Comparing Cost, Coverage and Access to Pharmaceuticals under Australian and US Policy Frameworks

1. Comparing Cost, Coverage and Access to Pharmaceuticals under Australian and US Policy Frameworks Ruth Lopert Harkness Fellow in Health Care Policy Department of Health Policy George Washington University & Principal Adviser Pharmaceutical Policy Taskforce Department of Health and Ageing, Canberra

2. Australian Pharmaceutical Benefits Scheme (PBS) in operation > 50 years objectives: equity, universality, affordability, comprehensive but closed formulary fixed co-payments, capped out of pocket costs evidence-based formulary decision-making value for money a key consideration monopsony “purchasing” power and regulated pricing => prices generally much lower than in US To the US pharmaceutical industry the PBS is a non-tariff barrier To (some) US policy makers Australia is a nation of “free riders” Background

3. 2002 TPA mandate to USTR to seek “..elimination of price controls and reference pricing” abroad tested for first time in the AUSFTA, later in KORUS-FTA AUSFTA Agreed Principles “ … promote timely and affordable access to innovative pharmaceuticals through transparent, expeditious, and accountable procedures” “… recognize the value of innovative pharmaceuticals through the operation of competitive markets or … procedures that appropriately value the objectively demonstrated therapeutic significance of a pharmaceutical. “ Text reflects different understandings of what is “innovative” a mechanism to pressure Australia to increase drug prices? Background

4. Medicare Part D design features (prerequisites for GOP support) limit overall spending use competition to drive down prices offer a wide choice of drugs and plans rely on the private sector for the structure “no interference” in price negotiation (=> a windfall to PhRMA ) Standard benefit (in 2007) $265 deductible plus 25% coinsurance up to $2400 nil between $2400 and $5451 5% after $5451 ($3850 OOP) - but5% of Gleevec is still $200-600/month Providers establish individual formularies CMS regulations / US Pharmacopeia sets Model Guidelines 2 drugs in each class / all drugs in 6 protected classes / 1 in each subclass plus tiers, cost sharing, quantity limits, step therapy, prior authorization Background

5. Australian PBS and Medicare Part D largely antithetical policy frameworks Key questions Are the programs comparable in terms of affordability, access, coverage? Is it possible to deliver comparable coverage under fundamentally different policy frameworks? How / to what extent do the two systems identify and reward pharmaceutical innovation? Research questions

6. Semi structured interviews with Part D providers Top10 providers = 72% of enrolments in 2006 Interviews with 6/10 so far, 2 outright refusals Contextual interviews with US Pharmacopeia, CMS, pharma companies, AHIP Data collection Part D data: plan design, premiums, formularies, drug prices, OOP costs, tier arrangements, UM tools – very difficult no aggregated pricing data available PBS data: in public domain, easily accessible Methods

7. Compare characteristics, costs across specific drugs comparisons across different therapeutic areas comparisons based on sample regimens / scenarios comparisons of innovative drugs identified using FDA and Canadian criteria Volume of data problematic no substantive differences in prices or formularies across different regions (though some differences in premiums) solution to use price and formulary data based on NY state plans Methods (2)

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16. Results (2) – Costs *Prices for 30 day supply **Exchange rate USD 1.00 = AUD 1.20694 as at 1 May 2007 (www.oanda.com)

17. Results (3) – Costs * Total annual OOP including monthly premiums ** Plan provides gap coverage for generics with $5 copay

18. Results (3) – Costs * Total annual OOP including monthly premiums ** Plan provides gap coverage for generics with $5 copay *** Online retail pharmacy, prices for private prescriptions

19. Results (4) - Comparing the valuation of innovative drugs * As a proportion of Part D price **S100 item – price excludes wholesale margin ***Ex PBS – funded under separate program

20. Results (5) – Access and coverage • Access and coverage are multi-dimensional • direct comparisons complex • breadth of Part D formularies generally wider than PBS • but difficult to assess availability of individual drugs and access not guaranteed from year to year • impact of tiers and utilization management tools difficult to establish • higher OOP a potential barrier to access (is breadth of formulary less important?) • unclear whether individual coverage decisions and appeal mechanisms improve access • will future efforts to increase Part D competition lead to trade-offs on access?

21. Significant homogeneity in provider responses high degree of adherence to USP Model Guidelines P&TCs find comparing treatments difficult, so often don’t no specific consideration of “innovation” formulary design largely driven by cost - not value USP Model Guidelines and CMS Rules constrain price negotiation for new drugs … … and “negotiated” prices don’t preclude increases through the year Results (6) – Part D formularies and innovation

22. Costs: substantially higher costs to Government under Part D coupled with much higher out of pocket costs prices generally lower for “me-toos” and generics under PBS prices for some innovative medicines higher Coverage and Access: difficult to assess due to multi dimensionality non-uniform Part D benefit, differences in timing of registration access under Part D not guaranteed from year to year uncertain effect of higher (and rising) out of pocket costs Valuation of innovation: non explicit and non uniform under Part D not really a competitive market objective measurement of therapeutic significance, if it occurs, does not directly drive price Conclusions – Answers to key questions

23. Problems inherent in Part D structure – complexity / excessive choice / instability high OOP, coverage gap, no stop loss protection structure institutionalizes risk selection formulary selection driven largely by cost => inappropriate utilization, higher costs elsewhere in Medicare? limited capacity to negotiate prices; drug prices too high and rising limited competition, may decline with consolidation and lessening of risk protections efforts to increase competition may reduce access Not a rational model Not a sustainable model Conclusions -Implications for US Policy Makers

24. PBS a more transparent, stable, equitable and affordable benefit albeit with less emphasis on individual rights Prices in regulated markets not always lower but evidence based assessment of therapeutic significance may offer more explicit recognition of innovation PBS shows greater adherence to AUSFTA “Agreed Principles” – a defensible position against any future claim to the contrary? Conclusions - Implications for Australian Policy Makers

25. Acknowledgements and Thanks • Professor Sara Rosenbaum, George Washington University • Dr Marilyn Moon, American Institutes for Research • Dr Kosali Simon, Cornell University • Professor Bruce Stuart, University of Maryland, Baltimore • Professor Lloyd Sansom and Dr Libby Roughead, University of South Australia • Commonwealth Fund, Robin Osborn and International Fellowship Program staff