Seeking to end the current system that uses rebates to buy a place on payers' formularies, the biopharma industry continues to push for value-based and fixed-discount pricing as the way to lower the high cost of drugs in the U.S.

"Our industry agrees with the administration that the status quo is not working in the best interest of patients, and our health care system needs to change," Stephen Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), said on a media call Monday as he discussed the association's 130 pages of written comments on the Trump administration's proposed blueprint to reduce prescription drug prices.

"Delinking supply chain payments from the list price will be disruptive and requires our companies and others to adapt, but it is necessary to improve patient affordability," Ubl said. "We hope realigning these incentives will result in a greater shift toward value and lower costs for patients."

Part of that shift would involve determining how to assess value from a holistic perspective that looks at value to patients and not just what payers see as value. Such conversations would be more granular than rebate negotiations, Ubl said, which means transitioning to a value-based pricing model would create challenges for drug companies.

Recognizing how long it could take to transform the system, Ubl recommended a near-term solution that would require pharmacy benefit managers (PBMs) and payers to share the current rebates with patients.

So just how long would it take to switch to a new pricing model in the U.S.? Probably about 10 years, Dean Erhardt, president and CEO of D2 Consulting, told BioWorld. It could take up to five years just to hash out what the new model should look like and then another five years to implement it, Erhardt said.

Of course, that would depend on whether Congress gets on board with the administration's plan and if a future administration would remain committed to the change or decide to go in a different direction before a new model could be fully implemented. As it is, several in Congress have blasted the blueprint as a sell-out to industry.

Linked to Novartis contract

Late last week – on the eve of the close of the blueprint's public comment period – staff for four Democratic senators released a report casting shade on the president's plan by linking it to a $1.2 million contract Novartis AG signed last year with Essential Consultants, a firm owned by President Donald Trump's former personal attorney, Michael Cohen.

The Basel, Switzerland-based drug company said it entered the one-year agreement shortly after Trump took office in hopes of getting insight as to how the new administration might approach certain U.S. health care policy matters.

Even though Cohen was never a part of the administration, the staff for Sens. Ron Wyden (Ore.), Patty Murray (Wash.), Elizabeth Warren (Mass.) and Richard Blumenthal (Conn.) titled the report White House access for sale. One of the findings in the report was that Novartis' former CEO Joe Jimenez sent Cohen "a six-point plan to 'lower the cost of health care in the U.S., while protecting this crown jewel industry and maintaining U.S. leadership,'" and that some of those recommendations ended up in the blueprint.

Novartis, which has called the contract a mistake and of no value, clarified that Cohen contacted Jimenez and specifically asked for ideas on how to lower drug prices. Jimenez responded with a list of well-known ideas that had been discussed publicly by the industry. It included:

• fostering value/outcomes-based reimbursement;

• requiring insurers and PBMs to share rebates with patients;

• removing the prohibition in Medicare Part D against drug manufacturers providing financial assistance to beneficiaries;

• providing regulatory relief to the FDA approval process;

• providing further regulatory and financial incentives to accelerate approval of generic drugs;

• pursuing trade agreements to ensure other countries help shoulder the cost of drug innovation.

While the list didn't specifically address doing away with rebates, it's an idea that has gained traction with Health and Human Services Secretary Alex Azar and the biopharma industry. Part of the reason is the consolidation in the marketplace, Erhardt explained. Today, three PBMs control 75 percent of the market, while three wholesalers handle 90 percent of the drug volume and a handful of big companies control most of the pharmacies.

Since the list price of a drug must cover the cost and profit margin for everyone in that chain, as well as discounts mandated by government programs, the manufacturer must consider all of the rebates, fees and discounts it will have to pay when it sets a drug price. As much as 50 percent of a list price could be the PBM rebate if the drug is in a highly competitive therapeutic space, Erhardt said.

Not a lot of ideas

When it comes to drug prices, "we're all talking about the same thing . . . lower cost, lower cost, lower cost," Erhardt said. But, he noted, "there's not a lot of ideas coming out of pharma." And there's not much coming from those who simply want to point the finger at drug manufacturers.

Comparing drug pricing to an inflated balloon, Erhardt said the problem is that if the balloon is squeezed in one place, it bulges in another. His solution would be to lower the cost of getting a drug to market while maintaining efficacy and safety standards, extending the timeline for return on investment for life-saving specialty drugs and lowering the cost for all the middlemen by using a fee-for-service structure.

His proposal for extending the timeline would be to grant an extended patent for certain drugs, provided that the drug company agrees to a set pricing formula for both launch prices and future price increases. Such an extension would allow sponsors to recoup R&D costs over a longer period of time while avoiding the anticompetitive games being played now.

While Monday was the last day to comment on the blueprint, the administration has already taken some steps in its attempt to lower prescription drug prices, ranging from facilitating swifter generic and biosimilar approvals to shaming brand companies for gaming the system, banning pharmacy gag clauses in Medicare contracts and the Twitter shaming of Pfizer Inc. last week after it raised prices on dozens of drugs.

The latest move came Thursday when Centers for Medicare & Medicaid Services Administrator Seema Verma proposed a 3 percent cut in Medicare reimbursement for new Part B drugs. The drugs are currently reimbursed at wholesale acquisition cost (WAC) for the first two quarters following launch. After that, the average sales price is used. Under the proposal, the 3 percent cut would be applied to the WAC. Verma said the proposed cut is the first of many that are in the works.

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