Washington Report: Out of Commission? Crawford Steps Down

It has been a difficult year at the Food and Drug Administration. After months of turmoil over drug safety, vaccine shortages, and demands for low-cost drugs from abroad, commissioner Lester Crawford resigned abruptly in September, generating considerable uncertainty about the future leadership of the agency.

Jill Wechsler

The White House quickly named an acting commissioner: Andrew von Eschenbach, director of the National Cancer Institute (NCI) at the National Institutes of Health (NIH). But Eschenbach got into trouble almost immediately for trying to keep his NCI hat while taking the helm of FDA. He handed over day-to-day leadership of NCI to a deputy, but that temporary move failed to fully appease some congressional critics—who are concerned there is an inherent conflict of interest when an advocate for speedy access to new cancer treatments also has the job of overseeing the safety and effectiveness of those therapies.

Von Eschenbach may be a reasonable choice to head FDA, but the word is that the White House does not plan to nominate him as permanent FDA commissioner. A cancer specialist from the M.D. Anderson Cancer Center in Houston before coming to NCI in 2002, he has made friends at FDA by supporting NCI-FDA collaboration on biomarker validation and personalized medicine.

At FDA, though, such promising initiatives have taken a back seat to dealing with daily crises. Battles continue over the morning-after pill—Barr/Duramed's Plan B (levonorgestrel)—as well as the regulation of follow-on biologics. Serious concerns have emerged over the safety and testing of implantable medical devices, and the job of maintaining the safety of the nation's food supply is, as always, monumental.

The clouded circumstances of Crawford's departure may complicate the process of securing a permanent FDA leader. Congress and HHS's Inspector General are investigating whether the Senate failed to uncover important information during Crawford's confirmation process. This may result in even more rigorous scrutiny of any future nominee. Meanwhile, Senate Democrats insist that the FDA commissioner be completely free of pharma company influence, while Republicans want someone who fits their political agenda. Current FDA officials are linked too closely to recent agency missteps to be confirmed.

Medicare Spillover

NCI-FDA collaborations have increasingly included the Centers for Medicare and Medicaid Services (CMS), which has been taking on a more visible role in assessing the value of medicines for payers and patients. FDA and CMS officials have discussed ways to better coordinate new drug approvals with Medicare coverage decisions—a development that will have a broader impact as the Medicare drug benefit gives government (federal, state, and local) control of more than 40 percent of the prescription drug market, up from about 25 percent today. At the same time, growing pressure from conservative Republicans to cut costs in the wake of the Gulf hurricanes and the continuing war in Iraq will intensify efforts to reduce the cost of the multi-billion-dollar Medicare program. This means expanded comparison of drug effectiveness and safety, along with efforts to ratchet down prescription drug prices.

Federal and state officials thus are looking closely at how pharma companies negotiate contracts and calculate rebates and discounts with the insurers and pharmacy benefit managers (PBMs) that have lined up to offer national and regional prescription drug plans (PDPs) to the nation's elderly. The Medicare drug benefit will have a major spillover effect on the commercial pharmaceutical market, says consultant Alex Vechon of Hamilton PPB. It already is reshaping business alliances, as PBMs link up with retail pharmacies and health insurance giants, and it promises to create volatility in pharma industry stock prices.

Lots of Players

So far, the early fear that PBMs would not assume risk in offering Medicare drug coverage has not materialized. Hundreds of private insurers and Medicare Advantage prescription drug plans (MA-PDs) are marketing drug benefits at unexpectedly low prices to gain some piece of the action. Ten companies are providing drug plans on a national basis, which means "there will be no fall-back plans anywhere," as CMS administrator Mark McClellan put it: CMS will not have to provide backup drug coverage for seniors unable to access a PDP.

The abundance of plans and options is generating a dogfight to sign up beneficiaries, along with predictions of a future shake-out as smaller and more costly plans drop out. The survivors will gain market leverage and exert increasing pressure on manufacturers to negotiate lower prices and higher discounts. Just how the pharma market changes will be determined by the answers to a number of key questions:

Will healthy beneficiaries sign up? CMS officials currently say they expect 28 million seniors to enroll in drug plans—a reduced estimate intended to lower expectations. Initially the risk pool may include a disproportionate number of high-cost patients because Medicare will automatically enroll low-income "dual eligibles" and patients in nursing homes and state assistance programs. The real challenge is to sign up some 15 million seniors who are too well-off to qualify for subsidies and have been paying for drugs out of pocket. Plans are doing their part by offering low-cost options designed to attract healthy beneficiaries willing to pay now for insurance against future pharmacy costs.

Will plans keep costs down? Relying on private plans to provide a major Medicare benefit through negotiated prices is a "big experiment," says John Rother of AARP. CMS was happy to announce in September that the average PDP premium would be only $32 a month; some plans have premiums under $5, and MA-PDs are promoting zero-premium options. Other plans feature low or no deductibles, flat co-pays, and schemes to fill in the "doughnut hole," but these options tend to carry premiums of $50 to $60 a month.

But beneficiaries can get bargains only if pharma marketers offer low prices. Insurers and plans negotiated drug prices and discounts months ago, and the word is that manufacturers offered higher-than-expected rebates to get drugs on formularies in competitive classes, according to Marc Benoff of IMS Health's Cambridge Pharma Consultancy. Negotiations also have covered such techniques as tier placement, inclusion in-step therapies, and prior authorization.

The transparency of rebate and discount numbers is a big issue. Plans have to post co-pays and costs to beneficiaries, but CMS has promised that actual rebate and discount figures will be confidential. Tier placement and other plan features may reveal a good deal about pharma deals, and CMS is likely to be under pressure to make more information public, even though CMS officials acknowledge that companies are more likely to provide discounts if price information remains proprietary.

How will formularies evolve? CMS spent the last six months reviewing proposed plan benefits and bids to ensure that they meet requirements for access, that formularies list all medically necessary drugs, and that tiering and utilization-management strategies don't discriminate against high-cost patients. Most of the formularies are fairly robust, says Babette Edgar, director of CMS's formulary review group. Indeed, many are identical to formularies already in use by commercial plans and PBMs.

As plans look to achieve profitability and sustainability, and more generous plans exit the market, Benoff expects formularies to become more controlled and to limit choices and options. Medicare permits plans to change categories and classes only at the beginning of the plan year and requires advance notification of drug additions, deletions, and tier changes. In addition, CMS may revise its model formulary and mandatory coverage requirements.

Will Medicare Rx rescue pharma's fallen image? With all eyes on the costs and benefits of the Medicare Rx program, government agencies will be giving ever-closer scrutiny to payment and rebate arrangements between pharmacy plans and manufacturers. Medicare's marketing guidelines require plans to spell out what drugs are covered and how much beneficiaries have to pay for different types of medicines. Any arrangements that smack of hidden incentives or special deals to induce product coverage will be fodder for federal and state investigators, who expect lots of enforcement action to arise from this high-cost, highly complex program.

A key issue for pharma, says AARP's Rother, is whether prices will come down enough under the Medicare drug benefit to reduce the political pressure on issues like importation. Medicare may benefit as the drug utilization data it collects provides useful information on comparative costs and effectiveness—and contributes to post-market assessment of drug safety. Marketers may privately support more price transparency to reveal what plans really pay for drugs, but the end result may be a de facto national formulary with uniformly low prices on most drugs.

The promised trade-off for pharma companies is that reduced rates and profits will be offset by a major market expansion, but some analysts say that federal price controls may look more attractive than negotiated rates in a few years.

Jill Wechsler is Pharm Exec's Washington correspondent. She can be reached at jwechsler@advanstar.com