Since literally the day the Pharmaceutical Research & Manufacturers of America reached an agreement to contribute $80 billion-ish to health care reform, we have been calling the "dollars for donuts" deal a real coup for industry. We haven't let anything deter us. Not published estimates that the true cost is well north of $80 billion over 10 years, nor a series of big charges announced during quarterly earnings reports after the reform law was enacted.
We are ready to start feeling vindicated.
Exhibit A: Novartis' new oral MS therapy Gilenya, which, Bloomberg reports, is being launched with one of the most ambitious patient copay support programs yet attempted in the industry. In our view, the strategy Novartis is pursuing perfectly illustrates the advantages of the PhRMA deal.
How so? Because it shows off perfectly the two key advantages of the reform deal: pharmaceutical companies maintain control of their launch prices while simultaneously consumers are sheltered from attempts to impose price sensitivity on them.
Those twin advantages, in our view, more than make up for the deeper rebates, new Medicare discounts, and market share fee imposed on industry as part of the deal.
According to the article, Gilenya will be priced at $48,000 per year (or about $4,000 per month). That is a hefty premium to the injectable beta interferons widely used for MS, more in line with the pricing of Biogen Idec's Tysabri, which is limited to patients sick enough to risk PML associated with the therapy.
Gilenya may cost more than Avonex, but it won't feel that way to patients: Novartis will be covering copays for all Gilenya users (except in states where that is not permitted), up to $800 per month.
Suppose every commercial managed care plan decides to slap an $800 (20%) copay on the brand? That will reduce Novartis' net price to something more in line with Avonex--while avoiding any meaningful cost-sharing on behalf of the patient that might provide an incentive to chose the older therapy.
That's pretty nifty, but what does it have to do with health care reform?
Well, at the risk of stating the obvious, Novartis can set its own price for Gilenya because there are no federal price setting mechanisms in the US. That easily could have been part of the reform law; after all, a breakthrough drug pricing board was one key element of the Clinton health care reform proposal two decades ago. So Novartis doesn't need to tie its price to existing therapies, benchmark to overseas prices, negotiate on QALYs or anything else.
True, the health care reform law ratchets up the one price control that already exists in the US (Medicaid rebates). But if manufacturers control launch prices, they can build in the deeper mandatory discounts to that program. And Medicaid remains completely free of consumer price sensitivity, since there are only de minimis copays for drugs.
In addition, health care reform limits the ability of plans to respond to Novartis' attempt to protect patients from high copays. One response by payors might be to set an extremely high copay to absorb the company's $800 per month and still create price sensitivity among consumers. Not gonna happen. Thanks to health care reform, there are limits on cost-sharing that health plans can impose.
Last but not least, there is the validation of Novartis' copay support plan for the centerpiece of the PhRMA deal, a 50% discount on brands in the Medicare Part D "donut hole." Copay support programs are prohibited in Medicare and other federal programs (except via bona fide, third-party charities). So Novartis' program isn't available under Part D.
Instead, the company will be required by law to offer a 50% discount for beneficiaries exposed to the donut hole.
Low-income Medicare beneficiaries already have essentially no copay under Part D, and the discount doesn't apply to them. But those who do face the Part D cost sharing will be exposed to much less out of pocket spending, thanks to the discount program and the already generous catastrophic coverage of Part D.
At $4,000 per month, Gilenya patients will blow through the donut hole quickly, but the discount program will save them about $1,800 while they do. The net patient cost will be on the order of $5,000 for a year's therapy--not cheap, but not unbearable for a highly effective oral MS drug.
And, given that Novartis is offering commercial patients $9,600 per year in copay support, it is hard to argue that the 50% donut hole discount is a hardship to the company. In fact, we are willing to bet that Novartis' only regret about that aspect of the deal is that the company can't give a 100% discount in the donut hole.
Of course, as health care reform phases in, the taxpayers will start to kick in additional coverage in the donut hole.
We said it before and we will say it again: there is a lot for Big Pharma to love in health care reform.
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