Rx Industry Fighting Off New Salvos To Extract Medicare Savings

By John McManus, president and founder, The McManus Group

When the King v. Burwell verdict upholding the Obamacare subsidies was announced, Republicans in Congress breathed a collective sigh of relief. Yes, most of them thought the law was unconstitutional, and a clear reading of the statute that subsidies could only flow to an exchange “established by a State” caused flummoxed consternation. But they had dodged the bullet of what to do with the 7 million individuals receiving subsidies through the federal exchange who were about to lose their coverage.

The Republican conference was split between those who continued to want full repeal of Obamacare and those who believed currently insured individuals needed at least some transitional relief, as Democrats had already teed up compelling case studies of cancer patients halfway through chemotherapy regimens and other such sob stories. The Republican conference was in a no-win dilemma of either inflaming their base or walking into the punch of potentially disrupting care of real-life patients.

But the disposition of that case and the full repeal of the dysfunctional Medicare physician sustainable growth rate (SGR) payment formula earlier this year have fundamentally changed the healthcare legislative paradigm in Congress. No longer are all legislative efforts focused on the annual “Doc Fix” bill with healthcare interests attempting to insert or exclude various provisions in that omnibus package.

Rather, we have entered a more freewheeling environment, which has freed committees of jurisdiction to move more modest stand-alone bills, in which supporters have to demonstrate support the old-fashioned way – building bipartisan cosponsors and stakeholder support for discrete issues and legislative solutions. Nearly all of the bills have substantial bipartisan support. The Ways and Means Committee recently marked up 10 bills, six of which have been approved by the House. The Senate Finance Committee marked up 12 bills, all of which received voice votes and are ready for floor action.

The Energy and Commerce Committee culminated its yearlong effort on a “21st Century Cures” package of modest reforms to the FDA approval process for drugs and devices and an infusion of nearly $9 billion of resources to the National Institutes of Health with a strong bipartisan vote of 344-77 on July 10. The committee had abandoned more aggressive reforms to promote innovation through new patent extension and other exclusivity enhancement proposals.

But the pharmaceutical industry soon learned it could not get caught flat-footed by these deceptively innocuous packages. Many of these proposals suggested “pay-fors” — or resources — from the life sciences industry to help finance desired goals. Less than two weeks before 21st Century Cures was sent to the floor, the Energy and Commerce Committee floated a policy to change Medicare Part B reimbursement of biosimilar drugs from average sales price (ASP) + 6 percent to ASP + 8 percent. Such a policy would reward physicians with higher reimbursements for prescribing the biosimilar product rather than the brand-name product, and the Congressional Budget Office determined that it could result in savings of more than $1.3 billion over 10 years, betting that physicians would be encouraged to switch to less costly products.

The Energy and Commerce Committee also considered hiking brand-name copays for “low income subsidy” Medicare beneficiaries to encourage greater utilization of generics. The thinking was apparently that the current 80 percent generic fill rate for those beneficiaries was not high enough.

Though the pharmaceutical industry was able to beat back those proposals, several other industry pay-fors made it into the House-passed 21st Century Cures bill. The bill would exclude authorized generic drugs from average manufacturer price (AMP) calculations, thereby increasing the AMP of brand-name drugs and the corresponding Medicaid rebates manufacturers pay the state governments.

In addition, the Cures bill also includes a pharmaceutical payment cut that first popped up in one of the innocuous bills Ways and Means reported earlier this spring to establish a value-based insurance design demonstration program in Medicare Advantage. The provision cut reimbursement for durable medical equipment-infused drugs, which were still paid at 2003 rates of average wholesale price. You know a policy is going to eventually make it over the finish line and become law when it shows up in multiple packages to finance totally unrelated items. (They can keep recycling it, until it actually becomes law.)

The industry is now confronting new recommendations by the Medicare Payment Advisory Commission (MedPAC) June Report to Congress, which questioned whether the 6 percent add-on payment for Medicare Part B drugs creates incentives to use higher-cost drugs. MedPAC suggests abandoning the percentage add-on and just providing a flat fee, regardless of the underlying price of the drug. It might be hard for industry to justify why physicians should be paid more for administering a drug simply because it costs more, particularly when the sky has not fallen when sequestration already reduced the 6 percent add-on to about 4 percent.

The larger point is that the industry cannot be sanguine that the nuclear bomb of price controls for Medicare Part D (saving upwards of $130 billion) is off the table because Congress has repealed the SGR (sustainable growth rate) physicians’ cuts; other more-targeted hits are being lobbed at the industry. More conventional warfare is now the norm, and the industry must scramble to put out sprouting brushfires.

PATENT BILL VOTE DELAYED AS OPPOSITION MOUNTS
Meanwhile, lobbying intensity on Judiciary Chairman Goodlatte’s hightech-friendly “Innovation Act” patent reform bill has escalated, and the life sciences industry has finally begun to get traction. The bill barreled out of committee with only a few dissenting votes, and Goodlatte refused to make any substantial concessions to biopharma’s request of reform for the new inter partes review (IPR) process at the patent and trademark office. Certain hedge funds had exploited that process to either short targeted companies’ stocks or extract settlements. But high-tech companies had utilized the process to effectively knock out “nuisance” patents from so-called patent trolls — shell companies with no real product at stake.

In a July 15 letter to the bicameral Judiciary Committees, BIO and PhRMA requested an exemption from IPR for products approved by the FDA, noting that the patent resolution framework under Hatch-Waxman and the Biologics Competition and Innovation Act provided the industry with unique treatment that both “1) increase the ability of generic and biosimilar manufacturers to offer consumers lower-cost versions of off-patent medicines, and 2) preserve incentives for the discovery of new, innovative medicines.”

The biopharma industry locked arms with venture capital and a host of patient groups that were counting on innovation to address unmet medical needs and mounted a lobbying blitz, arguing that IPR brought a high degree of uncertainty to the development of costly new therapies. But they were countered by insurance plans and the AARP, who argued that “an IPR exemption would result in ‘evergreening’ where manufacturers make minor modifications to existing products in order to extend patent protection for years.” AARP asserted that the carve-out could result in billions of more spending by Medicare and Medicaid on drugs whose patents were not legitimate.

But the biopharma industry contended that the Hatch-Waxman patent regime, which is unique to the industry, is working to promote competition — with 88 percent of prescriptions being generic as solid proof.

While Goodlatte and the leadership have not yet agreed to the IPR exemption, the scheduled House vote in July has been delayed to September at the earliest. That is welcome news, but also gives both sides time to mobilize during the August Congressional recess.