A New Pricing Paradigm: Increasing Competition

In the first in a series of articles, Rick Kelly and Nisha Desai dissect the government’s American Patients First blueprint based on the white paper, “Changing the Game. A new pricing paradigm is shifting the playing field for pharma.”

In May 2018, The Trump Administration released its plan to combat rising prescription drug prices and out-of-pocket costs - the ”American Patients First” blueprint. The plan identified four key strategies for reform: increased competition, better negotiation, incentives for lower list prices and lowering out-of-pocket costs. With some of the proposals already implemented, and others still under consideration, the healthcare industry finds itself facing a game changer in how drug prices are established and managed.

This is the first in a series of five articles that will summarize efforts addressing each of the blueprint’s four strategies. Each of the first four articles will focus on one strategy and describe proposals that have been implemented by the administration and those yet to be implemented. The final article will summarize the implications of transformation overall. This article focuses on the “Increasing Competition” strategy.

Implemented policy changes

The blueprint described several actions that could address the goal of increasing competition, but to date, only two have been implemented: 1) Enhanced Availability of Generic and Biosimilar Competition, and 2) Increased Communications About the Value of Drugs Between Manufacturers and Other Stakeholders. 

Enhanced availability of generic and biosimilar competition

Among the tactics outlined in the blueprint, the approval of generic and biosimilar alternatives to brand name drugs is likely to have the greatest competitive impact. And the idea has been germinating for some time.

In June 2017 ─ even before the blueprint was launched ─ FDA announced implementation of the Drug Competition Action Plan (DCAP), which is primarily aimed at increasing access to generic drugs by:

• Streamlining the review process for generics;

• Enhancing the development and review process for complex generic product submissions; and

• Reducing “gaming” practices ─ via citizen’s petitions and REMS ─ that frustrate generic manufacturers and delay generic approvals

HHS and FDA have been equally aggressive in changing rules and regulations intended to expedite approval and availability of biosimilars.

• HHS de-linked reimbursement coding for biosimilars from their brand counterparts, which should increase incentives for the use of biosimilars   

• FDA created the Biosimilars Action Plan (BAP) to increase scientific and regulatory clarity for biosimilar development and approval and to reduce the gaming of FDA processes for delaying purposes

Increased communications about the value of drugs

In 2018, FDA released final guidances “about open, responsible communication with payors, formulary committees and others.” More open communication regarding economic data will empower payers to make more informed decisions about coverage, which may, in turn, increase competition.

Proposed policy changes

Congress has proposed changes to the 180-day exclusivity rules that pharma uses to prevent generic entrants from entering the market indefinitely. At the time of this writing, two pieces of legislation have been introduced in Congress to correct this: The Expanding Access to Low Cost Generic Drugs Act and the Bringing Low-cost Options and Competition while Keeping Incentives for New Generics Act, or the “BLOCKING Act.”

FDA drafted the language for the BLOCKING Act, demonstrating the administration‘s commitment to bringing about regulatory changes that address this issue. Changes in the exclusivity rules will require action from Congress.

Impact on pharma

Activities taken by FDA and Congress aimed at increasing competition are focused on ensuring that more generics and biosimilars are approved quickly. In addition, FDA clarified the kinds of economic information that pharma can share with payers. These efforts could impact pharma in a variety of ways, including:

• A decrease in the number of drugs from which pharma can derive revenue and profit, due to increased availability of generics

• An increase in financial impact when a brand loses exclusivity

• More opportunities for pharma to generate and deliver economic data to payers

One result of all this is that manufacturers will have to market brands with more urgency to ensure success within a shortened life-cycle. They will also be challenged to develop more purposeful strategies prior to loss of exclusivity.

On the other hand, additional clarity regarding the communication of economic information to payers, opens the door for pharma companies to strengthen their competitive position through sophisticated, data-driven payer-messaging strategies.

Summary

From the beginning of Commissioner Gottlieb’s leadership, FDA has been working to increase the number of approvals of generics and biosimilars. The blueprint has reinforced these efforts by supporting multiple rule changes, guidances, and other communications aimed at improving competition in the pharmaceutical market.

Faced with these game-changing developments, pharma companies have no choice but to change their game as well.

Rick Kelly, RPH, MHA, Cyan Health, and Nisha Desai, MPH, Cyan Health.