“Authorized” Generics Will Owe Brand Discounts in Donut Hole, CMS Says

The Centers for Medicare & Medicaid Services is facing a bit of pressure to close a potential “loophole” in its implementation of the donut hole discount program. CMS’ draft policy for the program in 2011 basically says there is no penalty if manufacturers fail to offer the “mandatory” 50% discount.

As we explain here, we suspect this will end up being a tempest in a teapot, and those discounts will be mandatory after all.

But was also noticed another loophole that CMS acted to cut off before it began: the implementation policy treats “authorized” generics as brand name drugs for purposes of the discount program. The agency’s definition of covered drugs includes “authorized generics,” defined as a drug that “is marketed, sold, or distributed directly or indirectly to retail class of trade under a different labeling, packaging (other than repackaging as the listed drug in blister packs, unit doses, or similar packaging for use in institutions), product code, labeler code, trade name, or trade mark than the listed drug.”

How big a deal is that? Well, consider the list of “authorized generic” launches likely for 2011: Seroquel, Zyprexa, Plavix, Lipitor…

That’s a lot of dough in the donut hole.

Donut Hole Discount Program Begins Jan. 1—Or Does It?

There’s a bit of buzz in Washington, DC about a “loophole” in the brand name pharmaceutical industry’s 50% discount for Medicare beneficiaries in the coverage gap (better known as the “donut hole”).

The discount is supposed to begin Jan. 1, offering some more-or-less immediate relief for the elderly and disabled Medicare beneficiaries who run up high prescription drug costs—a fact highlighted by the White House at every opportunity in selling the reform law.

Except that—um—it might not.

As we point out in “The Pink Sheet,” the Centers for Medicare & Medicaid Services issued a proposal for implementing the discount program last week, and the agency’s initial position is that there is no practical way to punish companies who fail to offer the discount next year. The bottom line, CMS says, is that Part D formularies are already submitted, while the 50% discount agreements won’t be done before this summer at the earliest. So it isn’t possible to exclude products that aren’t covered by the rebate from the program in 2011.

As CMS puts it: "This could mean that some of the brand-name drugs on plan formularies will not be discounted in the coverage gap unless all manufacturers of Part D drugs enter into agreements for 2011 by our deadline in 2010. If this situation occurs, CMS will provide clear public guidance on why discounts are not available for some formulary brand name drugs. Only applicable drugs with labeler codes identified by CMS as having manufacturer discount agreements in place for 2011 shall be discounted in 2011."

In other words, the “mandatory” discount is basically optional.

Okay, this has all the makings of a tempest in a teapot. After all, the 50% donut hole discount was the pharmaceutical industry’s idea, the centerpiece of the “deal” struck by the Pharmaceutical Research & Manufacturers of America on health reform last year.

Surely no company would decline to offer the discount—and risk the wrath of Congress and the White House that would ensue?

On the other hand, not every pharma company is a member of PhRMA. In fact, most are not. And wouldn’t a CEO that really believes the discount will adversely affect his company’s business have an obligation to refuse to sign an agreement?

Maybe. But now that the buzz has begun, we expect this matter to be resolved. One way or another, we expect CMS will find a way to make sure that every pharmaceutical company sees the discount as mandatory after all. It is just a draft policy, after all.

So we expect this “loophole” to be closed and quick. In our next post, though, we point out a different “loophole” that CMS anticipated and cut off before it began: “authorized” generics will be subject to the 50% discount.

“Reflections By a Guy Who is Headed Out of Town”: The Bush Legacy for Biopharma

When we got our “exclusive” invitation to cover President Bush discussing his legacy in domestic policy from the American Enterprise Institute, we were flattered that the White House has finally recognized the importance of the IN VIVO Blog in the world. Sam Donaldson, Ted Koppel and Wolf Blitzer—who cares what they think. Its about time they started courting the real thought leaders in Washington.

Sure, our skeptical colleagues in the Fourth Estate may have suggested alternative theories. Like: “It’s tough getting any press to cover a lame duck President, especially one this unpopular.” Or “Everyone who matters is in Chicago for the Obama press conference.” Or “I knew FDC-Windhover’s strict no-shoe-tossing policy would pay off.” Or “Is he still President?”

But we weren’t about to let envious colleagues stop us from answering the call of our President. So we set off to the Mayflower hotel downtown, allowed a very polite Secret Service agent to pat us down while a German Shepherd sniffed our laptop bag (thank goodness it wasn’t the other way around!) and dutifully took our seats to hear what lessons the President has learned that would be of interest to our loyal biopharma readers.

After all—all kidding aside—President Bush’s legacy includes signing the two most important laws affecting the pharmaceutical industry in a generation: The FDA Amendments Act of 2007 and the Medicare Modernization Act of 2003.

Not surprisingly, Bush didn’t say a word about the more recent bill. FDAAA was never embraced by the administration, since it was ultimately packaged by Congress as a rebuke to the management of FDA under Bush. But it signals nothing less than a new era in drug regulation, and that alone will ensure that the Bush legacy matters for years to come.

The President did discuss the Medicare law, and especially the Part D prescription drug benefit that was its centerpiece. Bush’s reflections on the legislative debate and its ultimate outcome underscore why many in the biopharma sector will miss him when he’s gone—and why even some who won’t may ultimately owe him a huge debt of gratitude during the upcoming healthcare debate.

Bush explicitly declined to offer advice or policy prescriptions for the incoming administration, joking that his appearance was nothing more than “reflections by a guy who is headed out of town.”

But his analysis of the key lessons of Part D—as an alternative to price controls, as an endorsement of market-based health care, as proof of the power of competition, choice and consumerism in health care—has obvious resonance for the upcoming health care reform debate. (You can read more about Bush’s thoughts on Part D in “The Pink Sheet” DAILY, and on how Part D may play in the health care reform debate in an upcoming issue of The RPM Report.)

There were plenty of other things Bush said that resonate as well, things that weren’t explicitly relevant to biopharma companies—but easily could have been.

Such as:

“No matter how tough the issue might look, if we require a solution, go after it. The job of the President is to tackle the problem.” (On immigration reform, not health care reform…)

“These aren’t normal circumstances. That’s the problem.” (On the financial bailout, not biotech financing...)

“It is going to be harder to attract good people to government service if their
integrity is challenged at every level.” (On judicial nominees, not FDA Commissioner Andy von Eschenbach....)

“Technology will help change our habits.” (On hybrid cars, not personalized medicine....)

“Part of the problem is…that the regulatory scheme is such that people would risk a lot of capital and then have to seek permission for final approval late in the process
and would find themselves tied up.” (On nuclear power plants, not drug approvals…)

Deal of the Year Nominee: Over-Protecting Therapeutic Classes in Medicare

Ah, awards season. Why should film critics have all the fun? And voting! It's not just for presidential elections. This year your IN VIVO Blog team is nominating a handful of alliances, acquisitions, financings, regulatory negotiations and legislative compromises in our First Annual DOTY competition. And then you, dear readers, will vote (early and often, we hope) for the winner. Imaginary federal and international biopharmaceutical statutes prohibit us from awarding a monetary prize. But our winners, when they die, on their deathbeds, they will receive total consciousness. So they've got that going for them, which is nice.

When the Medicare outpatient prescription drug benefit began just three years ago (seems longer, doesn’t it?), the story was all about the glitches encountered by beneficiaries, pharmacists, governments (state and federal), and insurers as they all tried to learn together, in real time, how to make stand-alone prescription drug insurance work.

For Forest Labs, though, there was a much bigger glitch. It happened when the Centers for Medicare & Medicaid Services told plans in 2005 that they must cover essentially all drugs in a handful of big therapeutic categories: the now famous six protected classes—antidepressants, antipsychotics, anti-epileptics, anti-neoplastics, immunosuppressants and HIV therapies. The Medicare agency concluded (after hearing loud and clear from patient organizations relying on those medicines) that the need to protect access among vulnerable benficiaries trumped the plans’ need to be able to exclude medicines in an effort to extract deeper discounts for manufacturers.

That was good news, of course, for companies with products in those classes. Except for Forest. Because the Medicare agency made one prominent exception: there was no need for plans to cover Forest’s antidepressant brand Lexapro (escitalopram), the agency said, so long as they covered Forest’s closely related (and off patent) Celexa (citalopram).

In essence, the federal government told plans that Lexapro is equivalent to Celexa, and so plans could meet the agency’s goal—ensuring patients have access to all options in the six critical classes—without having to cover Forest’s biggest product.

That decision took Forest by surprise, to put it mildly. Forest was ultimately able to get the language addressing Lexapro removed from CMS’ policy, and it also managed to get Lexapro on most plan formularies—but at the cost of deeper discounts than it anticipated.

That history explains why a seemingly insignificant clause slipped into a hard-fought compromise on Medicare funding in 2008 may turn out to be the biggest deal of the year.

When Congress “codified” the CMS policy over the summer, it sounded like no big deal. It sounded like a simple matter of elevating the six protected classes from an ad-hoc principle established by administrative fiat to a formal, statutory requirement. No change from the status quo, right?

Well, then people actually read the provision of the law “codifying” the policy. It did no such thing.

Instead of adopting CMS’ language stipulating the classes, Congress instead gave CMS the authority to define any classes as protected. And it also made it much more onerous for CMS to create exceptions to those protections within classes. Call it the Forest clause.

That is a very big deal indeed.

There is nothing to stop the next CMS Administrator from expanding the list to include, say, Alzheimer’s therapies as protected classes. Plenty of people wonder why—if the goal is to protect vulnerable patient populations—AD therapies weren’t on the list in the first place. And then, why not antidiabetics? Surely we shouldn’t disrupt treatment in that class, when the consequences of uncontrolled illness can be so severe and costly. Or rheumatoid arthritis, where decisions by Part D plans have a direct affect on Part D spending. You see where this is headed, right?

Sure, there is no reason to think that the people who created the six protected classes in the first place would expand the list just because Congress says they can. After all, they invented the list and easily could have decided to add more at any time.

But those people won’t be calling the shots anymore, not after January 20. The next CMS Administrator could, with the stroke of a pen, add to the list of protected classes--and be cheered for it by the Democratic leadership of Congress.

No wonder managed care plans are concerned. They weren’t happy about CMS’ policy in the first place, since it basically takes away their leverage to negotiate better prices on some pretty big line items. But they really aren’t happy about the potential for that list to expand, potentially ad infinitum.

And, while manufacturers may feel differently, they better not gloat.

That's because Medicare Part D is itself the product of one of the more unlikely deals of all time. It came about in large part because pharmaceutical manufacturers and their long-time political adversaries, the managed care sector, were able to join forces in support of a never-before-tried concept: stand-alone prescription drug insurance.

That deal helped generate enough support in Congress—just barely—to push the Part D program through in 2003.

And, as the managed care industry is busily reminding Big Pharma, that program will only work if plans are able to do what politicians historically cannot: deny access to medicines if they need to in order to contain costs. The alternative? A program that allows broader access to medicines—but with more direct government intervention in prices.

So when the new Congress turns to price intervention proposals in 2009, remember the deal struck in 2008—a seemingly noncontroversial item slipped into a hard fought compromise bill. If that small deal helps break up the coalition that made Part D possible, that would be a very big deal indeed.

Pharma Must "Continue to Take Chances" In Policy World: Merck VP's Parting Advice

We recently had the chance to talk at length with Merck VP-global public policy Ian Spatz (right, not actual size) about the challenges and opportunities facing industry amid the changes in Washington.

We've always found him to be a very thoughtful analyst of the policy climate, and a very forward thinking advocate for ways to improve that environment. (That's why, among other things, he is a regular on the program at FDC-Windhover's FDA-CMS Summit, and will be speaking there on Friday.)

Come January, Spatz will be leaving Merck after 15 years. He hasn't announced his future plans, but he expects to remain involved in health policy. We'll be publishing a full transcript of the interview in The RPM Report soon, but we wanted to share with you some of his thoughts about his time at Merck:

Q: You have been with Merck for 15 years. What are you proudest of, having been associated with Merck over that time? Is there something that stands out?

Ian Spatz: I've been very proud of all the time I've spent here. Merck's a great company, has great people, has done amazing things and will continue to do amazing things. And in terms of my own time here, I would pull out the about five years of work towards encouraging passage of the Medicare prescription drug benefit. It certainly was the most difficult challenge. I had enormous support from my colleagues and from everyone at Merck. It was a unique time when we had the opportunity to work with Medco and learn about pharmaceutical benefit management, and it was enormously gratifying to see legislation passed and be successful and to see so many seniors be able to get prescription drug coverage, including my own mother. So it was both professionally and personally very satisfying.

Q: You also were with Merck through the whole Vioxx period. What if any lessons are there from that experience for Merck or the industry as a whole?

Spatz: Vioxx was certainly the most difficult experience during my time at Merck. There's a little bit of distance between now and when that happened, but there's still more distance needed to fully reflect on it.

The lesson that we took away from that time was that we – at least, speaking personally – had overestimated the level of trust that existed out there in our science and in our company. The fact that people could believe the things that many of them did believe about Merck after that was very difficult for me to accept, given the people who I know at Merck who were involved in Vioxx, who made decisions related to it, knowing the kind of commitment that they've had and have to patient safety and patient care. That was the most difficult thing, to see that people could believe things about us that I know are not true.

Q: Knowing that you'll be leaving Merck in January, what things do you hope to see the company do in the future? What is your advice to your colleagues as you move on to bigger and better things?

Spatz: My area of expertise has not been science, marketing, manufacturing, or any of those areas. It's been public policy. So my advice– if it's valuable at all, it's valuable in that area. My advice is to continue to take chances, to continue to engage not only with our friends, but our critics, to continue to develop proposals and to study those proposals and to debate those proposals that are going to address the very real problems that exist out there for patients and for the pharmaceutical industry.

To the extent that there are challenges and controversies, my advice is to continue to work to address those. We've learned a long time ago, it's just not simply enough to try to explain them or tell people they're not true. When there are legitimate concerns out there, we need to do something about them, and that's been what I've tried to encourage here at Merck.

That's the advice I'll give, and I really believe that that will continue to be the company's philosophy.

Was Tom Scully Right About Nexium?

You probably remember when Tom Scully was the head of the Centers for Medicare and Medicaid Services.

If you do, you may also remember his rants about successor products companies create to offset generic competition for one of their brands. He was particularly concerned about the amount of taxpayer money being spent to cover AstraZeneca’s Nexium. The company’s original proton pump inhibitor omeprazole (Prilosec) works just as well, he maintained – and extremely cheap omeprazole generics are available, as are over-the-counter versions.

Here’s a sample of what Scully said about Nexium back in 2003 and 2004:

• "The fact is, Nexium is Prilosec. It is the same drug. It is a mirror compound. It is exactly the same."
• "You should be embarrassed if you prescribe Nexium because you're screwing the patients and you're screwing taxpayers.”
• “Nexium is a game that is being played on the people who are paying for drugs, and it's not right."

Get the picture? Mr. Scully isn’t a fan of Nexium, at least when it comes to the government paying for it.

Well, now CMS has released some of its findings from an examination of Part D drug claims data from 2006 and 2007, and guess what? It looks like Tom had a good reason to be concerned. Nexium is the fourth largest drug in the program by cost. Only Lipitor, Plavix and Zyprexa have a larger claim to Part D dollars.

CMS says gastrointestinal drugs accounted for 8.7% of overall drug costs, and presumably Nexium is a big chunk of that, given its fourth-place ranking. TAP’s PPI Prevacid also contributed significantly to spending in the category, coming in seventh overall.

Interestingly, proton pump inhibitors seem to be the drugs Part D beneficiaries think they can do without when they reach the donut hole and have to cover the full cost of the drugs themselves.

A recent study by the Kaiser Family Foundation found that, on average across eight drug categories, 15 percent of Part D enrollees stopped taking their medicines when they fell into the donut hole, but the highest rate of discontinuation was for PPIs, at 20 percent.The study said, “Because there is some concern that PPIs are overused for more routine gastrointestinal conditions, terminating medication use might not pose serious health risks in some cases.”

There’s been a lot of pushing by the plans to use low-cost drugs by having lower copays for generics than brands. One problem with differential copays in Part D is that many of those enrolled in the program are eligible for a low-income subsidy from the government, and they are protected from the higher copays for brands. As a result, they don’t respond to the financial incentives provided by differential copays to take the cheaper drug.

Plans are starting to respond to that by putting stricter drug utilization management rules, like prior authorization and step therapy, in place for those beneficiaries. The biggest Part D plan sponsor, UnitedHealth, is taking that route, as detailed in a recent article in “The Pink Sheet.”

So what would Tom say about this data? I asked him, and he was nice enough to provide a few thoughts by e-mail. First, he wished to say that he has no grudge with Nexium per se, and if someone wants to pay for it in a private plan, that’s just fine with him, but “no government insurer should pay for Nexium as an added cost to Prilosec. … My last year at CMS I think Medicaid spent $350 M on Nexium – absolutely insane.”

And, not to rub it in or anything, but he did have this final reaction to all the money being spent on Nexium in Part D: “I told you so.”--Scott Steinke

image by flickr user shoothead used under a creative commons license

The Longs And Shorts Of CVS Caremark

The Medicare Part D program is paying an interesting dividend for some the big pharmacy benefit management companies: they are now protected from short selling under new rules adopted by the Securties & Exchange Commission to combat the meltdown in the financial markets.

It turns out that CVS Caremark, Medco Health and Express Scripts qualify as “financial institutions” under those rules (at least as interpreted by the New York Stock Exchange) and so shorting the shares are prohibited until October 17, or longer if SEC extends the ban again.

Why? Because all three operate insurance divisions, primarily as part of the Medicare Part D stand-alone drug insurance offerings.

CVS, Medco and Express Scripts are not among the banks, big insurers and hedge funds initially protected by the SEC order. Oh yes, its true—one hedge fund was indeed protected from the short selling it practices…though it has since asked for those protections to be lifted.

But the SEC also set up a process for the stock exchanges to expand the list, and the big PBMs requested protection, citing their insurance divisions. So first Medco then CVS were added to the NYSE-protected list. (Express Scripts trades on NASDAQ and is protected via that exchange's procedures to implement the rule.)

Yep, that’s right. CVS turns out to be a fragile financial giant, right alongside Fannie Mae or the late lamented Lehman Brothers. As Reuters put it best, that notion certainly raised a lot of eyebrows among investors who are already critical of the notion that short-selling is somehow contributing to the financial crisis.

Nevertheless, the protection may give CVS a small added advantage in the context of a bidding war against Walgreen’s to purchase the West Coast retailer Longs Drugs. The deal, as we reported in “The Pink Sheet,” really focuses on the bricks-and-mortar pharmacy business in California. Walgreen’s is not on the protected list. (It does have a PBM division of its own, but it does not sponsor its own stand-alone insurance.)

Longs is also a relatively large Part D sponsor, through its Rx America division. The company, however, is also not on the protected list—though with a bidding war under way to acquire it, who would short it anyway?

So in the bidding for Longs, one party (CVS) has less to worry about when it comes to maintaining its own share price than the other (Walgreen’s). That’s not a decisive edge, certainly, but on the whole we’d rather be in CVS’ position. (In the unprecedentedly volatile market of the past week, it is simply impossible to determine whether the protections on CVS have made any difference versus Walgreens.)

In one sense it is only fair that CVS, Medco and Express Scripts are getting a little something back for jumping into Part D. As it happens, none of the big three PBMs was overly eager to dive into the new market—to them, it posed at least as much of a threat as an opportunity, since they have not historically been willing to be at-risk insurance companies, nor were they eager to see their lucrative retiree drug insurance products poached by new entrants in Part D. (You can read more about the mixed emotions of PBMs towards Part D here.)

On the other hand, the seeming absurdity of classifying CVS as a “financial” institution may further encourage a rethinking of the Part D model.

Both presidential candidates have big objections to the drug insurance program—albeit from radically different perspectives. But we’re betting that the current collapse of confidence on Wall Street—and in Wall Street—is going to give an even stronger hand to those who want Medicare managed more tightly by the federal government.

Burst Bubbles and Bailouts: Big Pharma and the Financial Mess

In Washington, there is a distinct undercurrent of gloating when it comes to the Panic of 2008.

No one is happy, exactly, about the incredible turmoil in the financial markets, nor can anyone be said to be thrilled that taxpayers will be putting up something like $700 billion to rescue Wall Street.

But in a town filled with people who work for the federal government, there is an undeniable sense of vindication. See, we are needed after all. Free markets don't take care of themselves. Sometimes you just have to turn to Uncle Sam to see you through.

Or, as Washington Post columnist Steve Perlstein puts it, "It will no longer be an easy applause line for a politician to declare that government is the problem and that markets always know better than regulators and politicians."

We've already pointed out that it may be naive of industry to think that the financial storm will spare it any damage, since the biotech industry is, in a sense, nothing more than an amazingly complex form of derivative finanicial instrument: a way for investors to tap indirectly into the immense profits of Big Pharma blockbusters.

We've also written about Big Pharma's own bubble problem: the fact that the industry is built to support an unprecedented--and apparently unsustainable--spike in approval of large, primary care brands in the mid-1990s, generating a need for infrastructure--and expectations for growth--that now present a terrifying cliff at the end of this decade. If Merrill Lynch can vanish, why can't Pfizer?

But it is not just loss of confidence in creative financing or in the stability of mega-cap companies that is a threat: there is also the renewed confidence in central government interventions in the economy to think about.

If the government must intervene to save Wall Street itself, then why can't it intervene elsewhere in the economy--like, for instance, in setting the price of life saving medicines?

As tough as it has been to be a Big Pharma company the last three years, it would have been even tougher without the Medicare Part D program, a massive new insurance program to subsidize the purchase of those previously mentioned blockbusters--and one that relies on the principle that free market competition is the ultimate path to efficient, economically effective health care.

This is the program that famously prohibits the federal government from "interfering" in the negotiation of prices between the private drug companies and the private drug insurance plans--and at the same time commits the public to pay whatever the price ends up being.

Its fair to say that the events of the past week will strengthen the hand of those who don't like the Part D model. After all, if the free markets don't work for mutual funds, will anyone believe that they work for Medicare?

Count both Presidential candidates among those with strong misgivings about the Part D program, albeit from very different perspectives. Democrat Barack Obama thinks it relies too much on private contractors, and favors given the government more power to act--especially when it comes to the price paid for medicines. Republican John McCain objects to the program for the opposite reason, saying that taxpayer funding shouldn't be commited to a new healthcare entitlement. But he too wants the government to get a better deal on any medicines it ends up paying for.

Obama has already begun hammering McCain for his free market approach to health care in general. Expect that to continue until election day.

But no matter who is victorious in November, the events of September will ripple into the pharmaceutical sector. After all, if Washington can set the price for AIG or Fannie Mae, surely it can decide how much Avastin is worth...

Taking Apart Part D: A Preview of 2009

That was fast.

House Oversight and Government Reform Committee Chairman Henry Waxman (D-Calif.) didn't wait long to call out specific pharmaceutical companies at a major hearing on the Medicare Part D drug program.

Early in his opening statement, Waxman cited Johnson & Johnson and Bristol-Myers Squibb for the windfall profits they have made off the Part D program due to the switch of dual-eligible Medicaid patients over to Medicare.

"Johnson and Johnson earned over $500 million in additional profits, much of it from just one drug, the anti-psychotic medication Risperdal. Bristol Myers earned a windfall of almost $400 million, thanks to higher prices for the stroke medication Plavix," Waxman alleged.

He continued: "This is an enormous giveaway. And it has absolutely no justification. The drug companies are making the same drugs. They are being used by the same beneficiaries. Yet because the drugs are being bought through Medicare Part D instead of Medicaid, the prices paid by the taxpayers have ballooned by billions of dollars."

This was after he said the government was paying 30% more for the 6 million dual eligibles under Medicare than they paid under Medicaid.

Ranking Virginia Republican Tom Davis quickly noted that there are many drugs not available under Medicaid because of more stringent pharmacy rules. Gerard Anderson, director of the Center for Hospital Finance and Management, Bloomberg School of Public Health, Johns Hopkins University, disagreed, saying the Medicaid formulary is quite open, with a wide breadth of offerings. Davis didn't let up, pointing out that you can't fill as many prescriptions at the pharmacy under Medicaid.

Stephen Schondelmeyer, head of the Department of Pharmaceutical Care and Health Systems, University of Minnesota, waded into the numbers. States spent $43 billion in Medicaid spending in 2005. That number was cut almost in half in 2006 to $21 billion after the duals were switched to Medicare, so money was switched out of the state system, according to Schondelmeyer.

He noted that 18% to 19% of that Medicaid spending came back to states in the form of rebates. But the numbers are actually quite higher, he said. Individual states can negotiate further rebates under a supplemental law and many states are successful in getting larger rebates. Schondelmeyer cited rebates of 20%-21% between 2000-2003; 24% in 2004; and 28.8% in 2005. The University of Minnesota researcher said the Centers for Medicare and Medicaid Services has not released data for 2006 and 2007, but he estimates the rebates come in at 30% to 31%. A report released by Waxman late last year showed Part D was generating rebates of about 8%. A new report by the majority staff released today shows Part D rebates for 2007 had gone up to 14%, but still well below what the states can secure. To read the report, click here. There's a lot more to delve into.

In other words, even at 14%, states are able to negotiate more than double the rebates the government is getting under Part D.

Anderson made three major recommendations: 1) Greater Part D price transparency; 2) Drug pricing data should be readily available and accessible; and 3) All government agencies should be paying the same price for drugs.

Hmmmm. The drug and insurance industries aren't faring too well in the first part of this hearing. So what's the take home message? Expect even more of these types of hearings in 2009 and get to know the names of the witnesses who are testifying today. To see the list, click here. It's almost identical to the witness list at a Senate Finance Committee and prior House Oversight hearings in early 2007. In other words, these are the experts who Democratic lawmakers will be calling upon for advice and guidance when crafting policy.

Are You Ready for 2009?

Signs of tough times ahead:

Barack Obama's latest ad in Pennsylvania is titled "Billy"--as in Billy Tauzin, CEO of the Pharmaceutical Research & Manufactures of America trade association.


Sure sounds like price negotiation under Medicare Part D will be part of President Obama's agenda.

If you think John McCain will win in November, consider the speech he delivered this morning in Pennsylvania, promising changes to Medicare Part D as well.

"Many retired Americans face the terrible reality of deciding whether to buy food, pay rent or buy their prescriptions. And their government should help them. But when we added the prescription drug benefit to Medicare, a new and costly entitlement, we included many people who are more than capable of purchasing their own medicine without assistance from taxpayers who struggle to purchase their own. People like Bill Gates and Warren Buffet don't need their prescriptions underwritten by taxpayers. Those who can afford to buy their own prescription drugs should be expected to do so. This reform alone will save billions of dollars that could be returned to taxpayers or put to better use."

If a debate over price negotiation sounds ugly, consider how industry will be painted in a debate over cutting the benefit itself.

Good thing Hillary is still in the race...

Why Big Pharma Should Vote Democratic

This Super Tuesday, pharmaceutical CEOs should ask themselves one question before they decide which way they will vote in 2008 if they are indeed single-issue voters:

Are you in favor of an expansion of the government subsidy to almost 50 million Americans to buy your products or would you prefer a drastic curtailing of the government subsidy under the popular Medicare Part D drug benefit?

If you’re in favor of the former, you should punch the Democratic ticket in November. If the latter is your desired outcome, then hop on the McCain Straight Talk Express.

The prospect of a Democratic administration with a Democratic-controlled House and a split Senate has a number of drug industry stakeholders nervous about the next four years. After all, the centerpieces of Senators Hillary Clinton’s (NY) and Barack Obama’s (IL) domestic policy agendas are universal health care proposals. And when Big Pharma hears “universal health care” it tends to be synonymous with national, government-run, single-payor system aka price controls.

But here’s something Big Pharma should keep in mind: neither Clinton nor Obama are proposing a single-formulary system. What they are proposing, though, is providing health care coverage for the 47 million and counting Americans without it.

In case you missed it, here was my first take on the Clinton and Obama health care proposals. Clinton has explicitly stated that buying coverage would be mandatory under her plan; Obama says he will wait to analyze affordability of a coverage proposal before mandating that individuals buy insurance.

“This should not be scary,” Clinton senior health policy advisor Chris Jennings told Wall Street investors at the Stanford Group health care conference in January. “This should be viewed as an incredible opportunity.” Obama health advisor Gregg Bloche echoed Jennings’ remarks at the meeting saying, “companies that innovate are going to thrive in the environment under the Democratic plans.”

There’s little doubt that under a universal, government-administered coverage system, there will be downward pressure on pricing, whether it’s through market competition or government “tinkering.” But Jennings and Bloche say whatever drug companies give up in margin, they’ll more than make up for in a jump in market share.

It would be hard to argue that the drug industry hasn’t reaped a windfall from providing roughly 40 million seniors with drug coverage under the Part D program. A universal coverage program would roughly double the number of Americans receiving some form of a drug benefit who previously were not.

Some senior company executives clearly see the advantages of working together with Democrats—should they win the White House—on health reforms. “It is really going to take a bipartisan view to be able to accomplish [universal health care],” Merck CEO Richard Clark said during the Morgan Stanley Pharmaceutical CEOs Unplugged conference in January. “I hope we are able to provide some recommendations, particularly around the uninsured and how that should be solved, just as we provided recommendations around Medicare” and the creation of the prescription drug benefit.

Eli Lilly SVP for corporate affairs and communications Alex Azar is urging the biopharmaceutical leadership to rally around a united position that preserves core industry business principles under more direct involvement by the government in health care. “We have to show that we’re willing to engage and to propose constructive alternatives,” the former HHS deputy secretary told attendees at The RPM Report’s FDA/CMS Summit in December. “Our industry brings some credibility to this discussion.”

For the most part, Republicans are looking at incremental improvements in health care that go hand-in-hand with the free-market principles underlying Part D ie. competitive insurance plans and allowing individuals to cross state lines to buy insurance from different providers if they don’t like the deal they’re getting locally.

Not too scary.

But under a Republican administration, the odds of a Medicare reform bill would be a near-certainty as the government looks for savings to fix the looming physician reimbursement cuts. In that climate, drug prices under Part D would be a tempting target for savings.

Moreover, the presumptive Republican nominee, Senator John McCain (AZ) does not look eager to become best friends with the pharmaceutical industry. During a New Hampshire debate before the primary in January, for example, McCain cast the industry in a not-so-flattering light while discussing why Americans can’t import drug from Canada. Former Massachusetts Governor and Presidential candidate Mitt Romney jumped in, “Don't turn the pharmaceutical companies into the big bad guys.” McCain responded: “They are.”

The drug industry is clearly reading the bi-partisan tea leaves. The pharmaceutical industry has given $4.6 million to Democrats thus far in 2008 compared to $4.5 million for Republicans, a 51-49 split, according to the Center for Responsive Politics. During the last election cycle in 2006, donations to Democrats totaled $6.1 million compared to $13.2 million, a 31% to 67% difference (independent donations make up the remaining 2%). The last Presidential election in 2004 saw the pharmaceutical industry give two-thirds of their donations to Republicans ($12 million) compared to one-third ($6.1 million) to Democrats.

You get the picture.

For all of the undecided In Vivo Blog readers, maybe the HealthCentral.com political PoliGraph will help you choose where you stand. Try it, it’s fun.