Drug management

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Congress Puts ‘Shadow’ Pricing of MS Drugs in the Spotlight

Ed Silverman

In the middle of what was already a steamy August, a pair of Congressional lawmakers turned up the heat on drugmakers over their pricing for multiple sclerosis treatments.

They wrote seven companies to explain not only “skyrocketing prices,” but a practice known as shadow pricing in which a drugmaker increases the price of an existing medicine to match the price hike or higher price set for a new drug launched by another company.

For instance, the price of Avonex, which is sold by Biogen, had a list price of $8,720 at the time it was launched in 1996, but it climbed to nearly $44,800 in 2012 and then to $86,300, according to the letter sent by the lawmakers to the drug companies. During that time, several other MS treatments became available.

“The prices of more than a dozen new MS therapies have increased sharply in the past decade, nearly in lockstep with new, more expensive entrants into the market,” wrote Democratic Reps. Peter Welch from Vermont and Elijah Cummings from Maryland in an August 17 letter. They also lamented the fact that competition has failed to mitigate the trend.

Of course, this is hardly a revelation. A study published in Neurology two years ago found that costs for three older medicines, which were launched between 1993 and 1996, rose by statistically significant amounts after a new type of treatment became available in 2002. A similar pattern of rising prices continued as still newer medications were approved by regulators between 2010 and 2013.

The trend, however, shows no sign of abating. But depending upon where they direct their investigation, the lawmakers may wind up shining an uncomfortable spotlight on payers, not just on drugmakers, which have taken a beating in Washington these past three years over how they price their products.

Here’s why health plans should pay attention: The lawmakers are focusing on rising list prices—and we all know that no one pays a list price. But we also know that list prices have a big impact on a patient’s out-of-pocket cost, and for plans, this may be the rub.

“The challenge is that when patients are paying co-insurance, they do so as a percentage of the list price, not a percentage of the price net of any rebate,” explained Roger Longman, who heads Real Endpoints, a research firm that tracks reimbursement issues. “And that is a real issue.

“So you could argue that, as list prices go up and the net prices remain more or less stable, which is my assumption, the actual net cost to the payers may, in fact, be slightly falling, because the patient is paying a larger share of the expense.”

But whether net prices are remaining all that stable is debatable. A report issued last year by Massachusetts Attorney General Maura Healey found the average annual growth rate in net prices for MS drugs ranged from 10.2% to 15%. In 2011, each drug had a net price of about $3,000 per month, but by the end of 2015, the net price paid by health plans was between $5,000 and $6,000.

Some pharmacy benefits managers say price-protection clauses dampen the effects of manufacturer price hikes. But while these clauses may insulate the PBMs and the health plans, they are unlikely to help consumers, says Susan Scheid, vice president of pharmaceutical trade relations at Prime Therapeutics. That’s because insured consumers are stuck paying for medications based on list prices.

Drugmakers, for their part, rely on coupons to help consumers to lower their costs, but even then net costs might still be rising as price hikes cycle through the system. “Payers are insulated to a certain extent, but it still raises the net cost,” says Scheid. “At some point, it has to reset.”

Of course, not all multiple sclerosis treatments are created equal—some are pills and others are injectables. And due to different mechanisms of action, not all are interchangeable, which means insurers have less flexibility in limiting coverage. This suggests there is sufficient demand for access to nearly all of the drugs, making it tougher for payers to negotiate formulary placement or rebates.

The congressional investigation might peel back the onion on the convoluted MS pricing practices. The lawmakers, after all, are focused on the average consumer, and as long as net prices continue to rise, this category of drugs is going to get attention.

Ed Silverman founded the Pharmalot blog and has covered the pharmaceutical industry for 20 years.

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