Global Insight Perspective | |
Significance | The AWP has been used in the setting of reimbursement levels under Medicare Part B and insurance companies’ reimbursement to drug-makers, resulting in potentially inflated payments for third-party payers and patients. |
Implications | The settlement resulted in a US$125 million payment shared between the pharma companies, some of which are facing separate litigation over specific drugs in state courts. The AWP for branded drugs has increased by 7.4% year-on-year (y/y) in 2007, but various discounts and the increased use of generics have limited the growth in real pharmaceutical spending. |
Outlook | The outcome goes further towards discrediting the use of the AWP as a benchmark in U.S. reimbursement price setting and boosts the case for the use of the average manufacturer price (AMP) as an alternative reimbursement benchmark. |
AWP Settlement is Finally Reached
Last Friday (7 March) 11 pharmaceutical companies agreed to a US$125 million settlement on AWP litigation initiated in 2002, reports Seattle-based law firm Hagens Berman, which was a co-lead counsel in the case. The settlement is nationwide and settles allegations by consumers that insurers overcharged them for certain prescription drugs because of the inflated AWP reported by companies. The AWP has been used as a benchmark for determining reimbursement under Medicare Part B and various third-party insurance plans.
Under the settlement, 82.5% of the settlement money will be designated for third-party payers, with the available remainder to be distributed to consumers. The settlement covers price inflation claims over branded and generic drugs used primarily in the treatment of cancer, HIV and other serious diseases. Specifically, the drugs concerned are Aranesp, Epogen, Neupogen, Neulasta, Anzemet, Ferrlecit and Infed. The class action settlement includes anyone who reimbursed any portion of an insurer's Medicare Part B co-payment between 1 January 1991 and 1 January 2005 or those who made reimbursements outside of Medicare Part B for any of the named drugs from 1 January 1991 through to 1 March 2008.
Manufacturers Settling Current AWP Litigation |
Abbott Laboratories, Amgen, Aventis Pharmaceuticals, Hoechst Marion Roussel, Baxter Healthcare, Baxter International Inc., Bayer Corporation, Dey, Fujisawa Healthcare, Inc., Fujisawa USA, Inc., Immunex Corporation, Pharmacia Corporation, Pharmacia & Upjohn LLC, Sicor, Inc., Gensia, Inc., Gensia Sicor Pharmaceuticals, Watson Pharmaceuticals, and ZLB Behring. |
Source: Hagens Berman. |
Separate settlements over the AWP have been agreed, as reported by Global Insight in the past. In August 2006 GlaxoSmithKline (U.K.) agreed to a nationwide US$70 million settlement and in May 2007 AstraZeneca (U.K.) settled for US$24 million with Medicare Part B Zoladex (goserelin) users nationwide. Some cases have gone to trial. In November 2007, AstraZeneca and Bristol-Myers Squibb (U.S.) received a court order to pay nearly US$14 million to insurance companies and consumers in Massachusetts. A court date is yet to be set for litigation outside the state of Massachusetts.
AWP Growth for Branded Drugs Confirmed at 7.4%
Meanwhile, U.S. advocacy group AARP confirmed that the price of branded prescription drugs at AWP level increased by 7.4% y/y in 2007. The growth rate is the same as that reported by pharmaceutical benefit manager (PBM) Express Scripts last week (see United States: 3 March 2008: Generics Praised for Slowing U.S. Drug Spending Growth).
AARP emphasized that the AWP growth for branded drugs in 2007 was higher than in the years before the introduction of the Medicare Part D prescription drug benefit. In particular, the AWP growth rate was 5.3-6.6% in the four years before the 2006 launch of Part D. In 2007, all except four of the 220 branded prescription drugs included in the AARP review saw price increases, which were also above the rate of inflation in nearly all cases. The highest price increase among the top 25 branded products was for Sanofi-Aventis’s (France) sleeping pill Ambien (zolpidem).
Outlook and Implications
The price increase for Ambien at least is attributable to the impending patent expiry of the drug. The company has increased the price of the original drug as it attempts to convert patients to its follow-up modified-release product Ambien CR, which remains patent-protected. As Global Insight reported earlier, Pfizer (U.S.) has also raised the price of branded Lipitor as it attempts to maximise profits before patent expiry.
Manufacturers have attacked the AWP growth figures released last week, with their statements indicating that the actual price growth is smaller because the AWP statistics do not take pricing discounts into account. However, as we reported based on the Express Scripts data, the AWP price increase for branded drugs (7.2% at wholesale level) is fairly close to the 7.4% y/y increase in the actual price of branded drugs (including plan sponsor and patient out-of-pocket payments) estimated by the PBM.
Separately, the settlement of AWP inflation allegations by 11 drug makers in the United States further boosts the case for using another price indicator as a benchmark in reimbursement setting. The Centers for Medicare and Medicaid Services (CMS) has approved regulations to use the average manufacturer price (AMP) instead of the AWP in reimbursement setting under Medicaid. However, the regulation has not been implemented yet as Congress explores its possible effect on community pharmacies. Even if it were implemented in its current form, the CMS regulation would only apply to reimbursement for generics. Thus, the “big-ticket” branded drugs would effectively remain excluded, unless a new separate regulation is approved to allow reimbursement setting under Medicare and Medicaid for branded drugs using a more reliable indicator than the AWP.