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Pharmaceutical Pricing and Reimbursement: USANEHA KALAL1ST SEMESTER, DOPM NIPER, MOHALI 2015-16
2 FLOW OF PRESENTATION Why? Demographics Economics Background: Legislation and Historical Developments Flow of funds in US healthcare Healthcare in US Healthcare financing Pricing Reimbursement Bibliography
3Why? First, from the perspective of US consumers,
prescription drugs constitute 12 % of total U.S. health care spending (2008) or roughly 2 % of GDP
Second, from the perspective of all consumers, the U.S. constitutes about 40 % of the world pharmaceutical market.
4Demographics
Population 318.9 million
Median age 37.8 years
Life expectancy at birth 79.68 years
Sources include: United States Census Bureau, World Bank, CIA
5Economics
GDP 16.77 trillion USD
GDP per capita 46405.26 USD
GDP growth rate 2.10%
Inflation Rate 0.2%Sources include: Trading economics, US inflation calculator
6Background: Legislation and Historical Developments
Congressional hearings conducted by Senator Estes Kefauver’s Anti-Trust and Monopoly subcommittee between 1959 and 1962
Kefauver’s hearings led to enactment of the Kefauver-Harris Drug Act in 1962
Provisions that stopped inexpensive to manufacture generic drugs from being marketed as expensive drugs under new trade names as new breakthrough medications
7Background: Legislation and Historical Developments
Important development of the 1960s was the 1965 passage of Congressional legislation adding Titles XVIII (Medicare) and XIX (Medicaid) as Amendments to the Social Security Act, which took effect in July 1966
At that time, Medicare covered only prescription drugs taken by hospital inpatients under Part A and physician administered drugs (typically injections) under Part B
Part D of Medicare which covered outpatient drugs, was enacted later in 2006
8Flow of fund in US healthcare
PRIV
ATE
HOUS
EHOL
DS P
RIVA
TE
HO
USE
HO
LDS
PROVID
ERS OF
HEALTH
CARE
Other private spending
Out of pocket at point of service
Individually purchased health insurance or additional premiums to top off employment based insurance
PRIVATE HEALTH INSURERS
PRIVATE EMPLOYERS
Cuts inPaycheques
FEDERAL GOVT
STATE GOVTState and local taxes MedicaidPremium paid private insurers for state employees
Federal TaxesPremium contributions for federal employees
Medicare Medicaid
9Healthcare in US US population, 318.9 million, complex healthcare
system intertwining relationships between providers, payers, and patients receiving care
US is the third most populous country in the world, spending $2.8 trillion on health care or 17.9% of the (GDP) in 2012
10 Healthcare in US Department of Health and Human Services (HHS), at
the federal level, is the primary agency responsible for regulating the health care system in the US
Each state, has its own Department of Health (DoH) to implement state-level health policies
11Health Care Financing Public health insurance schemes operated by the
Centers for Medicare & Medicaid Services (CMS), are financed primarily by government taxes.
1. Medicare
2. Medicaid
3. Children’s Health Insurance Program (CHIP)
12Medicare
Largest single payer in the US (federal)
To qualify, enrollees must have paid the required social security contributions during their working lives
Providing health care coverage for those age 65 years and older
1. regardless of income or medical history2. and those under the age of 65, with permanent
disabilities or end-stage renal disease
MedicareMedicare Coverage is sub-divided into four parts (Part A to D).
People who are eligible for Medicare are all entitled to Part A. Those covered by Part A can enroll in Part B voluntarily. Around 95% of Part A participants also enroll in Part B benefits. Those covered by Part B can enroll in Part C voluntarily, so on and so forth. Operates on Free-for-service basis
Part A Covers inpatient hospital services including inpatient and hospital prescriptions. Required to pay income based premium
Part B Covers payment for physician, outpatient, home health, and preventive services
Part C Medicare Advantage Prescription Drug Plans (MA-PD) are offered by private plans, HMOs, and PPOs with lower copayment than the “standard” plans that are approved by Medicare
Part D Covers outpatient prescriptions
13
14 Medicaid Medicaid is jointly funded by both the federal
government and individual state with each state setting its own guidelines regarding eligibility, services, and reimbursement
Eligibility requirements are based on income status (BPL), age, pregnancy status, disability, and citizenship status
Covers hospital stays, doctor visits, emergency room visits, prenatal care, prescription drugs, and other treatments
15 MedicaidEnrollment
States that chosen to expand medical
coverage in line with reforms
Enroll if income does not exceed 133% of
FDL
States that have not opted to expand
medical coverage
Enrollment limited to, if income less than100% of FDL
States that run “medically-needy”
programs
Enable higher income patients with significant medical costs to enroll in state Medicaid
program
16Children’s Health Insurance Program (CHIP)
CHIP (Children’s Health Insurance Program) is a national health insurance program for children under 18 years of age who are not eligible for other insurance plans (including private insurance coverage)
Benefits are very similar to that of Medicare Part A
17Private financing sources Private financing sources consist of private health
insurance plans and out-of-pocket payments by individuals who are not insured via a public or private plan
Self-insured plans (organized by large companies)
Employers contribute to private insurance premiums either in whole or part for their employees
18
PRICING
19PRICING Prices are not regulated Prices tend to be higher than in more regulated
market Actual market prices are established by range of
factorsi. Discounts and rebatesii. Drugs patent statusiii. Market statusiv. Prompt payment
20PRICING
Pricing benchmark
s
Existing benchmarks
New benchmarks
21Existing benchmarks
Wholesale acquisition cost (WAC) : Manufacturers sell drugs to wholesalers at a list price, called WAC
Average wholesale price (AWP): an estimate of the average price at which wholesalers sold to pharmacies was published by pricing agencies as a list price called AWP
For example, a payer may set pharmacy reimbursement at AWP-18%, where the discount off AWP is negotiated between the payer and the pharmacy chain
WAC+ 20%= AWP
22Existing benchmarks
Average manufacturer price (AMP): Average price a manufacturer receives from a medicine sold, for distribution to retail pharmacies.
AMP is used to calculate the rebate, manufacturer pay on drugs dispensed to medicaid patient
Best price: Lowest ex-factory price to any PBM, HMO or other private wholesaler or distribution network
23Existing benchmarks
Average sales price (ASP): Average ex-factory price net of any rebates and discounts, to all purchases in the US, including wholesalers, retailers, HMO, hospitals and government entities and Medicare part D but excluding state and federal agencies such as Tricare
Average acquisition cost (AAC): Calculated based on survey of actual average prices paid by retail pharmacies in the state for prescription drugs
24New benchmarks
National average drug acquisition cost (NADAC): Established via voluntary monthly survey of pharmacy
purchase prices Off-invoice rebates and discounts are not taken into account NADAC never equals or exceed AWP
National average retail price (NARP) To reflect the actual prices that retail pharmacies are paid for
prescription drugs [ ingredient cost + any applicable patient copayment + pharmacy dispensing fees
25Pricing of Generic Drugs
The traditional microeconomic theory toolkit is mostly sufficient for analyzing generic drug pricing
Reiffen and Ward also report that generic price continues to fall as the number of generic entrants increases up to five or so, but thereafter levels off
The number of generic entrants increases with the size of the branded molecule market (measured in dollars) prior to the loss of patent protection
26Payers & Providers
PROVIDERS
retail and mail order
pharmacies
hospitals
Wholesalers
PAYERS
health care plans
PBMs
GPO
27Distribution Channel Logistics and PricingManufacturers
Wholesalers and chain warehouses
Retail and mail order pharmacies
28Pharmaceutical benefit managers (“PBMs”)
PBMs services include benefit design and contracting with manufacturers for third party payers (insurers, employers, governments)
Pharmacy network formation
Real time prescription benefit eligibility certification and claims processing
Formulary management and rebate negotiations with manufacturers
Payers and pharmacies; drug utilization screening and review
Operation of mail order pharmacies (eg Express Scripts and Caremark)
29
REIMBURSEMENT
30REIMBURSEMENT
Payers in the US do not regulate the price of a pharmaceutical product, allowing the manufacturers to set prices freely
However, payers are allowed to set the reimbursement price/rate
31Drug benefit cost-sharing provisions
•For a generic drug prescription, the customer pays, small amount like $10 for a month1st
Tier•for a branded drug, customer faces a
larger copayment, say $25 for a month2nd Tier
•Brands for which PBM was unable to negotiate, copayment are higher, say, $50 for a month3rd
Tier
32DRG PAYMENT Hospitals (public and private hospitals) are typically paid based on
“Diagnostic Related Group,” or DRG payment. The DRG-based payments cover
accommodation costs in a hospital (i.e., room and board, facility costs, etc.) procedure costs support staff (nurses, technicians, etc.) drug/medical device costs this system does not include physician fees
Most drugs are reimbursed by CMS by the inpatient DRG, though some (especially some expensive and innovative drugs) are paid separately in the outpatient DRG, called an Ambulatory Payment Classification (APC)
33Payment to self employed physician
Physicians who are self-employed are paid through fee-for-service
Patients covered by public health insurance schemes, the price of the health care service is defined by CMS and based on either the Physician Fee Schedule (PFS) or by the Medicaid PFS
The prices of the procedures conducted by physicians are calculated based on
national uniform relative value units (RVUs, points given to a procedure)
regional costs per unit.
34Bibliography1. Pricing and Reimbursement in U.S. Pharmaceutical Markets Faculty
Research Working Paper Series, Ernst R. Berndt, Joseph P. Newhouse, September 2010 RWP10-039
2. ISPOR global health care system maps, US pharmaceutical
3. Reinhardt U. E. The Money Flow from Household to Health Care Providers (2011) [5]
4. CMS, National Health Expenditures 2012 Highlights.
5. IMS Institute for Healthcare Informatics, The Use of Medicines in the United States: Review of 2011, 2012
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