Los Angeles, CA—The environment for regulation, payment, and healthcare delivery is changing. In particular, disruptive changes in Medicare reimbursement are on the horizon, said Michael E. Meyers, MPH, Managing Director and Head of Investment Banking, T.R. Winston & Company, Los Angeles, at the Fourth Annual Conference of the Association for Value-Based Cancer Care.
Mr Meyers started with a discussion of trends in the changing environment of specialty pharmaceuticals. Specialty pharmaceuticals remain an extremely attractive business segment for value-added services and solutions, because providers and payers will continue to require specialty solutions to achieve greater efficiencies, he said.
Clinical care management programs and the use of specialty pharmacies have increased dramatically. These programs help to maintain patient adherence. Through the use of technology and clinical pathways, firms have the opportunity to assist payers in managing specialty utilization. Specialty pharmaceuticals represent a rapidly growing percentage of drug plan costs, which are now estimated to be 40%. Another trend is the move from covering specialty pharmaceuticals under the medical benefit to covering them under the pharmacy benefit.
A 2014 survey of 72 institutional investors showed that 44% of those surveyed believed that specialty drug prices in the United States will rise by 2020, but at a slower pace than in the past (Table).
Changing Medicare Reimbursement
“The ASP [average sales price] reimbursement system continues to be in the crosshairs of Congress,” Mr Meyers said. “The Wall Street perspective is that ASP induces perverse incentives for high drug prices and excess utilization.”
Current proposals focus on a prospective ASP; however, other ideas, although further off, may be more disruptive. One construct involves blending the medical and drug benefits. Medicare is also aiming for new authorities to engage in tacit forms of reference pricing, such as low-cost alternative authority. “Along with bundling, these proposals disrupt pricing and provide powerful incentives for manufacturers to favor competitively bid schemes rather than the current Part B model,” he stated.
Other disruptive changes in motion are the increasing rate of hospital acquisitions of physician practices and the increasing consolidation of health systems, hospitals, and integrated delivery networks. In addition, drugmakers now consider the new value customer to be the provider, not the insurer.
Changing State of Compounding
New regulation will take the compounding market upscale, said Mr Meyers. Typically, compounding pharmacies have been pharmacies that are regulated at the state level as a pharmacy that dispenses 1 compounded product to 1 patient.
“Things changed after a tragedy that occurred with one compounding pharmacy in Massachusetts a couple of years ago,” he said. “Ultimately, Congress took up legislation…called DQSA [Drug Quality and Security Act] to now require—although the FDA is now implementing the legislation as voluntary—registration of compounding pharmacies as manufacturers.”
It is likely that the industry will get rolled up by more capable manufacturers, improving quality and trust, and creating opportunities for reputable manufacturers who can meet the current good manufacturing practice requirements. These manufacturers will have a huge advantage in terms of size and economies of scale in providing physicians complex mixtures and compounded products.
The new framework for compounders will probably fall somewhere between new drug applications and abbreviated new drug applications.
The FDA and REMS Program Enforcement
The FDA is facing renewed scrutiny over its enforcement of the Risk Evaluation and Mitigation Strategies (REMS) program. In a fragmented supply chain, the FDA is learning that enforcing provisions regulating the use of a REMS program is difficult, especially without legal authority over providers. New REMS requirements and “special medical use” will create additional chokeholds regarding already fairly tightly regulated supply chains.
Special medical use is going to create additional challenges in the management of distributing specialty drugs to select providers based on special certifications and controlled prescribing, said Mr Meyers.