Shanlian Hu, MD, MSc, Professor of Health Economics, School of Public Health, Fudan University, Shanghai, China
The ISPOR 2023 Conference was held on 5-7 May in Boston, USA, with the theme "Impacting Innovation, Value, and Healthcare Decision Making”. In this year's world environment, three landmark policies are affecting global drug prices and compensation and have a profound impact on the trend of the world pharmaceutical industry, including: the Inflation Reduction Act in the United States, the joint value assessment in Europe, and China's health insurance price negotiations. Governments are paying increasing attention to the affordability of drug costs, strengthening price controls, and encouraging foreign investment.
Pharmaceutical Expenditure Management Reform in Countries
In August 2022, the U.S. Senate passed the Inflation Reduction Act (IRA), which aims to reduce inflation and the cost of living. It covers three areas including drug price negotiations, individual payment caps, and the principle that "if drug prices rise faster than the rate of inflation, pharmaceutical companies will pay rebates to the Government", thus introducing the issue of price negotiations and out-of-pocket spending caps for certain drugs.
With the increasing attention to the management of drug expenditures, many countries have followed the trend of reform. Germany, for example, recently increased its discount levels and reduced "free pricing"; Spain is seeking foreign investment through measures such as lowering taxes on investments; Japan provides price incentives for drugs that conduct clinical trials in Japan. These policies could have a significant impact on future drug pricing. This article will focus on future drug price negotiations in the United States.
Specific Practices of U.S. Drug Negotiations
The Centers for Medicare and Medicaid Services (CMS), the U.S. agency that manages Medicare and Medicaid services, developed guidance in March 2023 based on the Inflation Reduction Act and proposed a plan for Medicare drug price negotiations. Specific contents include:
1) Prescription drug inflation discount (rebate): from January 2023, if the price of drugs’ increase exceeds the rate of inflation, a discount will be added;
2) Official guidance: CMS issued guidelines to redesign the compensation content of Medicare D categories, such as a $2 copay cap for insulin drugs, a $35,2000 annual out-of-pocket cost (OOP) for personal drugs, and other health care measures including expanding Affordable Care Act (ACA) subsidies and expanding access to adult vaccines for assistance insurance programs. Also, there is an increase in the payment standard for biological agents in the Category B part and subsidies for low-income patients for old-age insurance.
Medicare consists of four parts: Part A provides inpatient/hospital coverage which includes home beds and end-of-life care services; Part B provides outpatient/medical coverage including rehabilitation, preventive screening, of which include drugs administered by the Office of Physician Services, which will be about $40 billion in 2023; Part C is reimbursement of expenses of commercial medical insurance, including inpatient and outpatient reimbursement; Part D is designed for outpatient prescription drug reimbursement, which will be approximately $120 billion in 2023, accounting for the majority of drug spending.
Drug negotiations are scheduled to begin in September 2023 and cover 50 Medicare drugs. The round of negotiations will progress gradually in four phases: the first phase of negotiations will include a total of 10 Part D drugs, effective from 2026; Phase II will include an additional 15 Part D drugs in 2025, effective in 2027; the third phase will start in 2026, and 15 additional Part B and D drugs will be selected for implementation from 2028; the fourth phase will select 20 Part B and D drugs in 2027 and beyond, and will be implemented from 2029. The above 50 drugs are the most expensive Medicare Part D and B drugs in medical insurance expenditures, and they are all single-source brand-name drugs or biologics without generic or biosimilar competitors.
Conditions for exclusive products include FDA-approved drugs that are currently on the market, where the product’s lifecycle is at least 7 years after approval or more than 11 years from the license to market; it is not a general marketed generic drug or biological agent, and it is not a reference for other drugs or biological drugs. All doses and dosage forms will be covered.
When CMS regulators negotiate drug prices with pharmaceutical companies, they are required to provide special information, such as negotiating alternative treatments for drugs, maximum fair price (MFP) for individual patients and pharmacy services, etc. "Fair price" refers to the "production cost +" of generic drugs, which can also be said to be the lowest reference price, or the relative value of reference and control. At the same time, CMS stipulates that regardless of whether the negotiated drug has multiple doses or specifications, the negotiation should cover a single price for all doses and dosage forms, involving the process of quotation and counteroffer, in order to obtain the fairest price contract.
When CMS negotiates directly with pharmaceutical companies, it will first use the existing market price as the main reference point for the maximum price and decide whether to reduce the maximum price by a certain percentage according to whether the negotiated drug has received government financial support. When setting a maximum fair price, it is necessary to calculate the cost of production or refer to the best price in Medicaid insurance, that is, in the calculation of the maximum price of the drug, the best price reference is the price of Medicaid.
The role of CMS is to guide the evaluation of therapeutic alternatives, i.e., to evaluate the clinical benefits of selected drugs for price setting based on industry submissions. The selection of alternatives is negotiated together for all indications/dose combinations based on clinical guidelines or other published evidence until 3 rounds of negotiations.
CMS considers the conditions for negotiation include: the cost of drug development and research; the cost of federal government support for drug development; the cost of drug production and distribution; revenue from sales in the U.S. market; alternative therapies; comparative efficacy and prescribing information of drugs and alternatives and unmet clinical needs.
Government and Corporate Strategy
CMS requires that enterprises review feedback within 30 days after declaring each negotiated drug proposal, and require enterprises to provide: (1) drug code; (2) unmet needs; (3) R&D costs; (4) production and distribution costs; (5) records of federal financial support; (6) patent period, exclusive period and approval date; (7) market information, sales revenue, sales quantity information; (8) average prices for non-federally supported products; (9) different treatment options; and (10) data on comparative effects.
The main points of the general negotiation include: therapeutic advances, that is, the difference in the effect compared with past treatment; the number of comparators used in comparative effectiveness is determined, usually the most commonly used low-cost alternative drugs, and supporting evidence and outcomes.
Predicting the Short-term Effects of Negotiations
Although the United States has not yet formally started drug price negotiations, it is possible to predict the short-term effects of future drug price negotiations.
Since the negotiation aims to control drug prices, some pharmaceutical companies may first increase the listing price and negotiate with CMS on this basis to minimize the price reduction of negotiations, so that the maximum price of Medicare will continue to rise. Additionally, the life cycle management of innovative drugs could change, and negotiations could eliminate competition or lead to the extension of patent terms. Third, pharmaceutical companies will aim for more innovative drugs to be named "orphan drugs". Fourth, the enthusiasm of the capital market to invest in biopharmaceuticals may be affected. Once the United States begins to implement the IRA, it will have a profound impact on its own drug market and even the global market; Finally, the spillover effects of the IRA bill may affect the research and development of innovative drugs by pharmaceutical companies. Also of concern is the unpredictability of the bipartisan struggle in the United States, which could change the implementation of the IRA bill if the Republican Party takes office.
Drug price negotiations will also affect the direction of CMS research in the future, and the health technology evaluation methods will also change. If the non-QALY cost-effectiveness evaluation (CEA) is preferred, where the drug price will be scored according to the clinical benefit level, more multi-mode pricing methods (such as MDCA, ROI SROI) will be adopted, and +/- reference pricing will be implemented.
The original article can be accessed here: https://mp.weixin.qq.com/s/0awhMmtt4g1UvbTyexxAFA