Healthcare Value Continues to be Joker in the Pack of North American P&R Reforms

As a midpoint is reached between the launch of Medicare Part D and the prospective Prescription Drug Fee User Act (PDFUA)-related reforms later this year, SMi yesterday brought to a close its third annual “Pricing and Reimbursement in North America” conference. The conference revealed divergent opinions on the issue of value, with some arguing that value and P&R are entwined concepts, and others countering that the link has yet to be made, particularly in the United States. The sceptics generally point to the poor definition and understanding of value as a concept in healthcare economics in general, and the pricing of pharmaceuticals in particular. For example, major pharmacies generally define value according to inch space on their shelves. Therefore, size of packages is their main consideration on the issue of value as part of the stocking process, but this is entirely different from the definition of value at the government or hospital level.

The final price of any drug, noted Scott Roberts of PriceSpective, was very much down to political considerations; although internal value assessments and pricing scenarios still played an important role in the build-up to launch, the final strategy was generally felt to be a highly politicised process. Similarly, the importance of evaluating the clinically significant endpoint politically was emphasised. Statistical significance and P values are increasingly being sidelined in favour of scales based on clinical prowess or meaningfulness (notably the ASMR system). Already, it is evident that mere partial differentiation readily leads to disadvantaged formulary status. This also ties in with potential reform of biosimilars, whereby the concept of “clinical similarities” will begin to emerge as opposed to bioequivalence.

Anne-Toni Rodgers, a director at Baxter Healthcare (U.K.), pointed out that entirely “internationalised” pricing strategies are a relatively new phenomenon in the pharmaceutical industry, and companies that have a global pricing perspective on each of their drugs are few and far between. However, it is now generally accepted that regulatory approval does by no means suffice to secure market access. Boris Simkovich of Light Management Consulting emphasised that although U.S. launch prices and re-pricing are free, they have major consequences. In particular, the expansion of prior authorisation and step therapy is having a highly detrimental impact on market penetration, and these are almost always down to cost. There was subsequently some discussion on the issue of price transparency—one of the key potential reform areas in the pharmaceutical industry. Given that the transaction price is very different from the public selling price, the shift away from average manufacturing prices (AMP) and towards published average sales prices (ASP) will have a significant impact on the industry, not least of which on the scale of international reference pricing.

Deborah Williams of Baxter and Curtis Moore of Genzyme (U.S.) spoke in depth on the current reform process in the United States, including the stalled legislations of HR4 (direct pricing negotiations) and S3 (comparative effectiveness). Williams felt that increased rebates to state public programmes, despite temporarily being off the agenda, will inevitably move up towards a 20% rate. It was generally felt that international reference pricing was unlikely to be high on the agenda in the absence of obvious comparator countries with similar economic systems. Parallel trade is more of a hot topic, but ultimately the legislative process here seems to be shooting itself in the foot by pushing a highly politicised issue that is ultimately unlikely to yield much in savings. Parallel trade may begin to interact with burgeoning compulsory licensing, but Global Insight suspects that this will meet with resistance on the issue of patenting.

In terms of likely scenarios in the upcoming U.S. elections, of course much emphasis was placed on the potential detrimental effect of an Obama, Clinton, or combined Clinton-Obama ticket—their healthcare programmes agree on practically every key point (negotiating power, generic access, comparative effectiveness, parallel trade, etc.). Still, it was reminded that most of the radical reforms—including the 15.1% rebates—have come under Republican administrations, and that there is major hostility emanating from the ranks of individual Republican senators, notably on the issue of drug safety. Gary Johnson of Inpharmation felt that the primary threat on the pricing front in the United States came from changes in the benchmark price, which has traditionally been referenced to branded drugs. Payers are increasingly unwilling to accept this when generics enter the market, and this may have profound implications on lifecycle management—in effect, the lifecycle of drugs may indeed begin at launch, but will end earlier than patent expiration, when generics of its nearest competitor enters the market. The current, post-Zocor (simvastatin) statin market is perhaps the most obvious case in point.

Outlook and Implications

Much of the conference was devoted to concerns over risks to reputations risks in the pharmaceutical industry, particularly with upcoming documentaries such as Michael Moore’s Sicko in mind. The main area of misunderstanding, it was felt, is over communication with both patients and the government, and that the lack of dialogue between marketing and pricing departments within pharmaceutical companies was partially to blame. In particular, the language of the pharma position has not reached grassroots levels. Global Insight is slightly more optimistic in this regard, and has recently noted an upswing in general sentiment as a result of signs of increased R&D productivity and reduced headwind from setbacks such as Vioxx (rofecoxib).

The two days were rounded up with discussions on the tension between U.S. legislators and the pharmaceutical industry. Although much of the legislative process is beyond the spectre of pharmaceutical companies, particularly in a hostile environment in which pharma’s message is generally not coming across, it was generally felt that the industry’s fate was still very much in its own hands. Several speakers noted that major legislation in most industries have the actual quiet backing of its big players, and that reforms can in effect be captured by the pharmaceutical industry; although this may seem counterintuitive, there are significant examples of reforms that at first seemed bad for the industry actually turning out in its favour. Barriers to entry in the reform process can have the effect of restricting competitors, particularly those with smaller resources. Thus, although Big Pharma is unlikely to drive healthcare economics up the agenda, it could have highly significant benefits in terms downgrading—or entirely removing—certain competitors from formulary listings or tiers.