PhRMA Perspective: Government Policies to Support Innovative Contracting Approaches CBI s PAP 2017 Michelle Drozd, Deputy Vice President Policy & Research Department October 12, 2016
Agenda Recent trends in the pharmaceutical market Why PhRMA supports the move toward a value-driven healthcare system Focus on innovative value-based contracting approaches public policy recommendations to support broader adoption
Medicines are Transforming the Treatment OF DEVASTATING DISEASES HEPATITIS C The leading cause of liver transplants and the reason liver cancer is on the rise is now curable in more than 90 percent of treated patients.* CANCER New therapies have contributed to a 23% decline in the cancer death rate since its peak in 1991. Today, 2 out of 3 people diagnosed with cancer survive at least 5 years.** November 16, 2015 Gov. Hogan s Cancer is in Remission, 30 Days After He Completed Chemo HIGH CHOLESTEROL America s biopharmaceutical companies are currently developing 190 medicines to treat heart disease, stroke and other cardiovascular diseases. New PCSK9 inhibitors have revolutionized high cholesterol treatment. Between 1991 and 2011, the death rate from heart disease dropped 46%.*** December 6, 2015 Former President Jimmy Carter Says He is Free of Cancer
We Are In A New Era of Medicine THEN NOW Medicines made of chemical compounds Medicines treat broad diseases Attack cancer with radiation and chemotherapy Medicines made from living cells Medicines targeted to specific patient based on genetic makeup Attack cancer using body s own immune system
Developing New Treatments and Cures IS A COMPLEX AND RISKY UNDERTAKING On average, it takes more than 10 years and $2.6B to research and develop a new medicine.* BETWEEN 1998 AND 2014 Unsuccessful Attempts 123 Alzheimer s Disease** 96 Melanoma*** 167 Lung Cancer*** Just 12% of drug candidates that enter clinical testing are approved for use by patients Successful Attempts 4 Alzheimer s Disease 7 Melanoma 10 Lung Cancer
$93 BILLION OF U.S. BRAND SALES are Projected to Face Generic Competition
MEDICINES PROVIDE CRITICAL SAVINGS to the U.S. Health Care System Estimated 10-Year savings to Medicare from improved adherence to congestive heart failure medications, 2013-2022* $22.4 billion $367 billion Costs avoided by 2050 if we develop a new medicine that delays the onset of Alzheimer s disease by just five years **
CASE STUDY As HIV/AIDS Treatment Improved SPENDING BECAME SUSTAINABLE
Medicines Account for a STABLE SHARE OF HEALTH CARE SPENDING
Competitive Marketplace Works to Control Costs Payers Negotiate Aggressively List price increases in 2015 were 12.4%, but net increases only 2.8% PBM data show, on average, companies keep just 67% of the list price Brand Competition On average, brands face brand competition in 2.3 years Competition from Lower-cost Generic Medicines The cost of a generic medicine can be 80-90% less Generic utilization rates are nearly 90%
The Blank Check Myth Payers Have Significant Leverage to Negotiate Rebates and Discounts PBM Market Share, by Total Equivalent Prescriptions Insurers and PBMs determine: FORMULARY if a medicine is covered TIER PLACEMENT patient cost sharing ACCESSIBILITY utilization management through prior authorization or fail first PROVIDER INCENTIVES preferred treatment guidelines and pathways NOTE: OptumRx and Catamaran merged in 2015. Their 2014 shares are shown combined.
BRAND MEDICINE NET PRICE GROWTH SLOWED IN 2015 as Discounts, Rebates Negotiated by Payers Rose Sharply
New Reality of Insurance Coverage of Medicines Increased use of deductibles In 2015, 46% of commercial health plans required a deductible for prescription drugs, double the number in 2012. Cost-sharing outpacing underlying medical costs From 2004-2014, enrollee payments increased 256% for deductibles and 107% for coinsurance. At the same time, insurer costs increased only 58%. Incentivized prescribing Health plans increasingly incentivize providers to follow set treatment pathways. Increase use of fail first and prior authorization requirements Utilization management more than doubled in employer plans from 2014 to 2016.
Patient Assistance Programs Can Play an Important Role in MAINTAINING PATIENT ACCESS TO MEDICINES
Economics of Medicines Have CHANGED MARKEDLY IN RECENT YEARS THE SCIENCE IS HARDER AND MORE COSTLY Researchers targeting more complex diseases Rise of personalized medicine Higher regulatory hurdles Longer, more complex clinical trials Genomics/molecular medicine are complex new frontiers Increased cost of R&D BIOPHARMACEUTICAL INNOVATION THE MARKET IS TOUGHER Slow uptake of new medicines/ rapid adoption of generics Eroding intellectual property (IP) protections Increased patient cost-sharing and coverage restrictions Providers increasingly accountable for cost of care Increase in required government rebates
Payment for Providers and Medicines Is Increasingly Value-Driven VALUE-BASED INSURANCE DESIGN CLINICAL PATHWAYS ACCOUNTABLE CARE ORGANIZATIONS PROVIDERS AT RISK FOR MEDICINE COSTS BUNDLED PAYMENTS VALUE ASSESSMENT FRAMEWORKS OUTCOME-BASED ARRANGEMENTS
Provider Accountability for Cost and Pathway Compliance Is Influencing Prescribing Decisions THEN NOW Patients in health plans that incentivize providers 37% to prescribe certain treatments * 2014 88% 2016 (Projected) Hospital participation in accountable care 6% organizations responsible for cost of care ** 2011 25% 2014 Medicare payments tied to alternative payment 0% models which include cost or quality incentives *** 2009 30% 2014 Commercial market payments where provider 6% is at-risk for cost of care **** 2013 21% 2014 3 Market Dynamics
Policies to Advance a Value-Driven Healthcare System Advance value assessment frameworks and data Improve capacity for quality measurement Expand value-based contracts and partnerships
PhRMA Is Supporting Development of Patient-centered Value Frameworks And Tools Comparative Clinical Effectiveness Cost Effectiveness Out of Pocket Costs Adherence Improving Factors Perspectives on VALUE VARY Toxicity Option Value Scientific Spillover Effect Productivity Faster Cures initiative to develop a patient perspective value framework Initiative on Value and Innovation to advance a sound value assessment framework PhRMA Foundation grant program to build capacity for rigorous, holistic value assessment
Outcomes Measurement Is Central To a Value-Based System Today, the majority of quality measures focus on process, not outcomes Clinical Quality Measures identified by the Core Measures Collaborative: Process Measures 42 Outcomes Measures 10 20
Patient Reported Outcomes: An Area Of Opportunity How do we build these into systems so they are being collected and reported upon regularly? Example Measure: Percentage of patients 18 years of age or older with major depression or dysthymia who demonstrated a response to treatment 12 months (+/- 30 days) after an index visit
What are Value-Based Contracts? Voluntary arrangements between manufacturers and other private entities (health plans, risk-bearing providers) in which the price or price-concession for a prescription medicine is linked to value as determined by the contracting entities 22
Specific Example 1: Outcomes-Based Contract A manufacturer agrees to vary the final price paid by a payer based on how well the drug improves outcomes for patients 120 100 80 60 40 20 0 Hypothetical Example 1 2 3 4 5 Health Plan List Price (WAC) Negotiated Price Outcomes-Based Price 23
Public Examples of Outcomes-Based Contracts Source: Modern Healthcare. Pay-for-performance drug pricing: Drugmakers asked to eat costs when products don t deliver. December 10, 2016. 24
Continued Interest in Outcomes-Based Contracts Source: Avalere. Health Plans Are Interested in Tying Drug Payments to Patient Outcomes. June 16, 2016. 25
Specific Example 2: Indication-Based Pricing A manufacturer agrees to be paid differently for different uses of its medicine Indication How Effective? (metric negotiated within contract) Example negotiated value /price Breast Cancer Highly $100 Lung Cancer Minimally $20 Actual price paid might be a blended price based on how much of the drug is expected to be used for each indication CVS and Express Scripts have both announced that they are implementing indication-based pricing for oncology 26
Value-Based Contracts Are Allowed Today Companies have found a way to engage in value-based contracts while complying with existing laws and regulations However, if regulations were modernized, there would be more of these contracts and the scale of the contracts would likely be greater 27
Need To Develop A Clear Path Forward
Recommendations to Enable Value-Based Contracts Modernize regulations that have the effect of limiting the number and scope of value-based contracts Price Reporting Price reporting rules need to be modernized to enable value-based contracting at a larger scale FDA regulations and guidance governing manufacturer communications Manufacturers need flexibility to communicate broadly about products with payers and population health decision makers Anti-Kickback Statute Value-based contracts should be clearly protected under the antikickback statute 29
Price Reporting Medicaid Best Price is the key example: 120 100 80 60 40 20 0 Hypothetical Example 1 2 3 4 5 Health Plan List Price (WAC) Negotiated Price Outcomes-Based Price Best Price? 30
Manufacturer Communications Despite recent guidance, manufacturers need greater flexibility to communicate about their products with payers and population health decision makers Drug and Device Manufacturer Communications With Payors, Formulary Committees, and Similar Entities Q. A.11. What are the Agency s policies regarding risk-sharing and other valuebased contracts between firms and payors? A. A.11. This guidance addresses the communication of HCEI to payors, which may include communication of HCEI in the course of discussions between firms and payors related to risk-sharing and other value-based contracts. This guidance, however, is not intended to address the terms of contracts between firms and payors. FDA does not regulate the terms of contracts between firms and payors. 31
Manufacturer Communications Specifically need greater flexibility to communicate about off-label uses Indication based pricing is a good example of the challenge Medically accepted off-label use? Indication How Effective? (metric negotiated within contract) Example negotiated value /price Breast Cancer Highly $100 Lung Cancer Minimally $20 32
Payers, Providers, and Patients Are Using Real World Data to Inform Treatment Choices Claims, Lab and Electronic Health Record Data 0100111011010110110010100101000001011010000101 0010111100101000101001111110001010101110111100 0000011010101110101010000011100111000111010111 Clinical Trial Data 1010000011100010111001101011010 1001010111100011101010110001011 1001000111010100010100111000110 DATA ANALYSIS Tools to inform choice of treatment Value based payment Delivery reforms to support better outcomes 33
Anti-Kickback Statute Broad, vague law that prohibits providing anything of value with the intent to influence purchase/use of items or services reimbursed by federal healthcare programs 34
Anti-Kickback Statute Exceptions and Safe Harbors To protect beneficial arrangements that otherwise might implicate the antikickback statute, policymakers created exceptions (legislative) and safe harbors (regulatory) The key safe harbors for the industry are over 20 years old There should be clear protection for value-based contracts and associated services under the anti-kickback statute