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CMS cost analysis fuels controversy over rise of limited pharmacy networks

BY Jim Frederick

Results of a recent federal survey of Medicare Part D claims is again roiling the sometimes strained relationship between independent and smaller-chain community pharmacies and managed care, and could herald a growing threat to those pharmacies as health plan payers and pharmacy benefit managers abandon open pharmacy provider networks and shift more business to exclusive preferred pharmacy groups.

The new survey comes from the Centers for Medicare and Medicaid Services. Based on a study of Medicare prescription claims received in March 2012 by 13 Part D prescription drug plans, CMS reported that a majority of those prescriptions cost an average of about 6% less for PDPs when generated by a pharmacy in a preferred pharmacy network, compared with the costs of a prescription filled in a non-preferred pharmacy in an open-provider network.

"At the contract level, excluding mail order, we find that aggregate unit costs weighted by utilization [meaning costs per dose] were lower in preferred networks for the majority of sponsors with this type of network," CMS reported.

Nevertheless, the government’s findings aren’t a slam-dunk for the PBM industry. In reporting its survey conclusions, CMS takes a more nuanced view.

"Based on a one-month sample, negotiated pricing for the top 25 brands and 25 generics in the Part D program at preferred retail pharmacies is lower than at non-preferred network pharmacies," the agency noted. "However, there are different results between sponsors once we include mail-order pharmacy costs. When both mail and retail pharmacy costs are included, some sponsors’ preferred network pharmacies are offering somewhat higher negotiated prices than are offered by their non-preferred network pharmacies. Thus, our hypothesis that preferred network pharmacy negotiated prices are lower than non-preferred network … was not confirmed."

Indeed, CMS concluded, "negotiated prices are sometimes higher in certain preferred networks — contrary to our expectations."

Responding to the report, the National Community Pharmacists Association took note of CMS’ finding that some preferred networks generate higher costs, and warned that "preferred pharmacy plans … are not in the best interests of many patients" and "amount to government-sanctioned bias against small business." But the pharmacy benefit management industry, which supports limited pharmacy provider networks for employer-sponsored health plans and Part D PDPs, was quick to seize on the survey findings.

"The CMS analysis confirms that negotiated prices at preferred pharmacies are lower on average than at non-preferred pharmacies," said Mark Merritt, president and CEO of the Pharmaceutical Care Management Association. "Indeed, government and beneficiary savings from preferred pharmacy network plans are likely even greater, as the government’s analysis takes into account only part of the savings from these plans."

Merritt said additional savings come from "other factors, including premiums, reinsurance and post point-of-sale price concessions, that ultimately determine CMS payments to preferred network plans."

PCMA has long advocated preferred pharmacy networks as a cost-saving tool for public and private pharmacy benefit plan sponsors. "The tools utilized by Medicare Part D plans — including preferred pharmacy networks and generic alternatives — are delivering savings," the PBM advocacy group asserted. "While preferred physician and hospital networks have long been used to reduce costs, there is a growing understanding of the cost-savings potential of pharmacy networks."

To argue its case that limited pharmacy networks that exclude thousands of independent and small-chain operators would still provide plenty of access for seniors everywhere, PCMA also makes a stunning declaration, essentially equating community pharmacies with fast-food joints. "Today, there are more drug stores in the United States than McDonald’s, Burger Kings, Pizza Huts, Wendy’s, Taco Bells, Kentucky Fried Chickens, Domino’s Pizzas and Dunkin’ Donuts combined, creating a highly competitive environment," the group noted.

Citing a study from health consulting firm Visante, PCMA also predicts that "greater use of preferred and limited pharmacy networks could save Medicare an additional $35 billion over the next ten years while meeting the program’s pharmacy access standards."

For both chain and independent pharmacy retailers, the growth of preferred pharmacy networks and exclusive-provider contracts between pharmacies and PDPs carries explosive disruptive potential. Medicare Part D accounts for roughly 1-of-5 U.S. prescriptions dispensed at retail, according to CMS. And both public and employer-funded health plan sponsors and the plans themselves — not to mention the patients enrolled in those plans — are shifting in greater numbers to those limited pharmacy networks to capture perceived savings.

Many patients seem willing to accept the inconvenience that comes with having a substantially reduced network of pharmacies from which to choose to obtain their prescriptions via whatever Part D PDP they’re covered by. Savings, in many cases, are trumping choice and convenience.

"Given the 2013 growth in these networks," Pembroke Consulting president Adam Fein reported recently, "I expect CMS to update its guidelines regarding preferred networks. However, the cost savings shown in this [CMS] report support my view that preferred networks will continue to grow."

As Fein noted earlier this year, only "16 of 2013’s 190 PDPs have a preferred pharmacy network design." However, that list of 16 preferred network plans includes most of the nation’s biggest and most influential PDPs. Those plans determine the size and scope of the pharmacy provider network for the largest number of Medicare Part D beneficiaries and wield the power to determine the market, essentially, for a substantial portion of the U.S. prescription dollar for the more than 22.6 million seniors enrolled in a PDP in 2013.

According to an analysis of CMS data from Pembroke, "more than 4-out-of-10 seniors [are] enrolled in one of these 16 plans" this year, and "seniors are increasingly choosing preferred networks."

"In 2013, narrower pharmacy network models will become a mainstream staple of both commercial and Medicare Part D plans," Fein predicted. "Expect these networks’ success to prompt howls of protest from the non-participating pharmacies."

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IMS study: Settlements save healthcare system, federal government billions

BY Alaric DeArment

The Supreme Court usually has a lot on its plate in any given year, but this year’s term included a pretty big case for the pharmaceutical industry: the Federal Trade Commission v. Actavis, which concerned legal settlements between branded and generic drug makers that often occur when the latter attempts to market a generic drug before the former’s patents have expired.

In a 5-3 ruling — Justice Samuel Alito did not take part in the case — the court ruled that courts reviewing what opponents call "pay-for-delay" settlements should take a "rule of reason" approach, examining them on a case-by-case basis, rather than a "quick look" approach that would deem settlements illegal by default.

In a typical case, a generic drug maker will file an application with the Food and Drug Administration challenging the patent on a branded drug. The branded drug’s manufacturer will respond with a patent-infringement lawsuit that will put an automatic stay of final FDA approval for up to two-and-a-half years. Rather than going to court, however, most cases are settled.

For opponents of such settlements, like the FTC, the issue is the settlements that involve "consideration," meaning a payment of some sort, which can come in the form of money or a promise by the branded drug maker not to launch an authorized generic. Opponents say the deals keep drugs out of patients’ hands for longer than they should, while generic drug makers say the deals get generics into the hands of consumers months or years ahead of patent expiration.

Now, they have a study to support their case.

A new study, conducted by the IMS Institute for Healthcare Informatics on behalf of generics industry trade group the Generic Pharmaceutical Association, found that the U.S. healthcare system has saved $25.5 billion over seven years from generic drugs launched under the settlements.

The study tracked 33 drugs subject to patent settlements between 2005 and 2012 and found that settlements allowed generic drugs to enter
the market an average of 81 months (about six-and-a-half years) ahead of patent expiry.

"For years, opponents of pharmaceutical patent settlements with consideration have stated that settlements create a cost for consumers, the government and others," GPhA president and CEO Ralph Neas said. "This new analysis provides the most current, complete and transparent estimate of the impact of patent settlements on health costs, and it shows that the opposite is true."

The drugs the study looked at included Novartis’ hypertension treatment Lotrel (amlodipine/benazepril). IMS’ study estimates that savings from the generic drug have totaled $237 million since 2011, and as of December 2012, 85% of sales of the drug were of the generic form. The IMS report estimated that patent settlements on the 33 drugs analyzed would save $61.7 billion, in addition to the $25.5 billion already saved, if the current level of savings continues through to the expiration of their patents.

The report also found that of the $25.5 billion saved, $8.3 billion of that went to the federal government. Without the settlements, the report estimated, the total $87 billion in realized-and projected-savings would be reduced by $45 billion. That estimate was based on a 2010 Royal Bank of Canada analysis of patent challenges mounted between 2000 and 2009 that found a 48% success rate for generic drug makers when cases went to trial, odds that Neas has called a "total crapshoot." The GPhA has frequently cited the RBC study to defend its position.

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Generic, specialty drugs responsible for lion’s share of prescription growth

BY Alaric DeArment

The world is turning generic. That’s the takeaway from the latest trends in the drug industry, according to IMS Health. In 2012, according to the healthcare industry analytics firm, dollar sales of drugs fell by 1% to $325.7 billion, but prescriptions grew by 1.2% as generic drugs’ share of total drugs dispensed grew to nearly 83%.

For the 12-month period that ended in March 2013, dollar growth fell by 4% overall, including a 6.2% fall in dollar growth for branded drugs, while generic dollar growth increased by 5%. Prescription volume grew almost 3% overall, but branded prescriptions fell by 16%, and generic prescriptions grew by nearly 8%, according to IMS.

In addition to the growth of generics and the decline of branded drugs overall, specialty drugs — those used to treat complex, chronic health conditions — have seen significant growth as well, a trend that is likely to continue as the population ages and more treatments become available for difficult-to-treat diseases.

Generics and biosimilars

While the use of generic drugs is clearly on the rise, the number of branded drugs coming off patent and creating new opportunities for generic makers to profit is dwindling. Between 2008 and 2012, branded drugs with sales of $101 billion lost patent protection, but between 2013 and 2017, that figure is set to drop to $86 billion due to the drop in patent expiries as part of the patent cliff, according to IMS.

One big opportunity for generic companies lies in biosimilars, knock-off versions of biotech drugs. According to a report last month by pharmacy benefit manager Express Scripts, patients and payers in the United States stood to save $250 billion between 2014 and 2024 "if just a handful of biosimilars were to enter the market." Earlier this year, biosimilars hit a setback as many states considered laws that would make it harder for pharmacists to substitute biosimilars for branded biologics, but many states have rejected those laws.

Though the Food and Drug Administration is bound under the Patient Protection and Affordable Care Act to create an abbreviated approval pathway for biosimilars similar to the one for generic drugs, it has not yet done so. In the meantime, some drug makers are seeking approval for biosimilars using the standard approval process. In July, Sandoz, the generics subsidiary of Novartis and a major supplier of biosimilars in Europe, announced the start of a phase-3 trial of a biosimilar version of Amgen’s Enbrel (etanercept), used to treat psoriasis and arthritis.

Specialty drugs

According to IMS, of the top 20 drug therapy classes as measured by spending in 2012, six of them were in specialty; but cancer drugs were the largest, accounting for $25.9 billion in spending. Specialty drugs are used to treat complex, chronic and serious health conditions, including cancers, chronic viral infections, autoimmune disorders and such rare illnesses as cystic fibrosis and lysosomal storage diseases. Many specialty drugs are biologics and very expensive, costing tens of thousands per year, and often available only through limited-distribution networks.

Specialty drugs still counted for a little more than a quarter of drug spending in 2012: Of the $325.8 billion spent on drugs, $89 billion, or 27.3%, went to specialty drugs. Non-specialty drugs still dwarf specialty in terms of overall spending, but the kicker is that specialty spending grew by 8.7%, while non-specialty spending fell by 4.2%.

Branded drugs

The dramatic rise in the use of generic drugs is happening because many branded drugs are losing patent protection and facing generic competition. Most notable of these in recent years was Pfizer’s cholesterol drug Lipitor (atorvastatin), which lost patent protection in November 2011 and faced competition from Ranbaxy Labs’ generic after years of being the world’s top-selling drug. Now, six drug makers have generic versions, according to the FDA.

But the rise in generics doesn’t mean branded drugs will go away. In fact, approvals of new drugs have reached levels not seen in more than a decade. In 2012, according to IMS, the FDA approved 39 new drugs, including nine primary-care drugs and 30 specialist drugs, meaning those prescribed by specialist doctors. In 2011, 34 drugs received approval, including 22 specialist drugs and 12 primary-care drugs. Such a large number of new drugs hasn’t been seen since 1998 and 1999, when the FDA approved 38 and 40 new drugs, respectively, notwithstanding a spike in 2004, when 36 were approved.

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