DEVELOPING STANDARDS FOR DRUG COSTS IN PHARMACOECONOMIC STUDIES

Task Force Co-Chairs
Joel W Hay PhD, Associate Professor, Department of Clinical Pharmacy, Pharmaceutical Economics & Policy, University of Southern California, Los Angeles, CA, USA
Jim Smeeding RPh, MBA, President, JestaRx Group, Dallas, Texas, USA

The purpose of this ISPOR Task Force is to develop standards for drug costs in pharmacoeconomic studies. The Task Force Report will be divided in six parts, with suggested titles of each paper and authors given below:

The following issues concerning the use of drug costs in pharmacoeconomic studies were identified by the ISPOR Health Science Policy Council in 2005.

THE ISSUES
Drug costs, of the study drug and comparators, are important parameters in pharmacoeconomic studies. However, compared with other parameters such as utility estimates, there has been relatively little study of how drug costs are estimated, whether the methods are consistent across studies in the same jurisdiction and whether the methods used are theoretically correct.

The costs of the drug regimen involve not only the estimation of the drug price, but the impact of any wholesale discounts, pharmacy on-costs and assumptions about wastage (owing to package or vial size).

In addition, there is a growing theoretical literature, often linked to discussions about patent protection, that suggests that the market prices for drugs are not good approximations for the social opportunity cost (the theoretically correct estimate of cost to be used in economic evaluations undertaken from the societal perspective). Issues of importing price controls, parallel trade and the globalisation of the pharmaceutical market make these pricing issues even more relevant to best practice guidelines for pharmacoeconomics.

In the USA, the issue of drug cost in studies for reimbursement committees has recently taken on more policy significance, with the decision by the Center for Medicare and Medicaid Services (CMS) to base reimbursement on Average Sales Price (ASP). Up until now most cost studies have quoted costs based on a recent Average Wholesale Price (AWP). ASP factors in discounts and rebates and the implications of this for economic evaluations, both for reimbursement submissions and publication, requires more investigation.

This topic fits within the more general area of standards development within pharmacoeconomics. However, most standards and guidelines are fairly general. This topic deals in more detail with a specific, yet important, aspect of study methodology.

Problem Statement I

Drug costs, of the study drug and comparators, are important parameters in pharmacoeconomic studies. However, compared with other parameters such as utility estimates, there has been relatively little study of how drug costs are estimated, whether the methods are consistent across studies in the same jurisdiction and whether the methods used are theoretically correct.
The costs of the drug regimen involve not only the estimation of the drug price, but the impact of any wholesale discounts, pharmacy on-costs and assumptions about wastage (owing to package or vial size).

Problem Statement II

Average Wholesale Price (AWP)

Traditional drug reimbursement within the US system has been based on Average Wholesale Price (AWP). This accepted methodology based on published pricing led the US government to examine this standard in regards to consistency and validation. In both areas the Center for Medicare and Medicaid Services (CMS) found the use of AWP lacking. In most Cost studies that utilize pharmaceuticals as a cost, the standard quoted costs have reflected a recent AWP. CMS has elected to base reimbursement on a newer methodology called Average Sales Price (ASP). This new pricing and reimbursement structure goes into effect under Medicare Part B starting on January 1, 2005. ISPOR members need to understand and incorporate the use of ASP as a reflection of the standard acquisition cost of certain pharmaceuticals.

Problems with AWP

AWP is not defined by law or regulation. As manufacturers compete, there are incentives for manufacturers to raise the AWP for certain drugs, while reducing the acquisition cost for physicians through discounts and rebates. Manufacturers and physicians play this "spread" between acquisition cost and AWP, creating an upward spiral of overpayment for drugs and costs for Medicare.
In 2001, according to the General Accounting Office (GAO) and Centers for Medicare and Medicaid Services (CMS), Medicare overpaid for Part B drugs by over $1 billion annually. In 2002, oncologists collected approximately $600 million in overpayments.
The GAO, the Department of Health and Human Services’ Office of Inspector General (OIG), and MedPAC have each identified that the present system for reimbursing Part B drugs as seriously flawed and inflationary. For example, MedPAC estimates spending increased almost 35 percent between 2001 and 2002. Spending for oncology therapies increased by 41 percent.

Average Sales Price (ASP):

ASP is the weighted average of all non-federal sales to wholesalers and is net of chargebacks, discounts, rebates, and other benefits tied to the purchase of the drug product, whether it is paid to the wholesaler or the retailer. In the new Medicare law, Congress adopted the ASP system to replace AWP for reimbursing outpatient drugs under Medicare Part B beginning in 2005.
Medicare will base payment for a Part B drug in 2005 on 106% of the Average Sales Price (ASP) of the drug as reported quarterly to the Centers for Medicare and Medicaid Services by manufacturers. ASP data is available for the drugs that make up over 99.5 percent of Medicare drug expenditures. Medicare payments for drugs for the first quarter of 2005 will be based on ASP data reported by manufacturers for the third quarter of 2004, which were due to CMS by November 1st.
ASP pricing is available in the public domain and will be the official pricing for CMS purchasing and reimbursement.

Changing from AWP to ASP:

Changing from the utilization of AWP to ASP under Medicare Part B reimbursement is mandated by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA). Today ASP pricing deals with only Part B of federal reimbursement. It is the first time that the Federal Government has mandated a standard of pricing for reimbursement of covered pharmaceuticals within CMS. On a positive note, ASP is based on market driven pricing and factors in discounts and rebates. It is also a new burden on the manufacturer to attempt to report on a quarterly basis changes and variations in contracting. Manufacturers are required on a quarterly basis to report the ASP for each drug by its unique National Drug Code (NDC) and the number of units sold.
In January of 2006 the Medicare prescription drug benefit becomes a reality and the federal government under this new benefit (Part D) will take on an even greater role as a purchaser and provider of pharmaceuticals to Medicare qualified beneficiaries. The implications of ASP if required by the Part D benefit is very significant.
As with AWP in the past, ASP will become the de-facto standard for reimbursement. Today all private commercial insurers reimburse off of established price lists. Generally this is a discount off of AWP. In the future if ASP is the established base for government reimbursement, it is logical that it will becomes the basis for private insurers.
For ISPOR this significant change in health policy must be tracked and incorporated into studies and literature related to the measurement of benefit associated with the use of pharmaceuticals. ASP for certain drugs today and potential use in the Medicare Prescription Drug Benefit will make ASP’s the standard for reported pharmaceutical costs.