[Please note that this is an unedited transcript]
William Pierce: Okay. All right. We will, it’s 9:00, so let’s get started. It’s going to be very brief, ’cause we know who our speaker is this morning. And we will _____ [00:00:51] second panel obviously when the panel comes and sits down. But before we get started, again, welcome to APCO Worldwide. Welcome to the Brazda Breakfast briefing.
We’re going to have a special guest this morning. Not as a speaker, but we’re going to have – for those of you who knew Jerry Brazda [ph], his daughter, Barbara [ph], is going to come to her first one of these. We spoke, I had mentioned early on, at length with her to make sure it was okay with the family that we made this breakfast in honor of Jerry.
And as many of you, if you know him, he was an innovator. And for some of you, kind of, you stand on his shoulders in a sense, because he started many of the very earliest health care letters that went on in Washington, DC. So we thought it was appropriate not only did he start this briefing in 1986, but that he carried it on and he was an innovator in this space.
So that’s why we named it, and so we will introduce her when she comes to the second one. So with that I just want to say it’s a pleasure to welcome Dr. Scott Gottlieb FDA Commissioner here to the breakfast briefing. And just my own little personal observation, I’m not surprised _____ [00:02:03] as the FDA Commissioner having known him in the Bush Administration, and _____ [00:02:10] Thompson [?]. So with that, let me turn it over to my colleague Mary Ella Payne [ph].
Mary Ella Payne: Thanks. So my name is Mary Ella Payne, and I’m the acting credited and CEO of the _____ [00:02:22] for health policy. So you may know Sarah. Sarah had a beautiful little girl a few weeks ago, so I’m just filling in for her till she returns later this summer. But for those of you who are not familiar with the Alliance, we are a nonpartisan organization dedicated to advancing knowledge and understanding on health policy issues [ph].
I’m just going to briefly say I’d like to thank APCO Worldwide for making _____ [00:02:45] possible. And we are very pleased to have Dr. Scott Gottlieb here, Commissioner of the FDA, to provide more details about the administration direct pricing blueprint. So without further ado, Scott Gottlieb.
Scott Gottlieb: Well, I didn’t really prepare long introductory remarks. I thought this was, we would almost see, use the session for Q and A [?]. I will just sort of frame my thinking about the plan as it was announced, and I’m also happy to talk about any other FDA related issues. We’ll be taking some separate actions this week on e-cigarettes and smoke policies _____ [00:03:22], I’m happy to get into.
But when I think about the drug pricing plan, the blueprint, and I think about drug pricing more generally, I think about it in _____ [00:03:29] two domains. The first is trying to create more product competition. A lot of that falls within if it was to fall within the domain of any agency, it would fall within the domain of FDA. I mean, a lot of this is obviously determined by the private market.
But we do have ways that we can try to inspire more product competition in the market, both on the generic, and the new drug side. The other domain if you will is price competition. Once you have multiple products in that category, how do you make sure that there’s adequate competition, so that you’re actually getting the benefit of that product variety.
And I think a lot of the parts of the blueprint that are novel and new are focused on the second ordered question [?], which is how do you get more price competition in the market? How do we make sure that Part B drugs are negotiated in a competitively good system, and the government isn’t just the price taker? How do we make sure Part D drugs, Part D health plans have adequate leverage to take advantage of the competition that occurs in multiple drug categories.
With respect to Part B to Part D in particular, and this is obviously something I’ve talked about in my former capacity when I was working out of Think Tank [?]. You have to remember that when we created Part B, and I was there when we create – now when we created Part D, excuse me, and I was there for that. I was there when we were first implementing Part D. I was working on Medicare, Medicaid with Dr. McCullen [ph].
And we created the ASPE System, ASPE plus, six percent in the context of that legislation. The Part B categories didn’t have competition. Most of those drugs were sole source drugs. At that time if you looked within the categories of the TNF inhibitors, and a lot of the monoclonal antibodies, there wasn’t product competition in those categories.
These were very novel drugs. They hadn’t been on the market in many cases for many years. We’re in a much different situation today. Monoclonal antibodies and these injectable drugs are the mainstay of therapy for many diseases. Not only are these product categories multisource, and in some cases quite crowded, but there’s also a lot of therapeutic equivalence.
There’s a lot of other types of drugs that you might use to try to address the same clinical conditions. So you look at a condition like Rheumatoid Arthritis, or many of the inflammatory conditions, many of the autoimmune conditions. There’s a lot of different products on the market that address those conditions in different ways.
And sometimes in comparable ways. And so in situation where you have a lot of therapeutic variety, and you have multisource drugs on the small molecule side of the world. You have plans negotiating pricing using formularies, and using things like step therapy, putting drugs on preferred tiers relative to the kind of price concessions they’re able to attract.
But here you have the Part B market which in many respects looks like the small molecule world with respect to how much competition we see within some of these categories. But you don’t have the same structure. So times have changed, and I think that’s why you see the secretary and others talking about rethinking how we bid out those Part B drugs into a competitive scheme whether it’s an _____ [00:06:40] cap program, or trying to move some of these classes into Part D of benefiting from the competition.
With respect to the first domain, and I’ll just come back to it. Try to create more product competition, we’ve been talking for a while about trying to create more competition with respect to generic drugs. I think you’re going to hear us talking about two new themes within that regard. One is to try to create more biosimilar competition.
So we’re going to be unveiling probably later this month a whole series of reforms to try to create more opportunities for biosimilar products to come to the market and come to the market in ways that they could take advantage of price competition relative to the incumbent product. So trying to reevaluate for example how products can demonstrate interchangeabilities.
They can get on formularies more easily. Try to reevaluate how we extrapolate a price different indications [?] when we print out the initial market approval to a bio [?] similar, do we extrapolate to the other indications for which the reference biologic product was approved for? We’re also going to be talking more about new drugs.
And remember, we also want to make sure that we have an efficient process for bringing new drugs to the market, and it’s a component of how we create competition, and how we promote access. Because what you don’t want is a situation where a very novel drug comes to the market, and has a monopoly for an extended period of time, because the regulatory process isn’t as efficient for the second, and the third drug as it was for the first drug.
And so we want to make sure that the regulatory process is efficient in cases where you have unmet medical need, where you have a second and a third drug coming to the market. Because getting that drug on the market not only provides important competition, but it actually provides very important therapeutic differentiation.
We know that patients experience different responses to different molecules even within the same class, and different molecules within the same class with different side effect profiles. So making sure that our new drug approval process is efficient, it’s very important as well. We’re going to be announcing a fundamental restructuring of the new drug approval process in early June to change how we organize it as a matter of business, elevate the function of medical reviewers.
Try to make the whole process itself much more scientifically collaborative whereas today’s process, a lot of the different scientific domains that have components of how we review drugs, whether it’s the statistical evaluation, or reviewing the chemistry, and controls manufacturing, or doing the epidemiological evaluation, or the biochemistry evaluation.
All of these are different sort of areas of expertise that function as consultants to the review process. What we want to do is create a review process that integrates people with expertise in these different domains around a more collaborative team based approach. And around one common review memo.
So instead of seeing when we approve a new drug package, seeing the review memo written by the primary medical reviewer, and then ten different consultant reports commenting on the review package. You’ll see one integrated review memo that actually will be more fully searchable, will be housed in an electronic domain.
So it can be, you can link to available data that we will hopefully make more available. So there’ll be more transparency around the bottom line data that goes into the review of the product itself. So no more review memos _____ [00:10:05] by FDA in PDF’s.
We’re looking to create a sort of cloud based environment where we can collaborate around a review memo electronically inside the agency. And then make it available in a similar format. I’ll pause there and see what questions folks may have about that or anything that’s going on at the agency.
Unidentified Female: Go ahead. And could you just identify yourself, and where you live?
Scott Gottlieb: We can just go around _____ [00:10:29] if you go around and—
Unidentified Female: You want to do that.
Scott Gottlieb: Yeah. You might as well. _____ [00:10:32].
Sara: I’m Sara _____ [00:10:34] with Luberg Law [?]. Can you identify what drugs might be the most impacted, and how they’d be impacted in moving from Part B to Part D?
Scott Gottlieb: Well, I’ll characterize them, ’cause I’m not going to be drug specific. But I would – I if was thinking about this, I would look at the categories where you have a lot of different products within the category. And the opportunity for therapeutic substitutions. So that’s not every category. I mean, some of these Part B categories are quite novel, and you don’t have multisource drugs.
But there are some that are quite crowded, and have a lot of multisource drugs. I mean, even looking outside on oncology, so setting aside oncology altogether. I’m not saying we would set aside oncology altogether, but even if you were to set aside oncology. Outside of oncology you have a lot of multisource drugs, particularly in the autoimmune and inflammatory space.
You also have a lot of Part B drugs that we don’t necessarily think about. But because there’s not as much new drug novelty in the space for drugs for example that are paid under Part B that are delivered through DME, Durable Medical Equipment. And so that’s another category.
Back when Bill Pierce was in HHS, Secretary Leverett [ph] solicited a study and an evaluation of what the potential cost and savings would be of moving some of the drugs that were delivered under DME from Part B to Part D. So that’s been evaluated. And in the Obama Administration, there was also a report that was solicited by CMS looking at some of the potential cost savings from moving more B drug classes into D, that they made available.
They didn’t talk about it as a matter of policy as I recall, but they did solicit some outside analysis and made that analysis available at the time. So people have looked at the question of moving selected drug categories from B to D. Remember, I mean, I get back to the point I made at the outset, B was created or ASP plus six percent was created in a world where these were not multisource drugs.
And the ASP plus six percent was created as a way to both compensate providers at the time for the cost of taking acquisition in the drugs, and infusing them. But it was also a policy construct that put a cap on the pricing. So it didn’t, the government at the time wasn’t regulating the entry price, but the scheme itself was created in such a way that it was hard to take price increases. So drugs would come into the market at a certain launch price, and then there would be pressure not to take price increases.
‘Cause if you take price increases in the ASP plus six percent, the physician could be left under water, so there was pressure not to take price increases in ASP plus six percent. And that’s partly, I think at the time that’s why it was designed the way it was, these single sourced drugs. And it was an attempt to try to create some at least cap on the pricing if you will, even if you weren’t _____ [00:13:36] down with pressure on pricing from competition.
But I don’t think anyone envisioned how competitive these categories would become just like I don’t think anyone’s envisioning how competitive the gene therapy and _____ [00:13:48] categories are going to become. But they will become quite competitive very quickly in my view.
Unidentified Female: _____ [00:13:56] Kaiser Health _____ [00:13:57]. I know this is just an idea, and a study. But did we talk about the possibility of putting a drug price _____ [00:14:04]? Do you have the authority to do that _____ [00:14:06]?
Scott Gottlieb: Well we’re currently looking at the question. I announced that we had formed a working group to look more broadly on our policies with respect direct to consumer advertising more generally. And one of the questions we’re going to be specifically focused on is this question now that we’ve been given the mandate to evaluate it by the secretary, and the president. So we’re looking at it.
What authority we have to compel disclosure of price information under our current regs, would we need to change our regulation? How would we look at price, the disclosure of price in an advertisement as a component of fair balance, and under our public health considerations? So I don’t want to get too far ahead of the process that we’re now going to undertake.
It’s hard to leave – any time we’re sort of engaged in a process like this where we’re evaluating a legal question like this and a policy question, it’s a multi-month process. And so—
Unidentified Female: But some people would suggest _____ [00:14:59] downside possibilities that if you look at the _____ [00:15:02] price that people will think, well, I’ll never be able to afford that, or I’m not even going to go to my doctor.
Scott Gottlieb: Yeah. I mean, it gets to the question of whether or not the list price is the best. If the goal is to help inform the consumer of what the potential cost could be to them. Is the list price the best process [?] of that if there were other prices in the market that would be a better policy [?] for informing the consumer of what the potential price would be.
The other option here is if the industry could also do this on a voluntary basis as a component of their code of conduct. They have pretty granular set of best practices that they by and large adhere to with respect to what they do in _____ [00:15:42] advertising. And so they have some ability to act collectively in this fashion. And unilaterally without piercing their, all the anti-competitive [?] things.
Unidentified Female: I want to be at that meeting.
Scott Gottlieb: What?
Unidentified Female: I want to be at that meeting where they talk about _____ [00:15:59].
Scott Gottlieb: Yeah. Well, _____ [00:16:01] one. Chuck?
Chuck: The rebates, Safe Harbor [?], is that going to be handled through _____ [00:16:11] regulatory guidance and _____ [00:16:12]? Is there a cycle for that? You have to wait for that cycle to come back around before you look on the Safe Harbor _____ [00:16:20] for rebates?
Scott Gottlieb: I don’t believe that there is a cycle to the rule making to what you’re suggesting. And maybe I’m missing something. My understanding was, and you might want to check this, was that the secretary has discretion to define the scope in that Safe Harbor regulation. There is no component statute where the secretary’s given authority to define Safe Harbor.
But the _____ [00:16:44] of that Safe Harbor get the _____ [00:16:46] regulations. So you could, and I don’t want to pose too many hypotheticals, but you could consider for example whether or not the Safe Harbor would only apply to certain circumstances.
Just hypothetically speaking, maybe in the context of a value based contract, or some other contract being a mechanism that achieves certain policy and public health goals. Those would be the kinds of considerations you can make in regulation. There is discretion though. It doesn’t need to be a broad blanket [?] in Safe Harbor.
Unidentified Female: On the, when you were talking about the reviewing _____ [00:17:19] approval process, is there going to be any thought about _____ [00:17:23] and I know you guys don’t deal with _____ [00:17:25]. But sort of getting at the issue somehow of maybe _____ [00:17:28] and the president brought gaming [?] up. But we didn’t really see a whole lot in the report except the one _____ [00:17:35] already kind of knew about.
Scott Gottlieb: Well, I mean, those are two broad questions. I mean, the gaming more generally, so _____ [00:17:42] on a similar side is that _____ [00:17:43] provisions _____ [00:17:44] biosimilar statute. And I think that by and large, we’re not going to see the kind of situation where someone comes out with a different formulation.
Pulls the old formulation off the market, and tries to convert the patients over to the new formulation ahead of patent _____ [00:18:01]. I will say that on the, at least on the biosimilar side. I will say on the new drug side, so the innovation we’re seeing on the biosimilar side, when we’re seeing companies launch new products on the eve of patent _____ [00:18:11].
I think we can reasonably agree, represent a degree of novelty, that they’re fundamentally different molecules. On the small molecule side, you see that behavior less and less now. You definitely saw a lot of that behavior over a period of time in the specialty pharmacy chain. But you’re seeing it less and less.
You’re seeing less and less companies try to reformulate a product, and pull the old product right on the eve of a patent _____ [00:18:42]. And you could still bring a generic onto the market in these situations against the old product. So that sort of quote-on-quote gaming doesn’t prevent generic entry. What would happen though is that by pulling the old product out of the supply chain, the pharmacies would no longer stock it.
Doctors would no longer be writing for it. And so you would effectively not eliminate the product in the market, but eliminate it from people’s consciousness. And then if someone would come in and launch a generic, you’d have to reconvert pharmacies, and doctors back over to the generic, which would take some up front effort on the part of the generic entry. And the generic companies by and large aren’t structured to do that.
They don’t have a sales force. So that was what was going on. I’d see that less and less. That doesn’t mean you don’t see it. The gaming that I see, where I think people are blocking generic entry relates to access to the samples, to the doses. And I keep talking about this, and I keep talking about it for a reason. Because it’s a pervasive problem, and it’s not just in the context of the rems [?].
It’s also in the context of contract provisions that the _____ [00:19:49] companies force onto, or obligate the distributors to adopt that prevent the sale of the drugs to the generic companies. And this is mostly in the context of specialty pharmacy products where you can more tightly control the distribution. But that’s the context in which we see a lot of the sort of extended monopolies pass the point of lawful IP [?].
And where we see the very high prices and the access problems. And so from a public health standpoint, an access standpoint is precisely where we’re focused. And that’s where we see some of this sort of gaming going on. We’ve taken steps to address it. I think some of our steps are going to have meaningful impact.
I don’t think we’re going to fully eliminate the behavior. But between some of the steps we’ve taken in trying to bring more transparency around these situations, I’m hoping that it will discourage the behavior in the same way that when there was more of a focus on the ever greening [?] to your language, where people were doing what I described.
Where they would pull the old drug out of the supply chain, put the new drug, the slightly tweaked drug in. You’re not seeing companies do that as much anymore. I’m not saying nobody does it. But you’re not seeing companies really invest in that as a business strategy, ’cause they got objected by. And now they can be objectified to 240 characters in a way that really stings, so we’re bringing more transparency to it.
So Thursday we’ll be launching that RLD website that we’ve been talking about for a while. It’s taken longer than we wanted to. Trying to work through the legal issues about disclosing that information has been a challenge. But now that we’ve worked through it, we have the website set up. We’re going to retrospectively make available a situation where companies have petitioned us to see why they can’t get access to the doses they need.
And then we’re going to retrospectively do it on an ongoing basis. So companies are now on notice. Branded companies are on notice that there’ll be a website at FDA and that’s going to identify when multiple generic entrants are having trouble getting access to their physical samples.
And you’ll know that too. There’s about 50 drugs retrospectively that we’re going to be identifying and some of those drugs have 10 different generic firms sending us inquiries. So that at least suggests that there’s an obstacle.
Unidentified Male: Yeah. Aside this website, what other steps can the FDA take to limit this type of action? And is shaming drug companies going to be enough?
Scott Gottlieb: Well, I’m not looking to shame drug companies. I’m looking to bring transparency around what I think are reasonable public health questions that people deserve to have access to the information. You all are going to be in the position of making a determination what’s actually the root cause. I’m just identifying the problem.
In these cases, we don’t know fully what the root cause is, and whether it’s a rems, or a distribution agreement, or maybe something completely unrelated. We’re also going to be putting out at the end of this month, guidance. I talked about this yesterday. On giving the generic firms waivers to develop their own rems programs.
So in situations where there’s a rems in place, there’s a lot of focus on the frontend, the use of the rems. Basically using the rems as a tool to make it harder for the generic company to get access to the brand’s doses. And that’s what creates that and tries to get at. But there’s also a backend problem with the rems in that when the generic drug actually gets FDA approval, and it’s ready to launch, and go to market.
Under the current law, the law says that they should try to enter into a single share of rems with the branded company. And the reason the law was written that way was because Congress didn’t want there to be multiple rems in the marketplace. They recognized it would be burdensome to physicians if you have one rems for the generic, and one rems for the branded company.
And you try to switch between the two, or multiple generic entrants all had different rems. It would make those relationships to drugs sticky based on the rems. And it would be _____ [00:23:43] to having previous competition in the market. But what we’re seeing is that as the generics negotiate with the branded company on the eve of launch to get into their rems program to have this single shared rems, and share the rems.
The branded companies sometimes extend those negotiations let’s say, and that becomes an obstacle on the backend to the generic launch. So what we’re going to say, we’re putting out a guidance. And the guidance will effectively say, it’ll be one of these short guidances. It’ll say FDA shall grant a waiver to a generic company if it can demonstrate to FDA that these negotiates are being dragged out.
And that demonstration will be a reasonable demonstration. I think just by telling the marketplace that I’m willing to give a waiver to the generic companies to go their own way, and develop their own rems more easily. That’s going to discourage the branded companies from doing this in the first place, because the waiver’s going to be a visible reminder that something was going on.
And also at the end of the day, the branded company would prefer to have the generic in their rems. They too would prefer a single shared rems. They just would prefer it sometimes maybe 12 months later.
Unidentified Male: So _____ [00:24:52] just a quick point of clarity with regards to the website you’re launching. Are you going to be publishing all letters you sent out to brand sponsors [?] or is it just going to be the ones who you suspect are gaming the system?
Scott Gottlieb: So I’ll be careful, ’cause I’ve just spoken about this 15 different ways. And it was not delivered. So we have two different letters. We have inquiries and then we have letters that we send out. So what we’re going to be disclosing Thursday, we’ve got 150 inquiries. Those are from different generic sponsors, sometimes about the same drug, so one drug had ten different inquiries around it.
I think those 150 inquiries concerned 50 drugs in total. But some drugs only got one inquiry. Some got multiple inquiries. We’re going to be disclosing not who sent us the inquiry, but what drug was the subject of the inquiry. So it will say Drug X got ten inquires, and then the date of those inquiries, I think, maybe, maybe not. But then we’re going to disclose that we sent that letter. What’s the letter called?
Unidentified Female: Well, it’s a template that we’re sending.
Scott Gottlieb: There was a letter. What’s the name of that letter?
Unidentified Female: I’ll get the exact name.
Scott Gottlieb: Okay. So there’s a name for the letter, but there’s a regulatory letter that we will send. So when we get the inquiries, the inquiries will basically say something like, we’re having trouble getting access to the drug, is there a rems that’s causing it? And in some cases there is, and in some cases there isn’t. So what we’re going to do is say, Drug X, ten inquiries, was there a rems in place, yes or no?
And the answer might be no. And a rems with _____ [00:26:22] to assure safe use _____ [00:26:23] those are the elements that really create the restrictions in the marketplace. And then we will say whether or not we sent this certain regulatory letter, the name of which I forgot, to the branded companies. So in some situations, the generic will say, we’ll say back to the generic, there’s a rems. There isn’t a rems.
We don’t know what the problem is, and they’ll say, but can you send a letter to the branded company telling them that our protocol meets all the requirements of the rems. If the branded company were to give us the drug, and the rems requires a tight distribution restriction around, and handling of the drug for some safety reason. We’re going to be meeting all those requirements.
We’re not going to let the drug out, because what the branded company says is, well, we can’t give the drug to them, because you, FDA, impose these requirements on us. ‘Cause you didn’t want any of this drug getting into the marketplace, ’cause it’s a dangerous drug. And what we say to branded company is we say, no.
We’ve reviewed the protocol for the generic company and they – we can assure you that their protocol will guarantee custody of this product. So we send that affirmative letter when we’re asked to, and so we’ve sent in 20 cases. So the website will also disclose whether or not we sent that affirmative letter. And we’ll provide a template of what that letter looks like. It’s a pretty standard letter. So that’s what you’re going to see.
You’ll see it retrospectively for the 150th, for the 20, but what’s more important I think is you’re going to see it perspectively [?]. And I will tell you that there are some drugs on this list of 150 that I think are going to be quite interesting to all of you.
They’re specialty pharmacy products that have, some of them we would have thought had generic competition by now by some big drug makers. And some of them have five or ten inquiries against them, so something’s going on.
Unidentified Female: Scott, we have about five, we had a hard _____ [00:28:03].
Scott Gottlieb: I can extend a little bit _____ [00:28:05].
Unidentified Female: Yeah. Okay.
Unidentified Female: Okay. Good.
Unidentified Male: Following up on that subject, on the create side, am I right that the _____ [00:28:13] technical assistance to congress _____ [00:28:15] has not taken a formal position of the overall legislation? And also, when you post the information on the website, am I right that FDA isn’t making any judgment about the validity of the complaint _____ [00:28:31]?
Scott Gottlieb: Yes. You’re right on both of those. And we are all – the only affirmative work that we’re doing when we get the inquiry from the company in 150 cases is we will affirmatively acknowledge whether or not there’s a rems in place. You could infer that if there’s no rems, that if we’re getting multiple inquiries on a drug, and there’s no rems in place, then whatever impediment [?] they’re feeling, assuming that they’re right.
And they’re feeling an impediment in getting access to the samples so much so that they sent us these letters might be in the form of some kind of distribution restriction. But that would be speculation on my part. _____ [00:29:15].
Unidentified Male: How do you respond to concerns that the idea of disclosing those prices _____ [00:29:20] could be considered _____ [00:29:21] speech, and could go against the First Amendment? Is that a concern that you all are generally sympathetic to, and are trying to work through? And if I can ask on a different topic that you brought up, the idea of voluntary restricted distribution systems.
I believe you had said that you were going to reach out to companies during that FTC FDA joint meeting. And I’m wondering if that outreach has been done, and if you can share any sort of initial reactions that you’ve gotten from these companies that you’ve reached out to?
Scott Gottlieb: On the first question, that’s the legal question we’re going to be looking at. I mean, that’s the first legal question whether or not we have the ability to compel this sort of speech within the context of our current regulations, or do the regulations need to be modified? I mean, we do have the ability. There obviously is speech that’s required as a component of the DTCF [?] to provide fair balance to the consumer.
So you can call that a compelled speech. I call it fair balance to provide proper public health context for the consumers who are seeing the advertising, but that’s essentially what the work group’s going to be looking at. I have had communications with the distributors directly, some phone calls. We’ve talked about this. I think they recognize the challenge.
I think that from their standpoint, these are contract provisions that they’re marketing. These are contract provisions that are being brought to them, so I think in fairness to the distributors and th e PBM’s [?], it’s at least my understanding is it’s a brand new company who’s bringing these contracting provisions to them.
But at the end of the day they still are adopting them. And they still face scrutiny and risk in adopting them, and so my message to them was I was hoping they would think about the public health aspects of these provisions. And how they work in a way that’s hypothetical to the interests of a statute like _____ [00:31:17].
Unidentified Male: Have you seen any that have actually changed their practices _____ [00:31:23]?
Scott Gottlieb: I haven’t seen any yet. I mean, I haven’t seen any that have come out and _____ [00:31:25] said that they won’t agree to these contracting provisions anymore. But I’ll keep tilting at that windmill [?].
Unidentified Female: Jennifer from _____ [00:31:36]. I have a question about something that was suggested regarding having two different _____ [00:31:44] different indications, would that be something that advisory committees would weigh in on when _____ [00:31:50] or—
Scott Gottlieb: No. I mean, that was a Part D construct that what they were talking about in the blueprint was indication based pricing within Part D, and giving flexibility to do that. That wouldn’t be something FDA would _____ [00:32:03].
Unidentified Male: So with moving the _____ [00:32:07] into Part D, for beneficiaries and providers that are in Medicare fee for service versus Medicare _____ [00:32:13] implications for those two groups if that proposal happened?
Scott Gottlieb: For providers in Medicare Advantage where the Part D plan is capped into the MA plan, is that what you’re asking?
Unidentified Male: Or I want to get a sense of _____ [00:32:27] removed Part B _____ [00:32:29] into Part D _____ [00:32:30] if there’s different implications for beneficiaries _____ [00:32:34] fee for service Medicare versus Medicare _____ [00:32:36].
Scott Gottlieb: Yeah. I mean, I’m going to leave that to _____ [00:32:40] to answer, ’cause I don’t want to step too far into her domain. I think some of the question’s also around people who don’t have Part D coverage, but have Part B coverage. How do you deal with those? There’s questions around issues of the premiums going up in Part D.
But I think that what we will find is that the savings that would be achieved would be more than enough to view some of those savings to subsidize the premiums in Part D in a way that the patient will be _____ [00:33:15].
And won’t be adversely impacted, ’cause once you think about trying to actually create formularies, and create a competitive market for different plans offering different kinds of coverage on some of those Part B categories. I think when we look at the potential savings that this is going to have is going to be quite compelling.
Unidentified Female: Just to pause really quickly, I’m sorry, it’s Safety Determination Letter.
Scott Gottlieb: Oh, Safety Determination Letter, yeah.
Unidentified Female: So yesterday, Secretary _____ [00:33:40] laid out what he thought was a really good way to see the PBM’s for the intermediary, how does that, kind of a model, and he said that he liked the _____ [00:33:52] model, the _____ [00:33:53] yesterday. He was talking about that price _____ [00:33:55] essentially, it’s 100.
The spread’s 100, and set it at 70. You know that it’s going to be $70 for the next year, or two years, whatever. So what I’m wondering is as you go through this process of finding the middleman knowing how the president has called out the middle men. Are you going to shame the PBMs?
Scott Gottlieb: Well, I mean, I’m not looking to shame – I don’t know. I mean, this is sort of outside my domain. And above my pay grade. I don’t think that we’re looking to shame anyone from FDA. I think we’re looking to provide transparency around practices that we think conflict with our mandate that we had from congress to balance access and innovation.
And I’ve been very clear that I think market based pricing for innovation is the best way to reward innovators, and help sort of attract the capital into these very high risk endeavors. But if you’re going to have a market based pricing system, it’s dependent upon vigorous competition at the time of patent _____ [00:34:52]. And that’s where we think that there’s a challenge.
I think with respect to what the secretary was talking about with what you refer to is moving more towards a straight discounting model. And away from the rebating model, and there’s different ways to achieve that. And in fact, you’ve seen some PBMs now make public commitments since they’re going to be going in that direction. I think Prime [?] does that.
And I think some of the other PBMs are now committing to do that, to move towards a straight discounting model. And not pay intermediaries off of a fictitious list price. There’s things that you can do within Medicare to try to hasten that. One of the things that they talk about in the blueprint is trying to move towards having more of the rebates be paid to the consumer at the point of care.
That’s one way to address it. But there is sort of, you look at this from a patient standpoint. I mean, forget the drug pricing aspects of this. You look at this from the patient standpoint, and the current model where health plans get a rebate off of a fictitious list price, if the patient’s out of pocket for a lot of money for a lot of the cost of that drug.
What’s effectively happening is the patient’s out of pocket for a lot of the cost of the drug. A lot of the money’s getting rebated back to the health plan. The rebates being used to buy down everyone else’s premiums, maybe even the situations where the plan’s say, 100 percent of the rebate goes back to consumers.
And isn’t used to generate any of the profit margin, it’s not going to the consumer who is out of pocket. It’s going to everyone else who’s premiums are getting bought down. And the reason why health plans do that in my view is because they largely compete on premiums. No one shops for a health plan saying let me see how much it’s going to cost me to get retuxin [?] if I get lymphoma.
Nobody thinks like that. They look. They shop based on their current drug coverage largely, and the premium. And so the name of the game is to have low premiums, and have as wide as possible formularies. But what’s happening in that scenario that I just described is basically the sick patient is subsidizing the healthy patients.
Exact opposite of what we expect from insurance, which is that a large pool of people who are otherwise healthy are buying insurance. And their premiums are being used to cross subsidize the unfortunate event when one of the people in the pool gets sick. This is the exact opposite of that.
Unidentified Female: Can you talk a little bit more about how it would work if there wasn’t rebates, and they were discounting? ‘Cause people I talked to said it sounds really simple when, like Secretary _____ [00:37:19] says, hey, you have a $100 deductible [?]. We’re just going to pay 70, but PBMs aren’t actually the direct purchaser of the drug in many cases. So it’s not as simple as them being that first person to kind of get the list price down through negotiation.
Scott Gottlieb: Well, I mean, I don’t think it’s that complicated. I think it’s just a question of what you’re going to negotiate around. And are you going to negotiate around a discount, or are you going to negotiate around a rebate. And right now they’re negotiating around a rebate. The other thing you can do in Medicare Part D is say that as a condition of contract, meaning you need to look at how this would work relative to the _____ [00:37:58] clause.
But as a condition of contract, and you can’t play intermediaries on the list price. And you can’t pay any of the supply chain intermediaries on a list price since list price isn’t the real price. That would reduce the incentive to have high list prices as well. So there is a lot that you can contemplate within the context of Part D.
And these are all sort of in the blueprint. I mean, all these ideas are embedded in there. And they would all just require administrative action. I mean, I think that the problem is that we have such a _____ [00:38:26] complex system that to think that there is one policy reform that you’re going to implement that’s just going to create a much more competitive landscape.
That’s not the reality. This system was built up over many years through the hard work of a lot of lobby dollars. And I think that in order to start to dismantle it, it’s going to take a series of interlocking reforms, and someone who understands how these different parts are working together in a pernicious way to disadvantaged consumers and patients.
And so it’s going to be a series of reforms like this. But these are meaningful steps, and I think when you start to roll them out. And over a short period of time, you’re going to start to see much different private sector behavior. We have to go? Two more questions, okay.
Peter Sullivan: Peter Sullivan with _____ [00:39:13]. I guess I would just have a broader question like if still under the plan, if there’s a new drug, a new brand of drug coming on the market. And if it doesn’t have a therapeutic _____ [00:39:24] is there anything that prevents – it’s still that the company basically sets whatever price they want, right. Is there anything that changes that, or can kind of prevent that, or is that not kind of the aim of the plan?
Scott Gottlieb: Well, I mean, there’s nothing that would lawfully prevent that in most circumstances. And we should ask ourselves just as sort of a societal matter whether we want to, because those are the situations. If you have a really compelling advance, and you’ve been everyone else to the market, ’cause you’ve made investments. You’ve been more successful in the laboratory. You’ve taken a lot of risk.
Those were the situations we wanted to reward, but I think that the issue is how long does that monopoly last? And it shouldn’t last five years. There should be product competition behind that, and that’s where I think we also need to think about the new drug approval process. And the competition within these categories. It used to be that these categories were very, very crowded.
And a first to market entrant wouldn’t have a monopoly for more than six months. We’re seeing situations where these categories aren’t as crowded, or the time to market for the second product is longer than it used to be. And so that’s something we’re thinking about with respect to the new drug approval process. And how we apply also breakthrough designation.
The, when how often does it also apply to the second and third product within a category, and not just the first product in the category gets the advantage of a more efficient review process. But I don’t know that we want to penalize those scenarios. I think we just want to make sure that there’s competition behind it.
Companies, and I’ve been on the other side of this as you all know, companies will price drugs based on some measure of what the alternative is. There is logic that goes into it, but you’re right. People have freedom to price in these situations where they have an extraordinary innovation. And are first to market with it.
Unidentified Female: Can I ask one more question? Do you need congressional authority to move drugs from B to D? ‘Cause that was in the budget.
Scott Gottlieb: No. You can do it under a demo.
Unidentified Female: Okay.
Unidentified Female: That was your last—
Unidentified Female: I just have a question about _____ [00:41:38].
Scott Gottlieb: I’m sorry. Please, I _____ [00:41:40] and that’ll be the last one.
Unidentified Female: So the secretary yesterday was talking a little bit, especially in the intro video about, it illustrated some _____ [00:41:51] have tried a first line super drug before being allowed to try the more expensive breakthrough drug. And he also talked about drugs being all formulary [?] in a relatively negative way while at the same time often talking about private sector formulary management as a good thing. Which is essentially those practices of it not, declining to cover drugs. I mean, that’s a little bit of an _____ [00:42:16].
Scott Gottlieb: I don’t think so. And maybe this is what your tweet was about. So this is, it’s one thing if we have a government formulary, or a government system to make it like they do it in Europe where they make a decision. They negotiate around a price, and you see launches of some of these breakthrough categories years after they launch here in the U.S..
And that’s because they are negotiating around price. The product’s approved. EMA has approved the product, but the price setting authorities haven’t come to an agreement about what the price is going to be. So literally, there’s years delay. That is one system. Nobody gets a choice. What the secretary is talking about is a market where it would be a lot like Part D.
There’d be a lot of different formularies in the marketplace and people would have a choice of whether they want the more restrictive formulary, or the less restrictive formulary. Do they want to pay up for a formulary that provides more access, or do they want a lower premium, but a formulary that’s more restrictive?
Do they want a formulary that is restrictive for cancer drugs, but is more generous when it comes to drugs for infectious disease, or do they want a formulary that’s restrictive for infectious disease. But they’re worried about cancer, they want a more generous elusive formulary with cancer. That’s a lot of choice. That’s what he’s talking about.
He’s talking about allowing plans to make individual decisions to sure, restrict certain drugs. Put in place step therapy [?]. But it’s not a one sized option to the consumer. They have a choice in a marketplace to select the kind of coverage they want in a price setting regime that he criticized, you don’t have that choice. I’ll just say one final point.
It’s back to the question from Solomon from the Hill. I’ve been here long enough to remember a little bit of history unfortunately. Back in 2002, or 2003, when we were having drug pricing debates before Part D got put into place, the complaints were the _____ [00:44:08] drugs. Everyone’s just making the tenth staten [?] or the tenth blood pressure pill.
And we want companies to be investing in breakthrough drugs that are going to treat unmet medical conditions. And not wasting all this R and D research just being the 15th to the market. And so there were decisions that we made when I was at Medicare that Mark McCullen made in terms of how we structured that benefit that would direct the rewards towards specialty drugs.
Because that’s where we wanted the investment, and the innovation. It worked and the whole industry, and all these large pharmaceutical companies that you thought would be dependent upon selling billions of tablets of staten suddenly focused on specialty products. And demonstrated that they can do it profitably. And of all the investment has gone into those categories.
And we’ve had a lot of innovation in the last ten years as a result. And we are going to cure in the next ten years a lot of disease. We will – with gene therapy, and car T [?], we’re going to fundamentally cure some of these diseases. Inherited pediatric disorders, really terrible diseases, I don’t think it’s _____ [00:45:12] anymore to say that.
It would have been _____ [00:45:14] ten years ago. I would have sounded irresponsible. I don’t think anyone would think I’m irresponsible for saying that. So we are the product of our own success. And I don’t want to say our own policy’s success. Sounds like I’m ascribing credit to policymakers, but in some ways we have the fruits of decisions that we’ve made as a society collectively.
And we’ve had certain challenges ’cause we want these things to be available to patients who need them, and not to bankrupt people. But we are sitting on a lot of success, and we shouldn’t lose sight of that. I appreciate your time. Oh, and the last question I promised to you.
Unidentified Female: Hi. _____ [00:45:47] So you’re not, you ‘re saying you’re not shaming _____ [00:45:50], but you’re clearly _____ [00:45:52]. And you’re clearly, you’re speaking about them _____ [00:45:56] speaking about them _____ [00:45:58]. Now I _____ [00:45:59] their prices?
Scott Gottlieb: Oh, with the price listing, look, I don’t know. I mean, these are decisions that the industry’s going to have to make collectively. I obviously would be far away from those discussions. We’re going to look at that as a matter of policy. I do think that it’s important to provide transparency around things and impact consumers, and impact patients.
And so that’s why we want to bring transparency around these situations where we think there are obstacles to generic entry. With the price information, _____ [00:46:34] is going to – the _____ [00:46:36] administrators is going to be unveiling a website that’s going to provide a lot of pricing information. It’s not just going to provide bottom line pricing information.
But it’s also going to look at price increases year-over-year. So it’s going to be a very easy way for people to look at a tool that’s going to identify not just what the prices of products are. But where the biggest price increases have been.
I think that, that transparency is helpful, and I think the individual companies are going to have make business decisions about whether or not being identified in that way is bad for business. And they have to do that in a competitive marketplace. Just one last question. I’ve got to go _____ [00:47:07]. Sorry.
Unidentified Female: Thank you. I’m Susan _____ [00:47:10] with Lancen [?]. What good is a pricing dashboard to consumers when they are locked into their plans for an entire year? Wouldn’t the simplest thing be that if my plan raises my drug price, I go to plan A, B, C, which has a lower price. And therefore that’s true competition, because the consumer is able to switch instead of being locked in for a year.
Scott Gottlieb: Yeah. I mean, look, the issues of – there are ways to opt out of plans. I mean, it’s an interesting idea, but the issue of having to find enrollment periods is sort of a basic condition of a functioning insurance market. I think one of the things identified in a blueprint. And I don’t know all the things they’re thinking about.
But I will tell you that one of the things that is clearly identified in the blueprint is the ability of plans to make decisions around formulary mid-year based on price. And so if a – so for example, I think they explicitly say this. If a sole source generic drug takes a big price increase mid-year, the plan has the ability to re-adjudicate the formulary to make a different decision about that sole source generic drug.
And so that’s to try to address this problem of speculators picking off old generic drugs, and hiking the price exorbitantly. And knowing that they can play in arbitrage for a short period of time whether it’s the six months that it takes formularies to run out.
And to make different decisions about what they’re going to put on a formulary or the year it might take FDA to approve a follow, or a generic competitor to that drug. We’re trying to make it – we’re trying to reduce that arbitrage to make it less profitable for people to engage in that sort of behavior.
Unidentified Female: But if the plan makes _____ [00:48:54] decision that hurts the solution _____ [00:48:58] be able to _____ [00:48:59]?
Scott Gottlieb: I mean, so it gets to the issue of, and I’ll just end here. But it gets to the issue of the conditions in which a consumer can make a mid-year selection. And there are conditions, and the question is whether or not the economic scenario you’re putting forward would be one of those conditions. I just don’t know the answer ’cause I don’t run Medicare. And I can’t commit to it, because I don’t run Medicare. Thanks a lot.
Unidentified Male: Thank you very much.
Unidentified Female: Okay. We are _____ [00:49:26] a panel that’s going to come forward right now. So everyone stay put, and let’s have our panel come forward. Thank you.
Unidentified Female: Mary Ellen.
Mary Ellen: Yes.
Unidentified Female: We have an order. _____ [00:50:13] Yes. Absolutely. No. _____ [00:50:21] yes. Thank you. _____ [00:50:28]
Unidentified Female: Okay. We’re going to go ahead and get _____ [00:50:58] ’cause I know we’re running out of time and we have a great panel that we want to hear from. So let me just tell you the format. Each of our panelists is going to speak for five minutes. And then we’re going to try and take as many questions as we can in our allotted time.
So starting in alphabetical order. We have Lauren Aronson [ph] is the executive director of the Campaign for Sustainable Drug Pricing. And then we’re going to have Kristen Bass [ph]. Did I _____ [00:51:27] okay. Senior vice president of Policy of Federal Affairs for the Pharmaceutical Care Management Association, then we’ll have Justine Candleman [ph] who’s the senior vice president for The Office of Policy and Representation at the Blue Cross Blue Shield Association.
And then finally we have Lori Reilly Riley [ph] who’s the executive vice president of Policy Research and Membership for the Pharmaceutical Research and Manufacturers of America. You have their full _____ [00:51:54] files in your packet. So I didn’t want to use any of our time for the introductions. I’m just going to turn it right over. There is a – oh—
Unidentified Male: I just wanted one quick _____ [00:52:06] daughter did arrive. And I just want to acknowledge her. And once again, thank you and your family for letting us use the _____ [00:52:13].
Unidentified Female: Thank you. Thank all of you and my father’s extremely passionate about his job as far back as I can remember. And we thank you for carrying this tradition on behalf of my brothers, and all of the _____ [00:52:27] family. Keep it going. Thank you. Thanks.
Unidentified Female: Thanks for _____ [00:52:31].
Unidentified Male: Thank you.
Unidentified Female: No. No. No. Bill, do you want to say anything?
Bill: No. No. No.
Unidentified Female: Okay.
Bill: You’ve done it all.
Unidentified Female: Okay. All right. Go ahead Lauren, and there is a timer right there.
Lauren Aronson: Got it. Good morning. Thank you for having me here today . The Campaign for Sustainable Drug Pricing is a broad coalition of physicians, nurses, health plans, employers, consumers, and pharmacy benefit managers dedicated to promoting bipartisan market based solutions to lower drug prices in America. We have three major concerns and they’re really the pricing of prescription drugs.
One, the launch and list price of new drugs coming to market. Two, abusive monopolistic pricing of drugs that have little to no competition. And, three, smaller incremental increases that have a compounding effect on consumers, and the larger healthcare system. First we are greatly concerned by the launch and list price of new prescription drugs coming to market.
In 1989 the most expensive drug that arrived to great public outcry was about $8,000 per year. Now we’re seeing drugs coming to market regularly that are exceeding $100,000 and several that are now bumping up to $1 million per year. The list prices are controlled by the manufacturer alone, and have a domino effect that cascades down all the way to patients. When the price of drugs starts high, it inevitably ends high.
Second, we are concerned about monopolistic pricing of drugs we are seeing on the market that have little to no competition. These drugs are seeing sudden and _____ [00:54:11] price increases. Insulin is one of the most alarming prices we have seen to date. Insulin has been on the market for well over 30 years, and there are 30 million Americans who are Diabetic.
The price of insulin has gone up by nearly 200 percent from 2002 to 2013. And there is no generic alternative. Let me repeat that. We have 30 million Americans who are Diabetic, a drug that has got a price increase of nearly 200 percent, and there’s no lower cost alternative in place for consumers. Why is the price so high? It’s high because brand _____ [00:54:47] manufacturers set their list prices high.
And they do it because they can. Third, we are greatly concerned about the vast majority of brand name manufacturers who are moving forward with smaller incremental increases that occur multiple times a year. And have a compounding impact on consumers, and payers. We are routinely seeing increases of seven, eight, and nine percent from major brand name manufacturers.
Just in the first few months of this year, Visen [?] has had over 100 price hikes ranging from three percent to a little over nine percent. Naforis [?] has had 75 price hikes on the same range. These price hikes have a compounding effect on the system, and terribly hurt consumers. Our members want new innovative drugs, but we need to balance that innovation with affordability.
Now in terms of solutions we support, we believe in market based solutions to bring down the prices, and help consumers. We focus on three areas, transparency, competition, and value. We commend the administration for taking this issue seriously, and putting forward thoughtful solutions to the problem.
In the realm of transparency, we believe better informed patients, providers, and policy makers _____ [00:56:02] manufactures _____ [00:56:03] behavior. We want the transparency that shines a light on how a drug manufacturer determines the launch price of their products, how much they spend on research and development, marketing, and advertising.
We support the administration’s proposal to have list prices included and direct consumer advertising. This is a policy that we have promoted since 2016, and we are glad to see the administration moving forward on it. With regards to competition, we are greatly concerned about anti-competitive tactics that brand name manufacturers employ to prevent competition of lower cost generic drugs, and biosimilar.
We applaud the administration for taking this issue seriously, and in particular commissioner Gotlieb for focusing on this issue from day one. We also applaud the president for _____ [00:56:47] use of the patent systems that are blocking competition, and keeping drug prices high. _____ [00:56:54] arthritis drug Humira is the world’s bestselling drug.
According to _____ [00:56:58] CEO, the drug company created a patent estate [?] for their drug. Humira was first approved in 2002, and its initial patent was set to expire in 2016. However, in the three years leading up to that patent expiration, _____ [00:57:11] attorney’s filed close to 75,000 different patents to block competition for the foreseeable future.
Because of a patent settlement, we may now see a biosimilar in 2023, but that is still almost a decade after the initial patent expiration. That is inexcusable and harms consumers, and tax payers. With regard to value, we appreciate the administration has put forward several proposals to incentivize value based purchasing.
It is imperative that policy makers find ways to ensure that drugs are chosen on how well they work. But we must understand the limits of some of these approaches. They may save money for the system, but in generally they’re not a mechanism to lower prices for consumers.
In conclusion, the administration deserves an immense amount of credit for shining a light on this issue, and focusing on the true problem here, high list prices and abusive practices from the pharmaceutical industry that hurt American consumers. We greatly appreciate the administration’s leadership and look forward to working with them. Thank you.
Unidentified Female: Thanks Lauren. Kristen.
Kristen Bass: So I represent the Pharmaceutical Care Management Association, which you probably all know is the trade association for the PBMs. Ours are the companies, our members are the companies that negotiate with the drug manufacturers and the pharmacies to get to the lowest met cost for prescription drugs for anybody with health insurance.
At the outset, I think we just need to say that we appreciate the administration’s focus on reducing drug cost. We think there are a lot of things in the proposal that will help. We agree that focusing on competition will go a long way toward making the market work better.
And we appreciate Dr. Gotlieb’s efforts especially at FDA to move product to market as quickly as possible both on the generic side and the brand side. We also appreciate that the administration is trying to improve the ability of Part D plans, and other plans to negotiate to change their benefits to reflect new market conditions.
And to increase competition in that space as well. But what I want to talk really about is that drug makers set the prices. They also set the increased prices. Nobody else sets the prices. Nobody makes them change their prices. Nobody makes them come up with a launch price that’s as high or as low as it is. There is research that shows that where there is competition, there typically are higher rebates.
So rebates typically are correlated with competition. They’re not typically correlated with launch price. And they’re not typically correlated with changes in price. Nobody has to use a PBM. If anybody thinks they can get a better deal in the market whether it’s an employer that’s self-funding, or an insurance company, they can go into the market. And we wish them well, because it’s really hard to do what a PBM does.
Unidentified Female: If anybody thinks they can get a better deal on the market, whether it’s an employer that’s self-funding or an insurance company, they can go into the market, and we wish them well because it’s really hard to do what a PBM does. This year’s trend reports show that, in large part, the manufacturers and the PBMs are doing a very good job of negotiating as hard as possible, at least on the PBM side, thankfully. Increasingly, people are moving toward generics, you all know this. As so rebates are used on the brand side – I want to make that clear upfront as well. The trend has been held to the low single digits over the last year or so, but let’s talk a little bit about rebates.
There seems to be this assumption that rebates can just go away, that rebates are preferred because they’re a way for PBMs to pad their pockets and/or for insurers to pad their pockets. PBMs use rebates because manufacturers want them to use rebates as the result of a settlement twenty years ago that basically said that volume discounts upfront had to be the same whether you were a pharmacy or a payer. And because payers have the ability to move market share, and pharmacies actually don’t, the manufacturers had an incentive to give greater discounts to the payers who could move market share. And the only way to do that legally after the settlement was to do it at the backend after anyone showed it moved market share. So if a pharmacy could do it, it too would get rebates.
Our industry welcomes a different way to negotiate if one were legally available – we had said this for years – but the best we can tell it puts the manufacturers at antitrust to do upfront discounts. And so, for the moment, we all are stuck with the rebate system. And everyone of the PBMs uses rebates. Prior assertions, today notwithstanding, everyone, including the company that was mentioned, they all use them. Some of them have a lot leverage, they pass 100 percent of the rebates through to the payer. Payers negotiate to get as much rebate as they want. So as the administration considers the safe harbors for rebates, we’ll be very interested in what an alternative mechanism would be that would get us to an ability to get to a negotiated upfront price.
With respect to point of sale rebates, and this will be pretty much my last point, our companies offer point of sale rebates in the group market, and they work well in the group market to those employers who want to use them. It’s tricky to use them in the individual market because you set up a situation in which an individual who knows that she is on a given drug, say for rheumatoid arthritis, it’s very expensive, will always go to the plan that has the deepest rebate. And in the insurance world you cannot have a balanced risk pool if everybody who has a given very expensive illness ends up in your product. It just doesn’t work. And so it’s problematic to do point of sale rebates in Medicare Part D because that’s an individual market or in the actual individual market. So we have concerns about that particular proposal.
I would also just like to do a quick set up for fixing the REMS problem which Scott [Last Name] [00:03:53] talked a little bit about. The Lawrence Coalition [PH] has talked about we think that REMS is a huge issue. We would take exception to the notion that the distribution channel is keeping drugs from getting to developers. Typically, for a pharmacy to give a product over to anybody you have to have a legitimate prescription, and you have to have a legitimate patient, and you can’t just hand over 1,500 or 5,000 samples because you don’t have legitimate prescriptions. So we’re a little bit confused about why that part of the distribution channel is being blamed for not getting the product to manufacturers.
With that, I’ll wrap. Again, we really appreciate what the administration has done. We think that there is a lot to work with in their proposal, and we’re going to be really interested to see how it all develops.
Justine Handelman: Thanks, everyone, for being here and having us today. I am with the Blue Cross Blue Shield Association. We are encompassed of the thirty-six independent Blue Cross Blue Shield plans that sell health insurance in every market and every zip code across the Unites States. Really pleased to be here today to talk about this important issue because Blue Cross Blue Shield plans and the association want people to have the medicines they need at a price they can afford.
And we support many of the elements that we heard today form Dr. Gottlieb and that has been put forth in the administrations announcements. But there are a number of steps that are needed, as we’ve discussed, to reduce prices. And it includes removing the barriers that exist today that limit competition and consumer choice, particularly, practices that limit patients access to new lower cost drugs and generics. Prescription drug spending today makes up about, on average, twenty two percent of the insurance premium dollar. It’s about the same percentage that’s spent on physician clinical services, and the prices are continuing to rise. And in many instances, it’s at unsustainable rates.
For healthcare truly to be accessible to all it does need to be affordable. And it’s important to remember, as my colleagues have already said, that the drug manufacturers do set the prices of the medicines that come to the market. And while health plans, often working with their PBM partners, negotiate for the best price for their members, the negotiation does start at a price point set by the manufacturers.
I do want to point out that health plans cover 98 percent of prescription drug costs for people who need more than $100 thousand in medicines a year. I think often you hear the stories of what’s not covered. In fact, health plans are covering the vast majority of prescription drugs because we want people to get the medicines that are going to make them get better, or if they’ve got a chronic condition, to help manage that condition.
So many of the topics that we’ve been discussing here today, whether it be rebates at the point of sale, competition, restrictions to competitions, that causes more – a lot of this conversation – we’re here because of the underlying price of the medicines. And they are climbing higher each year leaving too many patients worried about whether or not they can afford or access their medicine. And it is driving up premiums for everyone.
I do want to point out, also, on the point of sale rebate that was discussed, health plans working with their PBMs pass those savings on 100 percent to the consumer, but it will be in different forms. In many cases, it’s not only to lower premiums, but it’s to make sure that there are affordable copays so that people can get the drugs they need whether it be a five dollar or ten dollar copay. Those rebates help in that offset.
And I do want to point out that PBMs do much more than just negotiate prices. We work in partnership with the PBMs to develop the networks, so people have access to pharmacies and can get the drugs at most affordable price, to monitor utilization with the terrible opioid crisis, being able to monitor the prescribing practices and that people that are getting opioids so that we can address that. Managing and monitoring adherence – we know when people stop taking drugs that they need, that can result in them going back to the hospital or their condition worsening – condition not being managed best.
So, in partnership, we’re able to do a lot more care management, keep people healthy, and when they get sick or have a chronic condition manage it in the best way. Because if we’re really going to make healthcare affordable for everyone what drives premiums, rising prescription drug costs, consolidation in the marketplace and the cost of treating chronic conditions. And while there are lifesaving drugs that are coming to the market and incredible innovations, we need to make sure that they’re at a price that people can afford.
We do support the Creates Act that was discussed today. We feel strongly that we want market-based solutions that are going to confront some of the anticompetitive behaviors that we are seeing in the marketplace today whether it be delays in generics coming to the market, extending exclusivity periods, and making sure, importantly, that we’re encouraging equally effective alternatives whether it be the Me-too drugs to come to the market or generics to come to the market.
We really appreciate all that Dr. Gottlieb has been doing to shine a light on this issue and to speed up the processes of the FDA to encourage and bring generics to the market. We believe that transparency is key in the system and knowing what the list price is and the indication when blockbuster drugs come out midyear and premiums are set, and you don’t know the list price or the indication. I can go to Sovaldi [PH] as an example. That really has an impact on premiums, and it has an impact on all healthcare programs from Medicare to Medicaid to the private market, the employer market and individuals.
So I’ll just close on saying we’re pleased to be here. This is a very important conversation. We want to work toward market-based solutions that improve value, competition, and provide more transparency.
Moderator: Thank you so much. And, Lori, last but not least.
Lori Reilly: I somehow feel like, in the order of fair balance, I should spend twenty minutes on ______ [00:10:17] But I’m happy to be here today and talk about the administrations blueprint to address drug prices. We’re obviously pleased that the administration pointed out some issues that we think definitely bear examination including affordability for patients which is increasingly a challenge for patients. I’d be remiss, though, if I was not in a room with this many reporters to talk about and mention that the innovation that is coming to market is truly transformational.
I know Lori Reilly mentioned medicines back in 1989. In 1989 we did not have medicines that were harnessing the body’s immune system to fight cancer. We weren’t curing blindness in children. And that’s the kind of innovation that’s happening today. And against the backdrop of that innovation, if you look at the IQBAL data released a few weeks ago, drug cost growth last year was 1.9 percent. That’s below the rate of inflation. And just so you don’t think I’m cherry picking one year, if you look back at the last ten years, seven of the last ten years prescription drug price growth was below the average health spending growth in seven of the last ten years. If you want to talk about price, well, price growth was also low, 1.9 percent in 2017 after taking into account discounts and rebates which, I might add, are now over $150 billion a year. That’s up 100 percent since 2012 which demonstrates the kind of robust negotiation that happens in the system.
Now, you might assume with all that competition and price growth held in check and cost growth held in check that patients would be feeling benefit of that. But, unfortunately, that isn’t the case. We’ve seen deductibles increase 300 percent since 2006. Today, 52 percent of patients are in a health plan that have a deductible for drugs that’s up 23 percent since 2012. And more and more medicines are subject to multitier cost sharing formularies.
So when we hear the president and Secretary Azar and Commissioner Gottlieb say the system needs to change, we actually agree. We do believe we need to move away from what many have called a convoluted system of list prices and net prices and rebates. And, as you’ve heard from many folks on this panel, it’s the pharmacist industry that sets the list price. Well, let’s be clear. The phenomenon of PBMs and plans preferring medicines with high rebates has been well documented by pharmacy benefit consultants, by Med Pac and by CMS, which is noted, when they’ve looked at the formularies that those that carry high rebates tend to be preferred by health plans and PBMs. PBMs and health plans are the gatekeepers that decide what medicines get on formulary and what cost sharing those medicines have, and their preferences do matter.
We think the incentives in the system do need to be realigned to ensure patients benefit from that robust competition. And that’s why we’ve been a strong advocate for patient sharing in rebates. A study that we’re going to be releasing this week looked at just diabetes medicines alone in Part D and said that if we passed along 80 percent of the rebates in diabetes medicines, on average, diabetes patients would save $367 per year. The healthcare system would save $1,352 per patient in Medicare if rebates were passed along on a yearly basis, and the federal government would save $20 billion over ten years just from passing along rebates and discounts for diabetes patients on Medicare.
We absolutely believe more needs to be done to address patient out of pocket cost. We believe change is good and it’s needed. We do have questions, I will say, about a number of the proposals that we’ve seen. Taken in its entirety, I would say the array of proposals laid out in the blueprint are expansive. They hit virtually every single public healthcare program with significant ability to spill over into the commercial marketplace. And if I could just point out a few where we have significant concerns. I would say in Part D the administration is calling for a fundamental change in the six protected classes. Those six protected classes have provided a great deal of protection with patients over the years, and they’re talking about significantly changing those.
They’re also talking about doing away with the two drug per class requirements that currently exists in Part D and moving it to a one drug per class. In Part B, Secretary Azar yesterday talked about issuing a request for proposal for reinvigorated competitive acquisition program as well as moving Part B drugs into Part D. Again, serious concerns about both of those, in part, because today patients with Part B drug coverage have good access to those medicines at relatively low-cost sharing. Oftentimes, in Part D these same medicines are subject to 40 percent coinsurance for similar medicines. So we have concerns about patient affordability and access.
And in Medicaid I would say there’s a number of proposals. They’re proposing to change the definition of average manufacturing price to be reflective of commercial discounts and rebates. I think Secretary Azar said that would lower Medicaid prices 30 to 40 percent. And they’ve also talked about doing away with a provision that exists today that says when companies hit 100 percent of the rebate of Medicaid they don’t have to pay above 100 percent. In other words, it’s perfectly fine for us to have to give medicines away for free in Medicaid, but we don’t have to pay states to take them. He proposed doing away with that, so I guess free is not good enough in Medicaid. That will cover 2,500 drugs that would be subject to that. Those are just a handful of the issues that we identified. I see my time is up, so I will be happy to take questions.
Moderator: Thanks so much. I think this has been a really interesting panel. I wish we could get the four of you in a room. I bet you could figure it all out. Some chips and guacamole and sangria. That would be great. But this has really been a great, great panel. So we can – we don’t have – we have literally about 15 minutes left, but we can go maybe a little bit over, but not much lower. So I’ll start with you.
Participant: I have a question for both Justine and Kristin if you don’t mind. So you both came at the concentration in the marketplace and I was wondering – you are, I guess, with Blue Cross, you have Prime Therapeutics which is a PBM that operates a little bit more along the lines of what I heard Azar talking about yesterday with the fixed prices and the guaranteed prices and so forth. So I’m actually curious what your thought are on the proposed merger between Express-Scripts and Cigna [PH]. What happens when the PBMs go into the insurance companies? What might that do to marketplace and how might that impact consumers?
Moderator: Could everyone please identify yourselves?
Participant: Sure. I’m Whitney [Last Name] [00:17:09] with Merger Markets.
Unidentified Female: I’m just going to start and just say because I work with a trade association we have a range of numbers with a range of business models. I just can’t comment of mergers. I’m sorry.
Participant: I’ll come back to you then because you did say something else that I though was interesting, but I would like to know what Justine has to say.
Kristin Bass: Sure. First on Prime Therapeutics, it is owned by a number of Blue plans and many Blue plans do use Prime Therapeutics. But Blue plans also use other PBMs from Express-Scripts to CVS, et cetera. So we are, again, we don’t comment of mergers that are happening in the market place. Obviously, it’s going through the process and we’ll wait to see what the process unfolds.
Participant: So then, Kristin, when you’re thinking about the antitrust concern I actually don’t know what you’re talking about. I wonder if you could flush that out. I’m not aware of what that means.
Kristin Bass: Yeah. I’d be interested also in Lori Reilly’s views on this. So twenty years ago, a class action lawsuit of pharmacies sued drug manufacturers because they were giving preferential discounts, upfront discounts, to payors, health plans. And they alleged that was improper price discrimination and we would need real lawyers. Can I just do that thing where I say I’m not a lawyer and I don’t even plan to be – we would need real lawyers. In any event, in general, the allegation was there was preferential treatment given, and that was impermissible. And a number of the manufacturers settled. And in the settlement, the court then signed off on, basically, what they agreed to do was to give the same discount, if you will, to anyone that could show that that organization, that entity, essentially had the capability of moving market share to their product.
So the reason that rebates are used is because they’re after the fact. You have to basically show here’s how many of our enrollees took your product. And so the calculation, the health plan, the PBM, does a calculation of, okay, here’s how many claims we got for whatever it is, let’s just use Lipitor back in the day. Here’s how many claims we got for Lipitor, and they would have sent the figures off to the manufacturer and said, here’s out Lipitor claims. And then, based on their agreement, they would get a rebate. and if was less than they had expected the rebate would be less, and if it was – it’s all based on the agreement, but it’s all after the fact.
And what it also meant is if you were a pharmacy that could somehow show that you had the ability to move market share, which pharmacies can’t – pharmacies are basically – I walk into a pharmacy based on my formulary, I get the drug that I’m going to get. And the pharmacy has a little bit of wiggle room in terms of saying, okay, there’s a generic of that drug, would you rather have that? Sure. Or, lately, and our companies do not have gag [PH] clauses, the pharmacist can say, you know, you can take this other drug and it would be cheaper, or you could pay cash or whatever.
But, in general, pharmacies don’t have the ability to move market share. The plan, through the formulary, typically has the ability, and the PBM is operating on behalf of the plan in setting up the formulary. And so the rebates were the way that the manufacturers could be consistent with antitrust law and negotiate for a discount and get them. And so it’s this artifact of a settlement from basically twenty-four, twenty-five years ago. And so then the question is, that we have, okay, you don’t like the rebate system. We still need some means of negotiating because if you don’t have a means of negotiating, you’re basically at the mercy of whatever list price the manufacturer says. And nobody wants that system, I don’t think.
Participant: Peter Sullivan with The Hill. I had a question for Lori Reilly. Secretary Azar, in his speech yesterday, basically said like I’ve been a drug company executive, and I know all the tired talking points that it’s not true that if you take money away from profit then that hurts innovation. I kind of wonder what your – I mean, what do you make of his argument that he’s been there, and he knows that there’s kind of room to cut spending or cut prices without harming innovation?
Lori Reilly: Well, I would say the way that I took Secretary Azar’s comments is that this administration is committed to market, free market principles, around changing the system. I will say we’ve been upfront as an association and as an industry saying we think the system does need to change. We need to go more toward a system that rewards patients, rewards our companies based on the value of the medicine that we provide. That often means taking more risk and not guarantying that we’re going to get paid just because a prescription was dispensed but based on the outcome that we’re delivering. Our companies are ready to more towards that system, and I think I read his comments to say things are changing. We understand that is going to happen. I think our concern is change in the right places. And, again, going back to the comments I made earlier about Part B and Part D, wanting to make sure that patients retain access and affordability to their medicines is paramount to us and our concern when we look at some of the proposals that we’ve seen.
Participant: Jill [Last Name [00:23:15], Pharmaceutical [Company Name [00:23:17] Lori Reilly, do you feel, or does Pharma feel that FDA has the authority under its advertising regulations to encourage or require drugs companies to post more pricing information, or does that not fall under their balance and required legislation or major changes?
Lori Reilly: I agree with the Commissioner. I think it’s an open question about whether or not its constitutional and whether it helps speech [PH] or not to require it under their fair balance requirements. I think transparency can be a very good thing for consumers. I think part of the fear is if you are advertising a list price that no one is paying, does it set it as a deterrent for patients because that may not be the price that they’re paying? If they have insurance they may be paying a copay for that – that isn’t the price they’re paying, but you wouldn’t know that from watching the TV commercials. So I think more needs to be done to look at that issue.
Participant: Some industry policy on price disclosure I image might be tricky because companies are not supposed to get together and talk about how they discuss their prices.
Lori Reilly: Right. I mean, as a trade association and as groups of companies they cannot come together to agree to lower their prices, increase their prices or discuss how they price in the marketplace, so it is a challenge. Correct. Very much so…
Participant: John Wilkerson, Inside Health Policy, Lori Reilly, do you also agree that discounts are illegal? I’m sorry this is a little bit weird. I’ve heard this argument before, but I’ve never actually seen this court case.
Lori Reilly: I haven’t either. I am a lawyer, but I don’t play one at Pharma, so I won’t opine on that. I will say the generic market works in a way where upfront discounts – that’s how generics are sold. They’re not backend rebates – they’re upfront discounts. I’m not sure. I’d have to read the case and talk to our lawyers. I have not heard that previously though that that is a prohibited act because that is how generic medicines are purchases in the marketplace today. they don’t rely on rebates. They have upfront discounts, and I think the Commissioner has talked about that in the past as well.
Unidentified Female: So if I can just clarify a generic side, PBMs do not do deals with generics?
Kristin Bass: Correct. The way that PBMs try to get costs down on generics is through their negotiations directly with the pharmacy. And, again, our industry would welcome another way to negotiate. If the manufacturers think that rebates can go away and that they would not be put at risk with respect to the antitrust laws, I’m virtually certain our companies would be happy to have discussions about what would replace it, obviously, independently and individually so that they’re consistent with the antitrust lase.
Unidentified Female: I would agree with Kristin. There has to be a mechanism for negotiation. Our entire system is dependent on negotiation. We wouldn’t have $150 billion in rebate if there wasn’t robust negotiation happening in the system. I think our concern with the current model is are those rebates flowing back down to the end consumer, the patient. And often times that’s not the case. PBMs, I think Kristin is right, many PBMs pass through if not all, a large share, of those rebates back to the health plan, back to the employer, but that doesn’t mean that the end patient is getting them. And so I think we do have to have a mechanism so that negotiation continues, but we also have to make sure that when that negotiation happens the patient is a beneficiary of that negotiating.
Participant: And to follow on to that, there was some discussion earlier about OIG Safe Harbor. But at Safe Harbor can that also apply to these discounts? Can the OIG do something through guidance regulation, whatever, to fix this supposed discount problem with the settlement twenty-five years ago?
Unidentified Female: That’s a good question. The existing Safe Harbor protects the rebate model and essentially says that if you enter into an agreement where rebates are given, that is protected under the Safe Harbor. If that were to go away it wouldn’t necessarily make rebate illegal, but it would put companies at heightened risk the Safe Harbor has been removed. Whether or not they could create a Safe Harbor for upfront discounts, and if there is a court case that says what Kristin says, step ahead of that, that’s probably a legal question above my paygrade. But it would be an interesting question to ponder for sure.
Unidentified Female: Can I just add one thing on that point? Not all brand name drugs have rebates. So I think it’s important for contracts to keep that in mind that only a subset of drugs in the market – Lipitor which I know Chris used as an example, actually has had an increase of 29 percent in 2017.
Unidentified Female: Lipitor is generic, and virtually every single person that takes Lipitor is on the generic dose may prefer to continue on the brand, but the average rebate across the system is 35 percent today. And while new medicines newly launched may not have significant rebates, our medicine states competition in less than a year and a half in most instances. In the case of Hepatitis C, we’ve have a new hepatitis medicine, two additional ones approved within a year of the first and the discount and rebates went to 60 percent on average in those cases. So, yes, is it true that there may be a brand-new drug that doesn’t always have a rebate? But to say that most is a small subset of drugs I think is factually incorrect.
Moderator: Can you identify yourself?
Participant: I’m Virgil from ModernHealthcare. The FDA Commissioner talked generally about streamlining the approval process for drugs and making changes to that and how the [Background noise] [00:29:16] Is that something that’s not of interest or that doesn’t seem like it would practically help get products to the market faster?
Unidentified Female: Yeah. Absolutely. I think, as most people know, the length of time it takes for proof of concept to getting a medicine to market, assuming your product actually gets to market – 90 percent of them fail – is long. And anything we can do to drive efficiency in the review and approval process I think is welcome news for not just our industry but for patients too because it means further access to therapies. It also means competition in the marketplace.
Unidentified Female: But I think part of that also has to do not only with the efficiencies within the system which definitely are needed but also what happens thereafter. And you have patents states that are creating, you have kind of litigation that prevents generic _______ [00:30:01] from coming to market. So where – like ______ [00:30:05] is a great example – should come off patent in 2016 – we’re now in 2018, have no _______ [00:30:09] similar. I don’t think we’re going to have one until 2022, 2023. It’s partially about what the current structure of the system is, but it’s also about some of the abuses manufacturers partake after a drug is done being under patent.
Moderator: So it is 10:30, but we can maybe take one or two more questions, and then we’ll wrap up.
Participant: Mike [Name] [00:30:32] with [Company Name] [00:30:33] Lori Reilly, I just wanted to quickly ask you about Commission Gottlieb said he’s going to have that website up as soon as there’s data publishing the letters to brand companies. Is that a move that Pharma welcomes? I just ask because I know Pharma’s pushback on the notion on that issue of what programs abuses – they pushback on the scale of what others have contended the issue is.
Lori Reilly: I think our perspective is, first of all, brands should not stand in the way of generics getting to the market. We believe that. I think our issue has been when you look at the scale of products – I think there’s close to 80 products maybe today on the market that have brands – about half of those have _______ [00:31:12] elements to assure safe use. Many of those either have existing generics on the market today or have pending AODA [PH] or BLSs [PH] which suggest that they’re had access to ______ [00:31:24] I think when you break the numbers down it’s about ten products, at least by our count – those numbers may be a month or two old, so excuse me if I’m not exactly on point – but in that range that either don’t have existing application, there’s no exclusivity or patent pretending [PH] suggesting that they can enter the market.
Not to say it’s not an issue because obviously for those companies that want to get to market it may be an issue that’s worth looking at. But I do think we need to ensure that we’re balancing the safety obligations that we have with having REMS with patient access, but we certainly believe and stand by the fact that REMS shouldn’t stand in the way of generics entering the marketplace.
Moderator: One more question.
Participant: Susan [Name] [00:32:09] with [Company Name] [00:32:10] For Lori Reilly, I forget how many millions or billions of dollars drug companies have given away in terms of free or heavily discounted drugs in patient assistance programs. I’m assuming that drug companies don’t lose money when they do that. Why not extend those discounts or coupons to everyone in Medicare Part D?
Lori Reilly: Well, our companies would be happy to provide coupons and patient assistance in Part D, but we’re prohibited under the law from doing that, so we can’t is the quick answer. I know one of the questions that was posed in the blueprint was whether, in certain circumstances, companies should be allowed to be able to do that. We believe they definitely should. For many patients, particularly those that take a specialty medicine and have cost sharing that’s 40 percent, they have a defective [PH] high deductible health plan for the first several months of the year until they get into the coverage gap and catastrophic portion of their benefit, and these are often patients with rheumatoid arthritis and other conditions. We want and need patients to be able to take their medicine.
Participant: So is my assumption right though that companies are not losing money when they reduce the price or even give away drugs for free?
Lori Reilly: Quite honestly, companies are between a rock and a hard place. If you have a patient that has a five-thousand-dollar deductible, until they reach that deductible they’re paying the full list price. They’re not getting the benefit of any of the rebates that our companies provide. So our companies are giving a rebate to the health plan. Every time that prescription is filled the patients don’t see a benefit of that, so companies can choose to wither offer copay assistance to be sure that patients can get that drug. Today, the new thing that PBMs are doing is they’re taking the full value of those coupons. So what happens is patients get to the pharmacy counter in March and they find out, oh, I actually have not fulfilled anywhere close to my deductible, and therefore my choice is to either not take my medicine at all, which oftentimes is what happens, or borrow from my savings to be able to take it. So they take the rebates and discounts happily, they don’t share those with patients, and then they take our coupons happily and aren’t sharing the benefit towards those counting towards the deductible.
Unidentified Female: If I could just chime in on the copay coupon. While they do help the individual patients, they also often promote the use of higher cost brand name drugs when there are equally effective generics available on the market. And, in fact, 62 percent of coupons are offered for brand drugs when there is a lower cost, equally effective medication available. And as a result of the coupon use, there was a study in The New England Journal of Medicine that found that national spending on drugs, on average, grew by $30 million to $120 million for each copayment coupon over a five-year period following the entry of a generic drug. So one thing, again, why we have this conversation is because at the end of the day it’s really about the price of the drug which is set by the manufacturer.
Mary Ella Payne: Okay. I think we’re going to wrap it up. We’re out of time it. I want to thank everyone for joining us today. It really is that often that we get a chance to hear from all these different people. And I think it was really [background noise] [00:35:33] and I’m sure you appreciate that as well. Before we close I wanted to once again thank ADVO Worldwide for making [background noise] [00:35:41] and for our panel for sharing their expertise. And, please, that’s an evaluation form in your packets if you could fill that out we would greatly appreciate it. We really do like your feedback on [background noise] [00:35:57] So thank you guys for coming.