Some of our leaders bemoan the fact that Medicare isn’t allowed to negotiate price with drug manufacturers.  They want to change the law.  Do they realize what they are asking for?

A leading thinker wants to develop a pricing formula that links price to the “value” of a drug.”  Suppose a drug only extends a person’s life for a few months.  It’s expensive and deemed “not cost effective”.  Would U.S. authorities dare say “no” we won’t pay for it?  Remember the 2009 “death panel” hysteria brought about by people who opposed health care reform.

Some people with incurable metastatic disease believe they can “beat” the cancer.  Understanding the risks and benefits, a few push for an aggressive approach.  If their insurance won’t pay, they’ll go into hock and risk a medical bankruptcy.  How should the system deal with a person who wants to try a dangerous drug in the hope that he or she can live long enough to see his/her daughter walk down the aisle?

Peter Bach concluded: “If we try to build a separate pay-for-performance structure for each new drug, we will quickly discover that we can’t come up with a practical one for most drugs.” A New Way to Define Value in Drug Pricing. Nejm Feb 24, 2016.

Insurance companies have formularies and regularly bargain.  Some put drugs in tiers–levels.  If the producer gives the insurer a better price, the drug goes into the low co-pay basket.  If the manufacturer hangs tough, the insurer can add the medication to the more expensive co-pay list.

Formulary management works for the Veterans Administration.  They, for example, only carry one or two beta blockers.  Companies bid for the contract.  All the VA business goes to the brand that provides the best price.

Industry wide it’s estimated that, on average, programs pass back over 90 percent of total rebate dollars negotiated with pharmacy manufacturers.    Pembroke Consulting

A 1990 law ties the costs of drugs provided by Medicaid– to the bargains obtained by insurance companies and the VA.  The man responsible for the link was Senator David Pryor.  As the Chairman of the Senate Special Committee on Aging, he once apparently believed “the high cost of prescription drugs was one of the biggest problems burdening seniors.” He held hearings and “attacked drug Industry leaders,”  Then he decided to help Medicaid—the government program for the poor and disabled, that also covers the cost of nursing homes for many.  Medicaid is funded by the state and federal government.  (The feds on average, pay 57%, of the costs: 50% in wealthier states: up to 75% in states with lower per capita incomes.)  The program provides health coverage to about 64 million Americans.

In the late 1980s many states were in financial trouble.  They tried to limit people on Medicaid from using prescribed drugs by creating “restrictive formularies, co-pays, and monthly maximums.”  But the states’ costs remained high– in part because Medicaid–the government– paid full sticker price for prescribed medications–at a time when insurance companies and the VA were often given discounts of 30% to 40%.

Two states tried to bargain with Pharma and were attacked by industry.  (To successfully negotiate, to have any leverage, a state had to be willing to walk away.) Pharma argued that if states withheld “brand-name drugs without generic equivalents from a Medicaid enrollee (they would be) endorsing “second-class medical treatment for the poor.”

In the late 1980s President George H.W. Bush and his White House staff decided to “shrink the budget deficit by about $50.5 billion.  The legislation they produced was “massive”– 533-pages long—“the 5-year Omnibus Budget Reconciliation Act (OBRA 1990)”.  Its size and scope allowed Pryor and colleagues to add their “Medicaid Prescription Drug Rebate Program” to the bill.  It granted Medicaid “most-favored customer” status, and required drug manufacturers to sell their meds to Medicaid at the “best price” available to any other purchaser.  When a company accepted the pricing provisions they were assured that their products would be covered under each state’s Medicaid prescription drug program. “

The law had a glitch.  Industry had been giving voluntary discounts to a few needy hospitals.  After the bill was passed some of these price reductions were discontinued; in some hospitals drug costs rose “dramatically.”

During the 7 years after the act was passed “Medicaid outpatient prescription drug costs increased at an average annual rate of 14.8 percent.  In years 7-10 they increased 18% a year.”

In 1992 Congress created the 340B program.   That law protected specified clinics and hospitals (“covered entities”) from drug price increases and gave them access to price reductions.  Manufacturers agreed to provide discounts on “covered outpatient drugs” that were purchased by the government-supported facilities that served the nation’s most vulnerable patient populations.”  15 years later 340B is still the law.  It’s popular, relatively widely used, and is once again under attack.

Discounted Drugs for Needy Patients and Hospitals — Understanding the 340B Debate.  Walid F. Gellad, M.D., M.P.H., and A. Everette James, J.D., M.B.A.  N Engl J Med 2018; 378:501-503

Medicare D plans can’t bargain.  “D” is government sponsored drug insurance for citizens older than 65.  It’s offered—at a price–to people enrolled in Medicare A. To help control costs “D” insurance plans use formularies.

Medicare A is free and almost automatic for individuals who have been a legal U.S. resident for five years and are over the age of 65.   It’s paid for by a payroll tax; it’s not a hand out.  We bought it.  It pays for “medically necessary hospital, skilled nursing facility, home health, and hospice care.”

Costs not covered by A are either paid for by the individual, or by a supplemental –privately purchased– policy–(Medicare B).

Available since 2006, (Medicare D), drug insurance is also voluntary.  People have to sign up; there’s an initial fee and a monthly payment that tends to vary.  (In 2017 the monthly charge was as low as $17 in some places, and as high as $72 in others.  Nationwide it averaged $42 a month.)  “D is only provided through private insurance companies that have contracts with the government.

The regulations say the amount of money a person pays for a policy is in part, income based.  The government provides a low income subsidy for people whose annual income is “below $18,090”–$24,360 for a married couple living together.”  In “2016, the feds directly subsidized nearly 75% of the premiums,”

About half of the insured elderly own a combined B and D policy.  The other half has stand alone prescription drug plans. (PDP).

All plans assemble the medications they cover in groups.  They charge a large amount for very expensive medications and have a minimal co-pay for cheap generic drugs.

The formulary of the University of Maryland Health Advantage, for example, has 5 drug levels and 5 co-pays—amounts of money the person taking a medicine must pay.  From their web site—the 30 day co-pay for each filled subscription runs as follows:

$4 for preferred generic drugs. (And there are many.)

$15 for generics that don’t make the preferred list.

$47 for preferred brand name medications.

$100 for brand named products that don’t make the preferred list.

And 33% of the retail/mail price for “specialty drugs.”

A large number of high-priced drugs are in the most expensive group.  They include: combinations of anti retroviral (HIV) drugs, multiple sclerosis modifying agents, and orphan drugs—medications that are not in high demand for people over 65.  A number of the very expensive, cancer fighting medications are also on the list; 33% of their retail price is a lot of money for most Americans…and Medicare D insurers are not allowed to bargain.

Pharmacy committees that place the drugs in tiers meet regularly.  When the drug insurer (D) also covers a person’s general medical care, (B) the committees must deal with the fact that some expensive prescriptions are not being filled.  If a person doesn’t buy a needed medicine and decompensates, the insurer will be on the hook for at least part of the costs of the resulting medical care.  Thus these committees need to walk the tight rope between keeping their plan solvent and avoiding prices that make people choose between—their money or their health.

 The European Union, EU, represents 25% of the global drug market.  Its agency –the EMA –gets help evaluating new drug submissions from a number of EU nations.  The U.K. has contributed to the process, but its role may be phased out thanks to BREXIT.

In France drugs are evaluated and the price is negotiated before the medicine hits the market.   The Health Products Pricing Committee reaches a deal and signs contracts with various companies.  Their rules favor better and cheaper medications.  “Drugs that offer considerable improvement over existing therapies” can’t raise their price during their first five years on the market.

Israel introduced its national health insurance in 1995.  Before that each of its many sick funds had its own formulary.  The decision to include or exclude a medication was the result of negotiations between a fund and the commercial sponsor of a drug.  After deciding which brands could be prescribed, insurers would get discounts and would force doctors to only order approved drugs.

Over time Israel created a “basket of drugs” that was periodically updated. Prices were “linked” to those charged in certain high-priced European countries.  New meds were chosen on the bases of “therapeutic advantage.”  Israelis say that price was not part of the decision process.  When they reject a drug they don’t say why.

Some claim industry has “access and influence over the Israeli government on this issue – access not afforded to other interest groups. “  On at least one occasion politicians and lobby groups pressured decision makers to add certain cancer drugs, such as Herceptin (trastuzumab) and Avastin (bevacizumab).

“Most European countries use External reference pricing (ERP) to set the amount paid for publically reimbursed medications.  They use the average price of a medicine in a specified group of countries as a benchmark or reference price.  The general average price of reference countries was used in Austria, Belgium, Cyprus, Denmark, Iceland, Ireland, Portugal, Switzerland, and the Netherlands. The average of the three or four lowest prices of all the countries in the basket, was used in Greece, Norway, Slovakia, and Czech Republic. The lowest price among all reference countries was used in Bulgaria, Hungary, Italy, Romania, Slovenia (for original drugs and biosimilars), and Spain.  Many countries around the world use the ERP as a basis for their negotiation with pharmaceutical companies.”

“The British national health service—NHS– is the main buyer of pharmaceutical products in the UK. Prices for prescription drugs in the NHS are currently set through discussion between manufacturers and the Government.  The U.K. Department of Health and drug makers reached a five-year voluntary agreement called the Pharmaceutical Price Regulation Scheme, or PPRS, to regulate the cost of brand-name medicines.  The accord took effect January 2014.  It keeps the bill for branded medicines flat for two years; they will then rise by about 1.8 percent annually in 2016 and 2017 and 1.9 percent in 2018. Government spending on medicines in excess of these levels will be reimbursed by the drug companies.  Prices for generic drugs are negotiated separately.

In March 2017 the U.K. government announced it would limit payments for any drug that could cost the health system more than 20 million pounds annually in its first three years of use. Any drugs over the 20-million-pound limit will have to go through an additional negotiation process between the NHS and the company.  The spending limit was introduced after a 2015 decision by NHS England to curtail access to the hepatitis C treatment Sovaldi, made by Gilead Sciences Inc.  This was despite NICE’s recommendation in support of the drug.  In other words in the UK the government is “rationing” medications.

The British National Institute for Health and Clinical Excellence—NICE– evaluates the clinical and cost effectiveness of drugs, health technologies and clinical practice for the NHS. It does not negotiate drug prices. Currently around 40% of drugs new to the UK market are evaluated by NICE every year.”

“NICE uses a metric known as “quality adjusted life-years,” The agency assess the value of medicines in extending and improving patients’ lives. It usually only approves drugs that cost less than 30,000 pounds ($39,000) per quality adjusted life-year, which is equal to a year of life in perfect health.”

So how much is a few months of life worth?  Sometimes even Brits refuse to keep a stiff upper lip.

Enzalutamide and arbiraterone are expensive drugs.  Each of them can stop the growth of castration resistant prostate cancer for months.  They work in different ways and it’s possible that when one fails the other might still be effective.

Enzalutamide was approved by the NHS in October 2013.  The following January NICE tried to prevent the government from paying for Enzalutamide if a man in England or Wales had already been treated with abiraterone.  Men in Scotland could still receive Enzalutamide.

There was an outcry and a petition.  Political leaders and “Tackle Prostate Cancer”, (an organization) protested.  And NICE changed its guidance saying:  “there is not enough evidence to make a recommendation about how the two drugs should be used.”

Negotiating drug prices is a can of worms.  Crafting a bill that would make it possible is tricky at best.

The Pharmaceutical Journal21 APR 2017 .