availability and affordability of medicines for patients who need them.

CONCLUSION

There is little value in new drugs that patients cannot afford—and there is no value in drugs that do not exist. Thus, there is a fundamental tension

between ensuring the availability of new drugs in the future and ensuring the affordability of those drugs that exist today. Based on the 32 findings listed in Chapters 2 and 3, the overarching conclusion is that improving patient access to effective and affordable medicines is an imperative for public health, social equity, and economic development; however, this imperative is not being adequately served by the biopharmaceutical sector today. This sole conclusion is intended to refocus and refresh the priorities of the entire biopharmaceutical sector as well as to serve as the basis for the following eight recommendations and the implementing actions that accompany each.

RECOMMENDATIONS

As is often the case in providing policy guidance on complicated matters, each recommendation is invariably accompanied by counterarguments. Similarly, it is not always possible to obtain all of the relevant information before providing policy guidance. These caveats certainly apply to the issue of making drug therapies affordable to patients. Identifying which policies need to change and in what ways is only complicated by the complexity and opacity of the biopharmaceutical sector. Dismissing the option of doing nothing, this report offers recommendations based on the preponderance of the available evidence.

Wherever possible, the recommendations indicate the relevant federal agencies that have legal authority to implement the accompanying actions, along with other participants as appropriate. However, there are situations where there is no agency with the definitive legislative authority to carry out certain recommended actions. Thus, this report urges that the U.S. Congress, where necessary, grant the legislative authority to the relevant agencies essential to executing the actions recommended in this report.

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¹ Supporting findings for Recommendation A include 2-6, 2-7, 3-4, 3-5, 3-6, and 3-7.

mergers and acquisitions among companies possessing significant competing generics and biosimilars—either by preventing the mergers or acquisitions or by requiring divestiture of potentially competing drug products to independent entities.

A-3. The U.S. Patent and Trademark Office should identify specific means to reduce “evergreening” of drug exclusivity via new patents or extensions on existing drugs.

A-4. The U.S. Congress should authorize the U.S. Food and Drug Administration to seek reciprocal drug approval arrangements for generics and biosimilars between the regulatory agencies of the United States and the European Union, and such countries as Australia, Canada, Japan, and New Zealand.

A-5. The U.S. Congress and the U.S. Food and Drug Administration should actively seek to reduce barriers to generic market entry and promote the expeditious market entry of additional domestic and international providers of generics and biosimilars, particularly including those not marketed by the original patent holder.

A-6. State legislatures should develop policies to restrict the use of the “dispense as written” practice by prescribers that may unnecessarily impede the use of generics and biosimilars.

Recommendation B:² Consolidate and apply governmental purchasing power, strengthen formulary design, and improve drug valuation methods.

Implementation Actions:

B-1. The U.S. Congress should modify existing legislation so as to allow the U.S. Department of Health and Human Services, acting as a single entity, to directly negotiate prices with producers and suppliers of medicines, including acting on behalf of any relevant state agency that elects to participate in the process.³

B-2. The U.S. Department of Health and Human Services should test and further refine methods for determining the “value” of drugs and identify approaches to support value-based payments, formulary design, and negotiation of prices with biopharmaceutical manufacturers and suppliers.

B-3. The U.S. Congress should authorize the U.S. Department of Health and Human Services, related federal agencies, and asso-

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² Supporting findings for Recommendation B include 2-8, 2-9, 2-11, and 2-12.

³ Alan Weil dissents from Recommendation B-1. In his view, this implementation action is not supported by the report’s findings and there is no evidence of its likely effects.

ciated private payers to expand flexibility in formulary design, including selective exclusion of drugs such as when less costly drugs provide similar clinical benefit.

B-4. The U.S. Congress should amend the Medicaid Drug Rebate Program—authorized by Section 1927 of the Social Security Act—to allow for exclusion of certain drugs from coverage under the rebate provisions.

B-5. The U.S. Department of Health and Human Services through the Centers for Medicare & Medicaid Services should expand demonstration projects that test alternative payment models for prescription drugs and assess the impact of such models on health care outcomes and costs.

Recommendation C:⁴ Assure greater transparency of financial flows and profit margins in the biopharmaceutical supply chain.

Implementation Actions:

C-1. The U.S. Congress should require disclosure of information on a quarterly basis, at the National Drug Code level from:

C-2. The U.S. Department of Health and Human Services should require biopharmaceutical companies to submit an annual public report stating list prices; rebates and discounts to payers, including changes thereto; and the average net price of each drug sold in the United States. The U.S. Department of Health and Human Services should also inform the relevant congressional

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⁴ Supporting findings for Recommendation C include 2-1, 2-2, 2-3, 2-4, 2-14, and 3-2.

committees of all net drug price increases that exceed the growth in the consumer price index for the previous year.

C-3. The U.S. Department of the Treasury should revise Form 990 and expand the disclosure requirements on all sources of income by organizations in the biopharmaceutical sector that are exempt from income tax under the Internal Revenue Code.

Recommendation D:⁵ Promote the adoption of industry codes of conduct, and discourage direct-to-consumer advertising of prescription drugs as well as direct financial incentives for patients.

Implementation Actions:

D-1. The U.S. Congress should disallow the tax deductibility of direct-to-consumer advertising of prescription drugs as a business expense.

D-2. Manufacturers and suppliers should adopt industry codes of conduct that reduce or eliminate direct-to-consumer advertising of prescription drugs and should increasingly support efforts to enhance public awareness of disease prevention and management.

D-3. The U.S. Congress should prohibit patient coupon programs, in which biopharmaceutical companies give payments or discounts to consumers who fill prescriptions for the company’s drug, except in cases where no competing drug is available in the market.

Recommendation E:⁶ Modify insurance benefits designs to mitigate prescription drug cost burdens for patients.

Implementation Actions:

E-1. The U.S. Congress should establish limits on the total annual out-of-pocket costs paid by enrollees in Medicare Part D plans that cover prescription drugs by removing the cost-sharing requirement for patients who reach the catastrophic coverage limit.

E-2. The U.S. Congress should direct the Centers for Medicare & Medicaid Services to modify the designs of plans offered through Medicare Part D and governmental health insurance exchanges to limit patients’ out-of-pocket payments for drugs when there is clear evidence that treatment adherence for a particular indica-

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⁵ Supporting findings for Recommendation D include 3-12 and 3-13.

⁶ Supporting findings for Recommendation E include 2-10, 3-10, 3-11, and 3-13.

tion can reduce the total cost of care, as determined by the U.S. Department of Health and Human Services.

E-3. The U.S. Congress should direct the Centers for Medicare & Medicaid Services to specify that when patient cost-sharing is calculated as a fraction of drug prices in insurance policies through Medicare Part D and governmental health insurance exchanges, this calculation should be based on net prices, not list prices. All state and private prescription drug plans should be encouraged to follow this approach.

E-4. The U.S. Congress should require the Centers for Medicare & Medicaid Services, when determining patient cost-sharing rates, to specifically include the costs and the clinical effectiveness of prescription drugs and available treatment alternatives. This evaluation should address, where feasible, the total costs of care rather than simply the costs of the drugs themselves.

Recommendation F:⁷ Eliminate misapplication of funds and inefficiencies in federal discount programs that are intended to aid vulnerable populations.

Implementation Action:

F-1. The U.S. Congress should expand the authority of the U.S. Department of Health and Human Services to provide increased oversight and regulation of the 340B program to assure that participation by covered entities, contract pharmacies, and drug manufacturers is consistent with the intent of the original legislation. Oversight should include systematic collection and assessment of data from qualified medical providers and participating drug manufacturers regarding the volume of drug purchases eligible for 340B discounts, revenues generated from 340B program participation, and safety-net services funded by these revenues.

Recommendation G:⁸ Ensure that financial incentives for the prevention and treatment of rare diseases are not extended to widely sold drugs.

Implementation Actions:

G-1. The U.S. Congress should revise the Orphan Drug Act to achieve its original intent by:

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⁷ Supporting finding for Recommendation F is 3-16.

⁸ Supporting finding for Recommendation G is 3-15.

• Promoting agreements between biopharmaceutical companies and the U.S. Department of Health and Human Services that enable the department to obtain favorable concessions on launch prices, annual price increases, and other practices important to public health.
• Ensuring that drugs with orphan designation receive program benefits under the act only for the target rare disease, not for ancillary non-orphan indications.
• Eliminating unnecessary sub-classifications of disease categories that create artificial eligibility for orphan drug status, and limiting eligibility to only one orphan condition per drug.
• Directing the U.S. Food and Drug Administration to limit the market exclusivity awarded to orphan drugs to one 7-year extension.

Recommendation H:⁹ Increase available information and implement reimbursement incentives to more closely align prescribing practices of clinicians with treatment value.

Implementation Actions:

H-1. Payers should establish payment policies for drugs administered by clinicians in medical practices and hospitals that do not differentiate for the site of care (site neutral payment).

H-2. Hospitals, vendors of electronic health records, insurers, and professional societies should ensure that clinicians have readily accessible and routinely updated information regarding drug cost and efficacy to support sound prescribing decisions at the point of care. This information should include the relative clinical benefits of alternative treatment regimens and the relative financial costs of treatment settings to both patients and payers.

H-3. Payers should eliminate the practice of reimbursing clinicians and standalone and hospital-based clinics on the basis of list prices for drugs covered under the Medicare medical benefit, and replace the current reimbursement model with fixed fees that support clinical care and the costs of storing and administering these drugs.

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⁹ Supporting findings for Recommendation H include 3-12, 3-17, and 3-18.

H-4. Clinicians, medical practices, and hospitals should substantially tighten restrictions on pharmaceutical detailing visits, the acceptance and use of free drug samples, special payments, and other inducements paid by biopharmaceutical companies to clinicians, medical practices, and hospitals. Professional societies, trade organizations, and insurers could play an important role in accomplishing this objective.

A NATIONAL IMPERATIVE

Individuals make difficult trade-offs between spending their income to purchase prescription drugs and providing other necessities for their families. In addition to the health challenges they face, patients must also contend with the financial burden that comes with medical care needs that may sometimes last a lifetime for them or their families. From an individual to the national level, the growing cost of health care—and of pharmaceuticals in particular—has produced a new urgency because of the effects of these growing costs on the country’s ability to meet other societal obligations while remaining economically competitive. Devoting such a large share of the nation’s fiscal resources to this one particular human need limits investments in other national priorities, from education to infrastructure to the environment, thus affecting international competitiveness, jobs, quality of life, and standard of living.

The biopharmaceutical sector is critically important to public health, social equity, economic development, and, in some circumstances, the national security of the United States. Furthermore, bringing new medications to the market and placing them in the hands of patients has proven to be a laborious, complicated, and expensive process.

Ideally, an effective biopharmaceutical system would need to: focus on prevention as well as on treatments and cures; stimulate robust research and development on drugs that enable major improvements to human health; rapidly adapt to new scientific discoveries; adopt technologies, systems, and practices that improve health care; provide effective drugs that are affordable to all patients, including the disadvantaged; be affordable to society as a whole; sustain itself financially over time; and ultimately, improve the health of the nation.

With these characteristics as a reference, developing strategies to deal with the complexities of the biopharmaceutical sector will require the consideration of approaches beyond, for example, simple price control—a controversial topic in its own right. Thus, this report does not recommend enacting direct controls or setting limits on drug prices—a strategy adopted by many high-income nations that allows individuals in these countries to pay comparatively lesser prices for drugs but frequently does not sup-

port new drug development to the extent realized in the United States. This report also does not recommend or encourage certain more invasive options that have been advocated by others, such federal appropriation of intellectual property. This report opts for a more nuanced, less disruptive set of recommendations that include such factors as increased transparency and consolidated price negotiation by the U.S. Department of Health and Human Services.

Some of the actions recommended for implementation could potentially reduce expected revenues for manufacturers and intermediaries in the biopharmaceutical sector. However, reductions in corporate revenues do not necessarily lead to reductions in investments for research and development. Despite the commonly made assertion by the biopharmaceutical industry that potential reductions in revenues would lead inevitably to reductions in research and development, there are many choices the companies could make in response to such reductions. Such actions include moving funds allocated for product marketing and promotion to research and development, reducing stock buy-back programs, limiting administrative expenses such as executive compensation, and reducing lobbying expenditures.

Ultimately, this report addresses subject matter that arguably more closely involves behavioral, organizational, and political elements than scientific factors, and it highlights the fundamentally different views that exist on these issues—as was observed in the input to the committee from various experts and interested stakeholders, within committee deliberations, and in the external review of the report drafts. A system as complex as the current biopharmaceutical sector is rife with opportunities for unintended effects, so continued and diligent monitoring will be essential. An urgent and concerted effort on many fronts will be required to resolve the affordability and the availability of medicines.

Nonetheless, each month of delay in implementing important reforms adds another month of hampered access to medicines. As a major public health issue, the effects of the unaffordability of prescription drugs to people in the United States are very clear: they ultimately harm the health of individuals, sometimes even resulting in death. If the actions recommended in this report are implemented, it should be possible to achieve a significantly improved system for making drug therapies affordable to patients. The time to act is now.

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