12:00 AM
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Jan 18, 2016
 |  BioCentury  |  Politics, Policy & Law

Pricing politics

How value-based pricing models could calm drug pricing politics

Presidential candidates from both parties are tapping into public anger over prescription drug prices and responding by repeating old proposals, like controlling prices or lowering FDA approval standards, that won't be enacted and probably wouldn't work if they were put into practice.

Out of the limelight and far from the political pontification, the renewed attention to drug prices is stimulating quieter discussions about new approaches to drug spending that might benefit patients, the healthcare system and developers of innovative medicines.

These include efforts to increase the transparency of drug prices, and, taking a cue from the private sector, proposals to reward innovation and reduce spending on lower-value products.

Patient groups and drug companies are also pushing for policies that would change health insurance plan designs in ways that would increase access to medicines by reducing out-of-pocket costs.

It will take time, and a calmer political environment, for new ideas to gain traction in Congress and at HHS. In the meantime, industry lobbyists, trade associations and pundits are gearing up for yet another round of vituperative drug pricing debates.

With the possible exception of acting to increase competition for off-patent drugs serving very small populations, the stalemated 114th Congress will not translate Americans' anger over drug prices into legislation (see "Unrealistic prescriptions").

The Obama White House has also run out of viable options for affecting drug prices.

The lack of immediate action in Washington does not mean that public perceptions of pharmaceutical profiteering are irrelevant, even in the short term.

The corrosive political environment has eroded congressional support for creating new incentives for developing drugs to meet public health needs, allowed CMS to implement a reference pricing scheme for biosimilars, and fertilized proposals to expand NIH's and FDA's missions to include cost containment (see "Compounding Prices").

Inaction in Washington is also prompting efforts to mandate drug price controls at the state level (see "Laboratories of democracy").

Moving to value

Mark McClellan, who served as FDA commissioner and CMS administrator in the George W. Bush administration, thinks there is an appetite in Washington for moving past the old arguments between supporters of price controls and those who say that unfettered pricing freedom is needed to support innovation.

The discussion is moving toward determining how to "integrate drugs into the big shift in healthcare to accountability payment models based on results," he told BioCentury. McClellan is director of the Duke-Robert J. Margolis, MD, Center for Health Policy at Duke University. He also serves on the board of Johnson & Johnson.

"It has been challenging and certainly not straightforward to implement those kinds of models for doctors and hospitals, and it won't be easy for drugs," McClellan said. "That doesn't mean it won't happen."

"There is a significant willingness in the drug industry to explore and try to implement these kinds of models," he added. He cited experiments with outcomes-based contracts.

McClellan pointed to Medicare Part B drug payments as a potential target for change.

The current system of paying physicians who administer drugs in outpatient settings the average sales price (ASP) plus 6% "is not tied to value in any meaningful way," he said.

One potential solution is to replace the Part B reimbursement system with something like Part D, McClellan said. Under Part D, private plans compete to offer drug benefits within broad parameters established by CMS. Plans use formularies to obtain discounts on drugs, and compete on the basis of drugs covered. They can use co-pays and other design characteristics to favor high-value and discourage utilization of lower-value drugs.

"We used to think that for very specialized drugs there is only one treatment for a patient, so you can't create a formulary model to create competition. That is not so true anymore," he said.

Value-based pricing models, which encompass a range of concepts that tie price to value, such as outcomes- and indication-based pricing, could align economic incentives with public health priorities, but McClellan noted they are not a magic bullet: "Just moving to value-based pricing won't solve the rise in spending."

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