Medicare drug re­bates re­ward in­dus­try play­ers — and of­ten hurt pa­tients

Medicare and its ben­e­fi­cia­ries aren’t the win­ners in the be­hind-the-scenes re­bate game played by drug­mak­ers, health in­sur­ers and phar­ma­cy ben­e­fit man­agers, ac­cord­ing to a pa­per pub­lished Tues­day in JA­MA In­ter­nal Med­i­cine.

The pa­per, which dives in­to the com­plex and opaque world of Medicare drug price ne­go­ti­a­tions, finds that re­bates may ac­tu­al­ly dri­ve up the amount Medicare and its ben­e­fi­cia­ries pay for drugs — es­pe­cial­ly for in­creas­ing­ly com­mon high-priced drugs — and it of­fers some sys­temic so­lu­tions.

“How these re­bates and price con­ces­sions hap­pen be­tween the man­u­fac­tur­er of the drug and the PBMs [phar­ma­cy ben­e­fit man­agers] and health plans can di­rect­ly im­pact pa­tient cost in a big way,” said the pa­per’s lead au­thor, Sta­cie Duset­z­i­na of the Uni­ver­si­ty of North Car­oli­na-Chapel Hill’s phar­ma­cy school.

The pa­per’s find­ings and pro­posed so­lu­tions come as Pres­i­dent Don­ald Trump’s ad­min­is­tra­tion, Con­gress and state law­mak­ers grap­ple with ways to con­trol drug prices and over­all health spend­ing. Trump’s ad­min­is­tra­tion has said it wants to low­er drug prices and hint­ed at man­dat­ing re­bates in Medicare. Lead­ers on Capi­tol Hill have called for Medicare price ne­go­ti­a­tions.

In the JA­MA pa­per, Duset­z­i­na cites the EpiPen as one ex­am­ple. Last year, ex­ec­u­tives at My­lan, the mak­er of the EpiPen, said the list price of the drug for life-threat­en­ing al­ler­gic re­ac­tions was $600, but the com­pa­ny earned $274 af­ter re­bates and oth­er fees.

That sav­ings, though, isn’t nec­es­sar­i­ly passed on to pa­tients in Medicare’s sys­tem. In­stead, the mon­ey tends to be swal­lowed up by health in­sur­ers and mid­dle­men like phar­ma­cy ben­e­fit man­agers.

And, even though pa­tients don’t pay list prices for their drugs, those high prices (like $600 for the EpiPen) are used to cal­cu­late how much Medicare cov­ers for any in­di­vid­ual pa­tient — and some­times what pa­tients pay out-of-pock­et, Duset­z­i­na said.

“We’ve heard over the years that the list price doesn’t re­al­ly mat­ter, that it’s not the re­al price,” Duset­z­i­na said. “It mat­ters.”

The way it mat­ters is not eas­i­ly ap­par­ent. Here’s what hap­pens: When a Medicare pa­tient picks up a pre­scrip­tion, what they pay to­ward it is gen­er­al­ly based on that high­er list price and not the price af­ter re­bates, so the amount the ben­e­fi­cia­ry pays is scaled up­ward as a re­sult.

And Medicare us­es that high-end list price to cal­cu­late how rapid­ly ben­e­fi­cia­ries reach the dread­ed dough­nut hole, where pa­tients pay a big­ger share of the price of the drug af­ter their spend­ing hits $3,700, the 2017 bench­mark. Once through the dough­nut hole, Medicare picks up the bulk of the drug’s cost.

High list prices dri­ve pa­tients in­to and out of the dough­nut hole faster, rais­ing their out-of-pock­et costs and Medicare ex­pen­di­tures.

Duset­z­i­na and co-au­thors Re­na Con­ti, as­sis­tant pro­fes­sor of health pol­i­cy and eco­nom­ics at the Uni­ver­si­ty of Chica­go, and Dr. Pe­ter Bach, di­rec­tor of Memo­r­i­al Sloan Ket­ter­ing Can­cer Cen­ter’s Cen­ter for Health Pol­i­cy and Out­comes, pro­pose so­lu­tions to this prob­lem.

Bach called the cur­rent Medicare sys­tem “ab­solute­ly dev­as­tat­ing for peo­ple on high-cost spe­cial­ty drugs.”

Bach’s drug pric­ing lab at Memo­r­i­al Sloan Ket­ter­ing of­fers an in­ter­ac­tive tool for com­par­ing how dol­lars shift when us­ing the list price and post-re­bate price.

The au­thors rec­om­mend that pa­tients should be charged flat-dol­lar co­pays rather than coin­sur­ance charges, which are based on a per­cent­age of the drug’s price. The co­pays could be tiered, de­pend­ing on the cost of the drug, the pa­per sug­gest­ed.

This so­lu­tion comes, in part, be­cause the num­ber of Medicare en­rollees pay­ing coin­sur­ance for their drug, rather than a flat fee, has in­creased to 58 per­cent last year from 35 per­cent in 2014, the pa­per notes.

An­oth­er tac­tic would be to ad­dress the un­der­ly­ing dis­con­nect be­tween re­bate ne­go­ti­a­tions and sav­ings for Medicare and ben­e­fi­cia­ries. The au­thors sug­gest that in­cen­tives for health in­sur­ers need to change to re­quire health plans to pay more of the drugs’ costs af­ter ben­e­fi­cia­ries pass through the dough­nut hole.

In ad­di­tion, Duset­z­i­na said, us­ing the post-re­bate amount in Medicare’s cal­cu­la­tions would al­low Medicare ben­e­fi­cia­ries to move through the dough­nut hole more slow­ly. That would save both pa­tients and Medicare mon­ey.

“It re­al­ly just stops us from ac­cel­er­at­ing peo­ple through the ben­e­fit,” Duset­z­i­na said.

Last month, the Phar­ma­ceu­ti­cal Re­search and Man­u­fac­tur­ers of Amer­i­ca, which rep­re­sents the phar­ma­ceu­ti­cal and biotech­nol­o­gy in­dus­try, launched a “Share the Sav­ings” ad­ver­tis­ing cam­paign call­ing for pub­lic ed­u­ca­tion about how the sav­ings from re­bates don’t ac­tu­al­ly get passed on to com­mer­cial in­sur­ance pa­tients.

In an email, PhRMA’s Hol­ly Camp­bell said the group’s com­mis­sioned re­searchhas found that re­bates and dis­counts have near­ly dou­bled from 2013 to 2015. Camp­bell said PhRMA be­lieves “in­sur­ance com­pa­nies should share more of the re­bates and dis­counts they re­ceive with pa­tients.”

Amer­i­ca’s Health In­sur­ance Plans, which rep­re­sents the in­sur­ance in­dus­try, calls the as­ser­tion that re­bates and oth­er dis­counts aren’t passed along “ab­solute­ly in­ac­cu­rate” and not­ed the “true is­sue” is that drug prices con­tin­ue to sky­rock­et “with no clear ex­pla­na­tion as to how prices are set.” In­sur­ers pass the sav­ings from re­bates on in dif­fer­ent ways, in­clud­ing low­er month­ly pre­mi­ums and co-pays, said AHIP’s Cathryn Don­ald­son.

Duset­z­i­na said there is one caveat to the Medicare study: It is un­clear how many drugs get a re­bate and for how much be­cause there is lack of trans­paren­cy when it comes to re­bates.

The pa­per’s fi­nal sug­ges­tion is about trans­paren­cy. It says that fed­er­al reg­u­la­tors should re­quire re­bate da­ta to be re­port­ed for in­di­vid­ual drugs and then use that in­for­ma­tion to change Medicare’s ben­e­fit de­sign in a way that “would lead to sav­ings” for Medicare and its en­rollees.

First pub­lished at Kaiser Health News, a non­prof­it health news­room whose sto­ries ap­pear in news out­lets na­tion­wide. KHN is an ed­i­to­ri­al­ly in­de­pen­dent part of the Kaiser Fam­i­ly Foun­da­tion.

Vas Narasimhan, AP Images

On a hot streak, No­var­tis ex­ecs run the odds on their two most im­por­tant PhI­II read­outs. Which is 0.01% more like­ly to suc­ceed?

Novartis CEO Vas Narasimhan is living in the sweet spot right now.

The numbers are running a bit better than expected, the pipeline — which he assembled as development chief — is performing and the stock popped more than 4% on Thursday as the executive team ran through their assessment of Q2 performance.

Year-to-date the stock is up 28%, so the investors will be beaming. Anyone looking for chinks in their armor — and there are plenty giving it a shot — right now focus on payer acceptance of their $2.1 million gene therapy Zolgensma, where it’s early days. And CAR-T continues to underperform, but Novartis doesn’t appear to be suffering from it.

Norbert Bischofberger. Kronos

Backed by some of the biggest names in biotech, Nor­bert Bischof­berg­er gets his megaround for plat­form tech out of MIT

A little over a year ago when I reported on Norbert Bischofberger’s jump from the CSO job at giant Gilead to a tiny upstart called Kronos, I noted that with his connections in biotech finance, that $18 million launch round he was starting off with could just as easily have been $100 million or more.

With his first anniversary now behind him, Bischofberger has that mega-round in the bank.

Endpoints News

Basic subscription required

Unlock this story instantly and join 55,000+ biopharma pros reading Endpoints daily — and it's free.

Francesco De Rubertis

Medicxi is rolling out its biggest fund ever to back Eu­rope's top 'sci­en­tists with strange ideas'

Francesco De Rubertis built Medicxi to be the kind of biotech venture player he would have liked to have known back when he was a full time scientist.

“When I was a scientist 20 years ago I would have loved Medicxi,’ the co-founder tells me. It’s the kind of place run by and for investigators, what the Medicxi partner calls “scientists with strange ideas — a platform for the drug hunter and scientific entrepreneur. That’s what I wanted when I was a scientist.”

Endpoints News

Basic subscription required

Unlock this story instantly and join 55,000+ biopharma pros reading Endpoints daily — and it's free.

Af­ter a decade, Vi­iV CSO John Pot­tage says it's time to step down — and he's hand­ing the job to long­time col­league Kim Smith

ViiV Healthcare has always been something unique in the global drug industry.

Owned by GlaxoSmithKline and Pfizer — with GSK in the lead as majority owner — it was created 10 years ago in a time of deep turmoil for the field as something independent of the pharma giants, but with access to lots of infrastructural support on demand. While R&D at the mother ship inside GSK was souring, a razor-focused ViiV provided a rare bright spot, challenging Gilead on a lucrative front in delivering new combinations that require fewer therapies with a more easily tolerated regimen.

They kept a massive number of people alive who would otherwise have been facing a death sentence. And they made money.

And throughout, John Pottage has been the chief scientific and chief medical officer.

Until now.

Endpoints News

Basic subscription required

Unlock this story instantly and join 55,000+ biopharma pros reading Endpoints daily — and it's free.

Novotech CRO Ex­pands Chi­na Team as Biotech De­mand for Clin­i­cal Tri­als In­creas­es up to 79%

An increase in demand of up to 79% for clinical trials in China has prompted Novotech the Asia-Pacific CRO to rapidly expand the China team, appointing expert local clinical executives to their Shanghai and Hong Kong offices. The company is planning to expand their team by 30% over the next quarter.

Novotech China has seen considerable demand recently which is borne out by research from GlobalData:
A global migration of clinical research is occurring from high-income countries to low and middle-income countries with emerging economies. Over the period 2017 to 2018, for example, the number of clinical trial sites opened by biotech companies in Asia-Pacific increased by 35% compared to 8% in the rest of the world, with growth as high as 79% in China.
Novotech CEO Dr John Moller said China offers the largest population in the world, rapid economic growth, and an increasing willingness by government to invest in research and development.
Novotech’s 23 years of experience working in the region means we are the ideal CRO partner for USA biotechs wanting to tap the research expertise and opportunities that China offers.
There are over 22,000 active investigators in Greater China, with about 5,000 investigators with experience on at least 3 studies (source GlobalData).

On a glob­al romp, Boehringer BD team picks up its third R&D al­liance for Ju­ly — this time fo­cused on IPF with $50M up­front

Boehringer Ingelheim’s BD team is on a global deal spree. The German pharma company just wrapped its third deal in 3 weeks, going back to Korea for its latest pipeline pact — this time focused on idiopathic pulmonary fibrosis.

They’re handing over $50 million to get their hands on BBT-877, an ATX inhibitor from Korea’s Bridge Biotherapeutics that was on display at a science conference in Dallas recently. There’s not a whole lot of data to evaluate the prospects here.

Endpoints News

Basic subscription required

Unlock this story instantly and join 55,000+ biopharma pros reading Endpoints daily — and it's free.

Servi­er scoots out of an­oth­er col­lab­o­ra­tion with Macro­Gen­ics, writ­ing off their $40M

Servier is walking out on a partnership with MacroGenics $MGNX — for the second time.

After the market closed on Wednesday MacroGenics put out word that Servier is severing a deal — inked close to 7 years ago — to collaborate on the development of flotetuzumab and other Dual-Affinity Re-Targeting (DART) drugs in its pipeline.

MacroGenics CEO Scott Koenig shrugged off the departure of Servier, which paid $20 million to kick off the alliance and $20 million to option flotetuzumab — putting a heavily back-ended $1 billion-plus in additional biobuck money on the table for the anti-CD123/CD3 bispecific and its companion therapies.

Den­mark's Gen­mab hits the jack­pot with $500M+ US IPO as small­er biotechs rake in a com­bined $147M

Danish drugmaker Genmab A/S is off to the races with perhaps one of the biggest biotech public listings in decades, having reaped over $500 million on the Nasdaq, as it positions itself as a bonafide player in antibody-based cancer therapies.

The company, which has long served as J&J’s $JNJ key partner on the blockbuster multiple myeloma therapy Darzalex, has asserted it has been looking to launch its own proprietary product — one it owns at least half of — by 2025.

FDA over­rides ad­comm opin­ions a fifth of the time, study finds — but why?

For drugmakers, FDA advisory panels are often an apprehended barometer of regulators’ final decisions. While the experts’ endorsement or criticism often translate directly to final outcomes, the FDA sometimes stun observers by diverging from recommendations.

A new paper out of Milbank Quarterly put a number on that trend by analyzing 376 voting meetings and subsequent actions from 2008 through 2015, confirming the general impression that regulators tend to agree with the adcomms most of the time — with discordances in only 22% of the cases.