A New Twist in the Cost Curve

On Sept. 17, the FDA and CMS jointly issued a Federal Register (FR) notice that they were establishing a process for overlapping evaluations of premarket, FDA-regulated medical products when the product sponsor and both agencies agreed to such parallel review. The notice also announced their intent to create a pilot program for parallel review of medical devices.

Ansis Helmanis

Why are the agencies launching such a milestone undertaking? According to the FR notice, the agencies are concerned about adequate resources being available for companies to translate the "recent boom in basic science discoveries" into new therapies and medical devices. The question of resources is indeed a concern. The research-based pharmaceutical industry is facing up to a 75 percent drop in sales by 2015 with the patent expiration of top-grossing products. And Wall Street once again is calling on those companies to hedge their bets by diversifying into non-innovative sectors, such as generics and consumer products.

Predictable Market Access

The agencies see "the reluctance to embark on new product development" as in part linked to "the limited predictability of market access"—in other words reimbursement by CMS. If successful, they say their parallel track exercise could bring back venture capital and the willingness to invest by making market access more predictable. The predictability would come from Medicare initiating the national coverage determination (NCD) process during the premarket review at FDA. Once FDA approved the product, an NCD could issue shortly thereafter.

At first blush this may sound like great news for Big Pharma as well as the more vulnerable smaller biotechs. CMS reimbursement more or less ensures coverage by private insurers too. A company could begin earning a return on investment without the months now lost waiting for the NCD process to run its course after FDA marketing approval or clearance. Apparently this also sounds good to the venture capital sector, with some believing that the parallel review collaboration with FDA is the most important thing CMS could do.

However, there are concerns about the implications of the process for the two agencies and industry. The two agencies may both reside within the Department of Health and Human Services, but they have different and even conflicting public mandates—hence different cultures. FDA's mandate is to ensure safety, efficacy, and quality; whereas CMS must ensure value for the public dollar spent. Moreover, value is determined differently by each agency. FDA balances the health benefit against the risk. How CMS determines value remains somewhat unclear.

To entice volunteers for this new adventure, both agencies claim that the proposed parallel review process can overcome the differing mandate issue by "educat[ing] developers regarding clinical study designs that are more likely to simultaneously address both FDA and CMS questions." FDA approval, however, does not guarantee a positive CMS reimbursement decision. The ongoing Provenge vaccine coverage discussion with CMS is a case in point: Preliminary assessments by CMS staff indicate that there is only a modest survival benefit, which must be weighed in context to its very high acquisition costs to Medicare—an average of close to $100,000 per patient for a full course of treatment.

Perhaps the biggest concern is that cost of therapy issues could migrate over time into FDA decision-making, through this collaborative effort. Cost was included as a factor in CMS determination of value in rulemaking that the agency proposed a decade ago. The proposed rule was subsequently withdrawn by CMS, but it is unlikely that cost as a factor has been forgotten. Weighing cost versus benefit may yet resurface as a precondition for CMS reimbursement given the staggering federal budget deficit that will be the focus of the newly elected Congress. Certainly the new Independent Payment Advisory Board (IPAB) established under the reform bill enacted in March to effectively cap Medicare expenditures at the underlying growth in the economy will be receptive to this line of argument.

A further issue is the challenge that the recent boom in science poses for the both agencies. FDA recognizes that it needs to upgrade what it calls its "regulatory science capabilities" in order for it to be able to effectively assess the safety and effectiveness of new cutting-edge products. That's why FDA announced a new Regulatory Science Initiative about the same time as the notice for the FDA/CMS parallel review collaboration.

The success of the Regulatory Science Initiative is of critical importance if FDA is to maintain a pivotal role in encouraging new drug development as part of its regulatory mission. Given that neither the Critical Path Initiative (2004) nor the Reagan/Udall Foundation (mandated by FDAAA in 2007) has delivered on expectations, the fate of this new initiative remains to be seen.

Regulator versus Gatekeeper

The bottom line is the notion that the agencies are about to cross the bright line that until now has separated the regulator (FDA) from the purse-string gatekeeper (CMS). Despite the import of this proposal, public comment has not been requested as to whether the agencies should proceed. Comment is only requested as to how they should proceed. Nor have public hearings been held to air the issues and concerns inherent in the proposed collaborative effort. Yet the agencies are moving forward.

The sole rationale—market predictability—is a fragile basis for moving forward. Once the wheels of government have been set in a new direction, the unintended consequences are likely to be substantive—at least for industry. Through the rhetoric of the moment, one thing should not be lost sight of, namely that CMS does deny or at least limit—at times severely—market access for FDA-approved products.

Moreover, as health reform implementation gathers momentum, the role of CMS as gatekeeper will become more prominent and more politically driven. It will increasingly leverage its role in the premarket development and review process at FDA. New product development will be driven by what CMS is likely to reimburse. This may or may not be an unintended consequence of what is now called a "voluntary program."

Finally, we live in a global village, and the drug regulatory community is no exception. Look for awareness to build on what the FDA and CMS have just done and for other countries to see parallel review as another application of the US "gold standard" they seek to emulate.

Ansis Helmanis is a former FDA official and founder of RegLink Associates. He can be reached at ansis@reglinkassociates.com