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Making Progress Toward Healthier Pharma Markets

Pharmaceuticals play a major role in today’s population health era – they can prevent and cure disease, improve or maintain wellness and slow progression of existing conditions. Yet, their promise can also be a curse if high prices limit patient access and bankrupt the healthcare providers and insurers bearing significant financial risk for patient care.

The proactive new leadership at the FDA is promoting competitive markets by combatting the abuse of well-intentioned programs and market share monopolies. Commissioner Scott Gottlieb has ramped up the FDA’s efforts to prevent drug manufacturers from “gaming the system” in a number of ways.

Accelerating generic approvals and creating transparency to stimulate competition

For the first time, the FDA made publicly available a list of off-patent, off-exclusivity branded drugs without generic competition. Using the list, Premier immediately identified a number of critical drugs for patient care and has been working with manufacturers to participate in the FDA’s new expedited review process. Additionally, Congress recently enacted legislation creating an expedited review process for generic drug applications when there are fewer than three manufacturers in the market for a given drug product. We strongly support and helped to champion these efforts, and are hopeful that the FDA will use this new authority to foster competition and curb price spikes and shortages in generic drugs where only a few players dominate.

Reducing duplicate or redundant review processes

We anticipate the FDA will soon release key documents to streamline the Abbreviated New Drug Application process, which will help eliminate unnecessary, duplicative procedures and greatly increase efficiency without compromising standards.

Curbing abuse of Risk Evaluation and Mitigation Strategy (REMS)

Commissioner Gottlieb has strong words for abusers of the REMs program, stating, “some manufacturers are… using the law as a way to delay the ability of generic firms to purchase the doses of a branded drug that they need to run their studies and get to market.” The FDA has been taking important steps to help prevent exploitation of the loophole by releasing draft guidance to stem drug manufacturers’ abuse of REMS.

We also call on Congress to level the playing field for new market entrants that foster competition in order to drive down inflated drug prices.

Policy change is urgently needed to close loopholes and get competitive entrants into the market faster. The Fair Access for Safe and Timely (FAST) Generics Act and the Creating, Restoring Equal Access to Equivalent Samples (CREATES) and Preserve Access to Affordable Generics Act are clear, bipartisan solutions to curb abusive, anticompetitive business practices that are driving up unsustainable spending within healthcare and impede patient access to generic and biosimilar medicines.

We know competition works. Our aggregated group purchasing power alone puts manufacturers through a head-to-head bidding process that brings results. Premier’s drug portfolio prices have held constant at just 4.55 percent per year, well below the inflation rate of 10 percent over the same time period on all drugs with no contractual terms.

While the FDA has made significant progress toward adopting policies that push more competition, there still is a long way to go before these policies have a real, meaningful upstream effect. From reducing and prioritizing backlogged approvals, accelerating entrance of biosimilars into the market and facilitating increased competition around branded drugs, stakeholders from across healthcare, including Premier, are ready and willing to work with the FDA to bring in more manufacturers into the fray and foster healthier markets for pharmaceuticals.

Calling out the abuses is important, but we badly need action by both FDA and Congress.

Michael J. Alkire is chief operating officer of Premier Inc., a healthcare improvement company.

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HealthViewXWilliam Palmer MDBarry CarolSteve2pjnelson Recent comment authors
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HealthViewX
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HealthViewX

Well-written and informative.

Barry Carol
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Barry Carol

PBM’s don’t actually buy drugs except for drugs, mostly generics, dispensed by its in-house mail order pharmacy. Instead, they negotiate reimbursement rates on behalf of payers including both insurance companies and self-funded employers. Rebates are paid based on volume in exchange for moving market share which is achieved mainly through favorable formulary placement. The big drug retailers, including Walgreens, CVS and Walmart can buy generics directly from manufacturers whereas the smaller chains and independent drug stores must buy through one of the three big drug wholesalers – Amerisource-Bergen, Cardinal Health and McKesson. Most of the rebates paid to PBM’s flow… Read more »

William Palmer MD
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William Palmer MD

Barry, I appreciate your fine effort here to educate us dummies. But I still am confused. Eg why would the drug manufacturers give the PBM a rebate–your #2 above–when the transaction seems to be that the PBM is trying to lower the prices the plans pay for the drugs? They should be mad at the PBM for doing this, shouldn’t they? …not giving rebates? Also, why is the PBM paying the pharmacy? The FT’s article says the pharmacy is paying the PBM. Maybe if you could suggest some book or paper on this PBM business we could understand what is… Read more »

Barry Carol
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Barry Carol

Dr. Palmer – Just to be clear, I am not an expert on this subject though I did cover the health insurance companies, drug wholesalers and PBM’s during the last six or seven years of my time in the money management business before I retired at the end of 2011. The foremost expert on the drug distribution business that I’m aware of is Dr. Adam Fein who is the president of Pembroke Consulting and runs a blog called Drug Channels. It’s well worth taking a look at. The three largest PBM’s are Express-Scripts, CVS-Caremark and the Optum Health. Express-Scripts will… Read more »

Barry Carol
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Barry Carol

Just to follow up, the PBM’s have been at this business for a long time. The core of their pitch, especially to self-funded employers but to insurance companies as well, is that there expertise enables them to help the client lower its total drug spend. Prices paid for individual drugs may be higher than average in some cases but it’s the total drug spend that the client is really trying to control. It’s hard to believe that they’ve built the successful businesses they have by screwing their customers. Most of the clients are pretty sophisticated and many hire consultants to… Read more »

William Palmer MD
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William Palmer MD

PBMs (CVS Heath’s Caremark, Express Scripts, and UnitedHealth’s Optum) are supposed to be oligopsonic purchasers of drugs from manufacturers or wholesalers. That was their reason for being. They are not found in Europe. They aggregate a lot of buyers from plans and go to the manufacturers and say: “We need such and such a drug. We have so many millions of users. What will you sell the drug to us for?” This discount from large purchasing is then supposed to go to the patient through reductions in the premiums she pays for her plan. Thus, they are supposed to be… Read more »

William Palmer MD
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William Palmer MD

The answer to the question as to why the pharmacy is paying the PBM is staring us right in the face. It is that the PBM is also negotiating with the manufacturer a lower price for the pharmacy and thus enabling it to mark up the price more and make more profit…a service to the pharmacy. So we have a flagrant and egregious conflict of interest in the PBM. The PBM is trying to get lower prices of drugs for the patients, but simultaneously trying to allow the pharmacist to mark up his prices more and yield more profit. Hence… Read more »

Steve2
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Steve2

If competition worked so well, why isn’t it working now? The pharma industry looks like it tries to avoid competition. Maybe some of this will help, but I doubt that the current administration will actually support and carry out new rules and regulations to make things more competitive. Just doesn’t fit with their ethos. I also find it unlikely that a new manufacturer will be able to immediately make generics just as cheaply as the ones doing it for the last 10 years. You do realize that even with expedited approvals, we are probably talking years to bring drugs to… Read more »

Barry Carol
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Barry Carol

Steve, I’m curious as to what percentage of your hospital system’s cost base is attributed to prescription drugs that are given to inpatients during the course of their treatment. Individual price hikes may be egregious in certain instances but how much difference does it really make at the end of the day in the economics of operating your hospital(s)? Many of the outsized price increases that we read about are for drugs with three or fewer competitors and a comparatively small market opportunity which could make it economically unattractive for new competitors to enter the market even under a streamlined… Read more »

pjnelson
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pjnelson

The shell game is profound.

Steve2
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Steve2

Barry- Iam off this week and would have to pull out budgets at my office, but I generally think of pharmacy costs as running around 10% of total inpatient costs. That includes the cost of pharmacists and drug machines, so I would have look at our details.

Steve

Barry Carol
Member
Barry Carol

Steve — Thanks as always.

pjnelson
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pjnelson

Please tell me how this will be able to mitigate the traditional business model of Big Pharma and its effect on over-all healthcare that is to eventually become EQUITABLY available, ECOLOGICALLY accessible, JUSTLY efficient AND RELIABLY effective for each citizen, community by community. By traditional business model, I mean: 40% of annual cash income is equal to net income (aka profit) plus the expense of business promotion (aka marketing).