HHS proposal targets drug costs by banning rebates paid by drug makers to PBMs.

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Feb. 1, 2019


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The Best a Man Can Get: Another Thursday Rule—AKS Changes


Late Thursday afternoon, the Department of Health and Human Services (HHS) released the long-awaited proposed rule on changing the safe harbors for prescription drug rebates with the objective of curbing list price increases. More specifically, the rule would create a new safe harbor from the anti-kickback statute (AKS) for discounts offered to patients at the point of sale and for fixed-fee service arrangements between manufacturers and pharmacy benefit managers (PBMs). In addition, the rule proposes to exclude reductions in price offered by drug manufacturers to PBMs, Part D, and Medicaid managed care plans from the safe harbor’s definition of a “discount.” What follows is Xcenda’s initial impression of the rule based on a quick read and the accompanying fact sheet.

As background, the AKS is federal law that prohibits the exchange of anything of value with the intent to influence the purchase or use of products or services paid for by federal healthcare programs. “Safe harbors” are provisions specifying that certain conduct will be deemed not to violate a given rule—in this case, the AKS.

The proposed rule begins with a recognition that list prices are rising faster than net prices (list price minus rebates), also known as the “gross-to-net bubble.” Many manufacturers have felt pressure to increase list prices, but share discounts and rebates such that their drugs’ net prices have remained essentially flat. Beyond reviewing the Administration’s take on the current pharmaceutical payment dynamics, the rule highlights that Medicaid rebates are subject to inflation penalties and best price, but that any financial transactions between manufacturers and PBMs are excluded from the Medicaid rebate calculation, and the rebate is capped at 100% of the average manufacturer price. Financial transactions could include things like discounts, rebates, or service fees. In addition, these financial transactions between PBMs and manufacturers may not be transparent to plan sponsors.

The proposed rule looks to:

  • Exclude discounts to Part D plan sponsors and Medicaid managed care organizations (MCOs) from the existing discount safe harbor. This would apply to plan sponsors or to PBMs acting on behalf of plan sponsors. HHS is looking for feedback whether this should also apply to other programs like Medicare Part B fee-for-service and whether this proposal will impact beneficiary access to prescription drug products due to cost or formulary placement.
  • Create a safe harbor for price reductions at the point of sale under Part D or Medicaid MCOs that meet certain criteria. The hope is that manufacturers might be incentivized to provide point-of-sale rebates to beneficiaries. The rebate would have to be set in advance with plan sponsors, the sale could not involve a rebate unless the full value of the reduction is provided to the dispensing pharmacy, and the reduction must be 100% reflected in the price the pharmacy charges the beneficiary at the point of sale.
  • Establish a new safe harbor for certain flat-fee service payments made to PBMs by manufacturers for services the PBM provides to the manufacturer. The safe harbor would require a written contract, be of fair market value (not a % of sales), and not take into account volume or value of referrals.

Notably, the proposed rule does not impact value-based arrangements nor create the long-hoped-for safe harbor for value-based arrangements. Comments on the proposed rule are due 60 days after the proposal is scheduled to be posted in the Federal Register on February 6.


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Xcenda’s Vice President of Reimbursement and Policy Insights and Editor-in-Chief of Health Policy Weekly, Jennifer Snow, MPH, will deliver the state of the industry address titled, “The Evolving Healthcare Landscape and the Impacts on Patient Access and Affordability.” Learn more >

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Drug Pricing: You Were (Are?) Always on My Mind


On Tuesday, Senate and House of Representatives committees held hearings on drug pricing, with increasing bipartisan support for tackling drug costs and Medicare Part D reform starting to coalesce. Ranking leaders on both sides voiced frustration about “all talk” and no action.

In the House, members from each side of the aisle voiced interest in reducing the exclusivity period the Food and Drug Administration (FDA) allows for brand biologics, currently 12 years. During the Senate hearing, there was discussion about allowing Medicare to negotiate with manufacturers, an issue expected to be discussed at the Spring Medicare Payment Advisory Commission (MedPAC) meeting. Senate panel members also discussed the possibility of payers or state governments paying drug manufacturers a fee to provide certain medications such as those for hepatitis C, similar to Netflix or other companies with a flat-fee pricing model. Despite the divided Congress, either of these ideas might gain some traction.

The Administration’s International Pricing Index (IPI) potential model received some air time at both hearings, with one Republican House member expressing opposition to the proposed model because the countries selected have different approaches to drug pricing than the US market-based approach. Others in the House stayed mum on the model, while feedback from the Senate on the IPI model and changes to the protected-class drugs under Medicare Part D was mixed. What was agreed upon, though, is that the “Sweet 16[-year-old]” Medicare Part D needs a revamp.

In a statement made on the same day as the hearings, HHS Secretary Alex Azar noted that any ideas to fix the broken system are a possibility, as long as safety is not jeopardized and patients remain the primary focus. Since the HHS blueprint for lowering drug costs, there have been actions taken to decrease drug costs, including a jump in the number of FDA-approved generic drugs in 2018 compared to the year prior. Yet, in exchange for getting more generics on the market quickly, there is concern that Americans may be paying different costs due to lower quality of generic drugs manufactured in the US and internationally.

While generics are a way to keep costs low, with the House now in Democratic control, the FDA’s oversight of generic manufacturers may likely be examined. There have already been several bills introduced on innovative ways to reduce drug costs. The dynamics of the Democrat-led House and the Republican-led Senate, along with the 2020 elections in sight, could lead to more blurring of traditional party stances than we’ve seen in recent years, and the increasing focus across both aisles on drug prices may very well lead to the introduction of bipartisan legislature in the coming months.


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The Few. The Proud. The Transparent? Maine Releases Drug Pricing Report


Recently, Maine released its first annual prescription drug report as mandated by the state’s Drug Price Transparency Act, enacted last May. Given the focus on drug price transparency at a state level, the report may serve as a model for other states.

Under the new law, the state must identify:

  • The 25 most frequently prescribed drugs in the state
  • The 25 costliest drugs, determined by the total amount spent on those drugs
  • The 25 drugs with the highest year-over-year cost increases

For prescriptions filled between July 2016 and June 2017, an interactive dashboard is available by payer type (commercial, Medicaid, Medicare Advantage, and all payers) and by brand drugs and generics. A few key findings from the annual report suggest the costliest drugs vary by payer, brands have higher year-over-year increases, and 20% of the costliest drugs are for cancer treatments.

Maine is not alone in its quest for additional transparency. In 2016, Vermont became the first state to impose transparency legislation. Since then, over 100 similar bills have been introduced in most state legislatures. In 2019 alone, 16 similar transparency bills have been introduced, while the most recent bills were enacted last year in New Hampshire, Oregon, and Vermont.

In some states, the disclosure of substantially more sensitive content will be required. Oregon’s Transparency Act allows the state to request details on patient assistance programs, non-US drug prices, and the costs incurred to manufacture, distribute, and market drugs.     

We expect other states will follow Maine’s example and begin to publicly release information obtained under their transparency laws. Xcenda has been tracking the transparency trend and state requirements for pharmaceutical manufacturers and will continue to report on significant new state laws in Health Policy Weekly.


“Hey Kid, Catch!” Mass. Lobs an Idea for Price Negotiation


Last week, Massachusetts Governor Charlie Baker announced a new plan to restrain cost growth under MassHealth, the state’s Medicaid program. In the state’s fiscal 2020 budget proposal, released on Wednesday, the Baker Administration revealed plans to control drug spending and to publicize and “punish” pharmaceutical companies for “high-cost prescription drug” prices.

Under current legislation, Administration officials do not have the authority to force pharmaceutical companies to negotiate on prices, which they say limits the state’s ability to control spending in MassHealth. Governor Baker is seeking the legislative authority to directly negotiate for favorable prices with pharmaceutical manufacturers and establish a “target value” for specific drugs using a public rate-setting process. For drugs costing higher than $25,000 per person annually, manufacturers could be subject to review by the Health Policy Commission to justify its pricing in a public hearing, or face legal prosecutions from the Attorney General under state consumer protection laws.

Drug manufacturers and industry organizations, including the Massachusetts Biotechnology Council as well as PhRMA, oppose the governor’s budget proposal, stating that MassHealth already receives significant discounts on drugs and that the proposed plan could limit patient access to treatments.

The Baker Administration estimates the initiative would generate $70 million in savings in fiscal 2020. The governor’s plan to control spending on pharmaceuticals comes at a time when drug pricing is under national scrutiny and follows a broader trend at the federal and state level to control their drug costs and discourage high prices.


Dilly, Dilly. FDA Continues Quest to Incorporate RWE in Regulatory Decision Making


On Monday at the Bipartisan Policy Center’s briefing on real-world evidence (RWE), FDA Commissioner Scott Gottlieb delivered remarks on the agency’s new strategic framework to encourage use of RWE to support development of drugs and biologics. Previously, Commissioner Gottlieb’s office released a statement on the framework.

Gottlieb stated the FDA hopes that, by encouraging use of RWE, patients and providers could obtain “important answers much sooner by potentially identifying a broader range of safety signals more quickly,” with the overall goal to take a collaborative approach, engaging with multiple stakeholders and

“…[promoting] more transparent standards for curating data, interoperability, and RWE generation [to] help ensure that every American patient, no matter where they live, benefits from the full potential of these technologies to make our healthcare system safer, smarter, and move patient focused….”

In 2019, the FDA plans to initiate 4 additional activities involving RWE generation:

  1. Supporting digital health technology integration into clinical trials
  2. Bringing clinical trials to patients through digital health technology
  3. Using the FDA’s Information Exchange and Data Transformation (INFORMED) to assess the impact of labeling changes in approved products
  4. Developing regulatory science tools with software-based machine learning to guide more efficient development programs

There was also a specific nod to the oncology therapeutic space. The FDA’s Oncology Center of Excellence plans to work with stakeholders to find ways to assess tumor mutations and identify patients who are more likely to respond to treatment, use RWE as endpoints in post-marketing studies, and determine if, in rarer cancers, the same control arms can be used between different clinical trials with similar patient populations.

Moving forward, it will be interesting to see how things evolve. RWE use can be valuable because drugs are often used in post-approval settings that vary from clinical trials. Therefore, utilizing RWE may improve the timeliness and effectiveness of safety post-market evaluations, perhaps even possibly eliminating the need for lengthy and costly post-marketing studies.


Where’s the Beef? Pharmacy Group Criticizes PBMs’ Spread Pricing


A regional pharmacists group, Pharmacists Society of the State of New York (PSSNY), recently released a report analyzing the practice of “spread pricing.” Spread transactions in NY have been attracting attention. The analysis found that, in 2017, PBMs reimbursed pharmacies an average of $10.85 per generic drug prescription, whereas—by comparison—private health plans that cover Medicaid patients reported a cost of $14.34 per prescription, a 32% markup by the PBMs. In 2017, NY Medicaid managed care (NYMMC) was estimated to have spent nearly $1.3 billion on generic drugs, the highest amount compared to all other state managed care programs.

A major takeaway is that PBMs are cutting pharmacy reimbursements on the more expensive “overcharged generics” (where state paid $10 or more above national average drug acquisition costs [NADAC]) and collecting a disproportionate amount of spread than they pass through to MCOs and the state. PBMs have cut reimbursements on the more mature “undercharged generics” (where state paid $10 or less above NADAC) in late 2017, collecting spread from this group of drugs as well. In Q1 2018, more than 90% of generic oral solid prescriptions fell into the undercharged group, showing that PBMs are setting very low prices for the state compared to market price (including pharmacy cost to dispense) for most generics.

Disagreeing with the report’s root-cause analysis, the Pharmaceutical Care Management Association (PCMA), in a statement to FierceHealthcare, blamed the design of the NY Medicaid program for overpaying pharmacies. They claim that the report has limitations due to lack of publicly available claim-level data for all NYMMC claims and that a comprehensive audit commissioned by an auditing authority will be able to evaluate more precisely.

This report and response by PCMA represents the latest dispute in the prescription drug supply and financing chain over which party bears greater responsibility for increasing drug costs. The stakes are enormous, given the revenue at play, the public’s sense of outrage, and the itchy trigger finger of state and federal governments to do “something.”


Information Buffet (AKA, Other Stuff That Caught Our Attention)


We kept running into stories we wanted to bring to your attention, so here’s a quick hit list of other news we thought you should know:


“Don’t kiss or snuggle hedgehogs because this can spread salmonella germs to your face and mouth and make you sick.”

The Centers for Disease Control and Prevention (CDC) and public health officials in several states are investigating a multistate outbreak of salmonella infections linked to contact with pet hedgehogs.

Source: “Investigation Notice—Outbreak of Salmonella Infections Linked to Pet Hedgehogs,” CDC, January 26





61% of surveyed physicians thought off-label promotion to physicians would lead to an increase in the prescribing of drugs with no meaningful benefit to patients.

Source: “Physicians’ Perspectives on FDA Approval Standards and Off-Label Drug Marketing,” JAMA Internal Medicine, January 22


CBI PAP 2019: 20th Annual Patient Assistance & Access Programs

March 4–6 | Baltimore, MD
Join Xcenda and Lash Group at the upcoming CBI PAP 2019 Conference in Baltimore, MD March 4–6. Xcenda’s Vice President of Reimbursement and Policy Insights and Editor-in-Chief of Health Policy Weekly, Jennifer Snow, MPH, will deliver the state of the industry address titled, “The Evolving Healthcare Landscape and the Impacts on Patient Access and Affordability.” Lash Group President Tommy Bramley, PhD, will deliver the conference’s keynote on “Empathy and Expertise—Evolving Patient Support Programs in the Digital Age.” Learn more


Count on Health Policy Weekly for an at-a-glance view of legislative and regulatory developments and news that impacts the healthcare industry.


Jennifer Snow
Vice President,
Reimbursement and
Policy Insights,

Scott Shields
Associate Director,
Health Policy



Amy Grogg, PharmD
Senior Vice President | Commercialization Solutions | AmerisourceBergen Corporation

Kristine Flemister, PharmD
President | Xcenda

Tommy Bramley, PhD, RPh
President | Lash Group

Stacie Heller
Vice President | Government Policy | AmerisourceBergen Corporation

Rita Norton
Senior Vice President | Government and Public Policy | AmerisourceBergen Corporation

Ana Stojanovska
Vice President | Commercial Consulting | Xcenda


Isabell Kang | Jenna Kappel | Stewart Kaufman | Vasantha Kolluri | Reeya Patel | Scott Shields | Stephen Wilson


Laurie Kozbelt | Ellen Olson


Feb. 1, 2019


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