According to eligibility requirements on the CMMI website, the advisors program is seeking professionals employed by a “public health or healthcare facility, institution or department,” including, but not limited to, “physicians, nurses, allied health professionals, instructors and non-clinicians (i.e. health care executives, practice managers) with experience in the healthcare field.” Management experience is considered an asset, and the selection process will consider an individual’s “career achievements”; “pre-existing skill set (and it’s relevance to transforming the healthcare delivery system for Medicare, Medicaid, and CHIP beneficiaries)”; “quality of their proposed innovation project in their home organization or area;” and “their organization’s explicit commitment to their work.”

The key areas of focus for innovation advisors include healthcare economics and finance, population health, system analysis and operations research. As many as 200 individuals will be selected between now and 2012, with the first group of advisors beginning a “six-month intensive orientation and applied research period” beginning this December. CMMI notes that advisors will not become government employees, although an advisor’s home organization will receive a stipend. Advisors will be expected to commit up to 10 hours a week, which includes a mix of on-site, in-person meetings, as well as ongoing meetings conducted remotely.

Given that any changes to the Medicare and Medicaid systems would directly impact pharmaceutical companies, it may be wise for the C-suite to consider participating; the deadline for applications is November 15^th.

If the debt ceiling is raised, which seems likely, and the deficit can (or trillion-gallon drum) gets kicked down the road to the 2012 presidential primary stumping season, the momentum to limit federal spending could bring consequences for Big Pharma beyond state-level legislative acts, like the proposed incentive for generic substitution put forward by Senators Scott Brown (R-MA), Ron Wyden (D-OR) and John McCain (R-AZ).

Cost-cutting measures from the once-dismissed Obama budget, like enforced drug rebates for Medicare/Medicaid dual eligibles and a shortened biologic exclusivity period, are now back on the table, as is the removal of the ban on Centers for Medicare & Medicaid Services (CMS) negotiating drug prices under Medicare Part D, and the tax deduction for pharma advertising, once supported by the GOP. There’s also the question of tax repatriations; the White House signaled in March that it would not support a repatriations tax holiday like the one in 2004, which temporarily cut the corporate tax rate from 35% to 5% on dollars flowing in from overseas.

All of these proposals could do significant damage to industry profits. According to CMS, the U.S. government paid a combined $74.8 billion for prescription drugs under Medicare and Medicaid in 2009, a figure that underscores the importance of government as a pharma customer here in the US.

Meanwhile, European governments are subsumed in their own debt crises, with a major ripple effect possible as Greece, Portugal, Ireland, Spain and now Italy struggle to impose harsh austerity measures. Social outlays are so large a part of the debt problem, that health — and drug — spending must figure as a target. Portugal for example is endorsing cross-national reference pricing based on a benchmark of the three countries with the lowest prices. Can the big markets like France, the UK and Germany be far behind? An even more dramatic scenario is the impact of a possible break in the 17-country Eurozone, which would restore parallel trade as a bona fide commercial strategy for drug distributers throughout the region.

Industry’s response to date has been sporadic, ad hoc, and deeply unpopular as evidenced by the negative reaction in Greece over company decisions to terminate business and withhold access to hospital supplies of vital medicines. Apart from recording revenue losses on their balance sheets, industry needs a rethink; how to remain viable players in health systems that have little choice to shrink to something leaner — and meaner. A stronger value proposition and a refusal to remain a silo purchase is one way to start. What other ways can industry respond to the debt crunch?

Working towards our top issue for the June edition of the HCR Monthly Review, I continue to be struck by the amount of macroeconomic data that will be driving the new HCR law. Indeed, most of the key performance measures in the 2010 statute are directly tied to the nation’s financial performance.  That is, our future healthcare delivery, or at least the provision of service under Medicare, will actually be calibrated and delivered based on our GDP and that, friends, is a new concept in American society.

One of HCR’s most compelling new tools, designed to respond to the results of the GDP, is known as the Independent Payment Advisory Board, or IPAB.  IPAB has attracted my attention lately, if only because of the large number of media reports that suddenly have been generated over this new acronym.  Check these out:

http://tinyurl.com/3rgczga

http://tinyurl.com/43ke72k

http://tinyurl.com/3ukafrt

http://tinyurl.com/3mchrmv

In particular, interest in the IPAB has been heightened since President Obama stated on May 8th that the new IPAB entity is part of the way he believes the Administration can “get at the general deficit issue”…i.e., he would reduce costs in the overall economy by expanding the authority of the IPAB to control health care costs.

Interesting…Ramping up the power of a relatively obscure, untested HCR concept that is not yet even formally in existence–to address the overall budget deficit?…But let’s keep moving here.  Clearly, something significant is going on with this IPAB idea, and so, for June, the HCR Monthly Review will take a shot at discussing the highlights of IPAB and try to understand why this issue has become so “hot.”

The Theory
So, what is the overall theory of IPAB?  Broadly writ, it appears this entity will serve as HCR’s  “enforcement arm.”  Starting in 2014, if, and let’s be honest here, when the costs of Medicare run over a certain prescribed target each year, IPAB will be responsible for staying within the prescribed Medicare budget by making adjustments in Medicare payments.   Essentially, per my above comments on GDP influences in HCR, depending on the data gathered on the pricing of health care, IPAB will have to adjust per capita Medicare reimbursement rates based on the performance of the healthcare sector and the broader GDP.  In short, although currently limited to only Medicare, it appears IPAB is set to become the first national administrator of healthcare price controls in the US.  (If you are really curious about the deeper details of IPAB powers, the best overall summary I have found is Kaiser’s report: http://tinyurl.com/3ns2tqn)

What led to the creation of IPAB?  Since Medicare was established in 1965, there have been many moments when it was clear that Congress either lacked the will and/or understanding of healthcare issues to effectively manage the important decisions that needed to be made in the delivery of Medicare.   A large portion of this, of course, was linked to political considerations; but some of this was clearly due to insufficient healthcare knowledge.  In the end, as is frequently the case when factors like these play into Congressional decisions, Congress simply did nothing…only making a bad situation for Medicare, worse.

And so, not surprisingly, as Congress battled through HCR in 2009 and 2010, one key issue that kept emerging in the debate was the need for an “independent” authority that could “dispassionately” apply deep healthcare insights to tough Medicare questions, and most importantly, make the hard decisions needed to keep Medicare fiscally solvent.  As Congress envisioned it, this entity would be made up of healthcare professionals, and although overseen by Congress, the panel would be given great latitude to rule on all manner of difficult healthcare issues that might wash over Medicare.  And, oh, by the way, ultimately the creation of IPAB would also take Congress completely off the hook in making these difficult Medicare calls…

In the end, primarily championed by Sen. Jay Rockefeller (D-WV), IPAB emerged as a key plank in the new HCR law.  And only lately (per the above noted stories) have we all begun to realize just what Congress created.  Some have described IPAB as “the answer” to dealing with the cost crisis in healthcare for not only for Medicare, but also, potentially, for all US healthcare; while others decry it as the much feared “death panel” that will have the power to determine who lives and who dies in our society.

So, no matter how you come down on the idea, it’s a fairly major, new concept in American healthcare.  I have been mulling over IPAB this past month…and here are a few aspects of the entity that I have found intriguing.

The IPAB Board
First, this will be an appointed board; not elected.  As such, IPAB is tied directly to the Executive branch and all fifteen members of the IPAB will be appointed by the President (So far, no one has been appointed).  Twelve of the fifteen appointees will be seated only after Congressional approval; and three others will be appointed by the President, “in consultation with the Majority and Minority leaders of Congress.”  So, the folks serving on IPAB will not be electorally responsible to the citizens who will experience the medical results of IPAB’s decisions.  Interesting.

Further, these IPAB appointments are to be “real jobs.”  That is, whoever takes one of these positions will not be allowed to “moonlight” as a physician, insurance exec, pharmaceutical rep, nurse, pharmacist, union executive, etc.  It’s gonna be all or nothing to serve on the IPAB…with a set annual salary of $165,300.  Staggered terms of one, three, & five  years will be established so that there is a regular rotation of members, with each member serving no more than two consecutive six year terms.  (This is what is known in Washington, DC…as a “very good government job.”)  However, this “dedicated job” criteria of the position does potentially present some issues.  Logically, you would think that we would want our most qualified health professionals…think doctors, medical researchers, health lawyers, economists, etc., to serve on this panel.  But let’s be honest here.  Frequently those folks are earning considerably more than the federal stipend offered here, and, therefore, will likely not be keen to serve twelve years on this panel.  So, who will?  Hard to say.  However, as a result, it’s easy to understand why some folks are already uneasy about who will actually end up being appointed to this very important panel.

IPAB’s Power
Second, as alluded to earlier, this outfit will have substantial regulatory power to control and enforce the budgets of Medicare.  IPAB’s bottom line for cost controls will be based on per capita spending in Medicare, driven by the broader performance of the US economy.  To put this in context, the 2010 statute establishes a very clear formula for determining target growth rates for Medicare spending that IPAB is responsible for executing and controlling, starting in 2014.  Check this out:

“For 2015 through 2019, the target for Medicare spending per capita is the average of general and medical inflation: Specifically, the average of the projected percentage increase in the consumer price index for all Urban Consumers (CPI-U) and the medical care expenditure category of the CPI-U. For 2020 and later years, the target for Medicare spending per capita is the increase in the gross domestic product (GDP) plus one percentage point, which historically has increased at a higher rate than the CPI-based measures.”
http://tinyurl.com/6bp7t2m (p. 6)

So, there is really no doubt about it.  Pertaining to Medicare cost controls, these guys are locked in and will have full authority to hit their fiscal goals.

IPAB Cost Control Mechanisms
Third, there are obviously only so many ways to control costs in Medicare and that is what really has everyone up in arms.  What are the likely approaches IPAB will take to accomplish this?

Providers
Well, obviously, healthcare providers are a great cost control target.  If their fees can be cut or otherwise controlled, it will reduce Medicare’s costs.  However, that approach is clearly one of the major sore spots in the IPAB concept.  Since 1997, physicians practicing in Medicare have been subjected to a concept created by Congress called the Sustainable Growth Rate (SGR) provision of Medicare. http://tinyurl.com/6h2canw SGR was designed to systematically reduce and control physician payments under Medicare and it is fair to say that Congressional administration of the concept has been a disaster.  Year after year, Congress has been forced to patch up the law, and to date, no one is happy with it, least of all, the doctors.  (Are you now beginning to understand why Congress wants out from under this Medicare responsibility?)  In fact, the SGR “Fix” became a major issue during the HCR debate and in the end, Congress was not able to resolve the problem.  So, as you can imagine, doctors, and really all providers, are not sold on a broader, more comprehensive version of SGR as envisioned in the IPAB.  It seems to me that this alone presents a huge prospective problem for the IPAB panel in terms of controlling provider costs.

Medical Services
The second area for potential cost controls would include entities that deliver healthcare products or services to Medicare.  Pharmaceutical and biotech firms, instrument & device medical supply manufacturers, home health suppliers, insurers, diagnostic centers, etc, make up this group.

How will IPAB obtain cost savings from this group?  Let’s take the example of the pharmaceutical industry…Currently, the industry is subjected to significant rebate mandates under HCR.  On May 8th, however, the President made it clear that IPAB “could look” for more savings in the Rx area.  His suggestion?  Aggressively extending the use of a mandatory generic, as well as perhaps a therapeutic substitution policy, in all Medicare services, while demanding more rebates from Rx manufacturers for their brand name drugs in order for them to participate in the Medicare program.  http://tinyurl.com/5rd8d5v

The take away?  We can anticipate that the same sort of mandated cost savings approach is in store for all other medical services.  Needless to say, none of the medical services group, to date, seem to be enthusiastically endorsing this line of cost control thinking for Medicare.  Again, I would anticipate tough sledding for IPAB as they go down this cost control road…

Rationing
The third obvious way to cut Medicare costs is to simply reduce those medical services available to Medicare patients, i.e., rationing care.  This, of all the inflammatory terms thrown around in the HCR debate, is certainly the most volatile.  Indeed, the application of “rationing” is actually prohibited in the law.  http://tinyurl.com/6bp7t2m (p. 10)   That said, given the options available to IPAB, it is also the one concept most likely to be utilized as they struggle to control costs under the mandates of the HCR law.  Why?  It is the most direct way to get at the problem of cost overruns that they are mandated to control.

Thus, when pundits and opposition politicians accuse IPAB of potentially being little more than a US-version of the much reviled British National Health System’s “National Institute for Health and Clinical Excellence” (NICE), http://tinyurl.com/6d9ehrg — the NHS entity that brings the hammer down on British patients by deciding what care they can and cannot have — they may well be right.  Certainly, however, the Administration does not want to talk about Medicare rationing as a viable cost control approach, and understandably does not want to compare IPAB to NICE.

So, where do we come out on cost control options for IPAB?  As discussed, anyone of these concepts has the potential to be politically explosive, and, thus, difficult to execute.  In fact, I must say that the idea of being asked to serve on a panel of citizens, charged with “controlling” Medicare’s costs, and being faced with the prospect of implementing cost control options such as those just described is somewhat unsettling.  Frankly, who would want this assignment?

To begin to wrap up this brief discussion, there is obviously much more that needs to be said about the IPAB.  My mission today, however, is only to scratch the surface of some of the more interesting aspects of this new panel.  To say that this concept is incredibly important and that its healthcare impact will be profound is to understate the obvious.   Frankly, it appears that IPAB will be the lynch pin of the entire cost control theory that is being advanced under HCR, and that is clearly why the concept has become so controversial.

And, to put it plainly, if IPAB does not work, it is hard to see how the broader cascade of ideas presented in HCR will hang together.  Just too much depending on these cost controls.  And if IPAB fails, then what?  Perhaps we go back to having Congress make the decisions on Medicare?  I don’t think so.  Congress won’t allow it…

That’s my point of view on IPAB, the Independent Payment Advisory Board, as a key aspect of HCR…and an acronym that you need to understand.  I would appreciate hearing your thoughts on this important cost control entity.

Tom Norton
www.nhdcomm.com

Many trends start on the West Coast and migrate to the rest of the nation. The Washington State health care system is worth watching as officials evaluate the economic value of medical treatments for state workers and Medicaid patients. It’s another sign of the trend among those who pay for health care to demand proof that they are getting good value for money.

The Washington Health Technology Assessment (HTA) committee is holding public hearings to collect data on the effectiveness of medical treatments. These hearings, as The New York Times recently noted, represent a public policy laboratory in which medical providers, drug companies and patients testify about the merits of various treatments—to determine which procedures, drugs, devices and therapies will be covered by state health care dollars. A recent hearing by the committee drew participants from as far away as Australia.

The HTA committee —which is composed of seven doctors, a nurse, a speech pathologist, a chiropractor and a naturopathic physician—uses public testimonies as well as clinical trial reports to make its decisions, the main criteria for which are patient safety, therapeutic efficacy, and total direct cost per year. Note that the cost of treatment is a key factor, “akin to Britain’s National Institute for Health and Clinical Excellence (NICE),” as The Times notes.

Although Washington State’s program only affects the coverage of state employees, Medicaid patients and injured workers—a total of 750,000 people—it is not an isolated policy move. The Drug Effectiveness Review Project (DERP), an alliance of 11 states and two private organizations (the Oregon Evidence-Based Practice Center and the Center for Evidence-Based Policy), has been gaining significant traction since 2006 in its mission to “produce systematic, evidence-based reviews of the comparative effectiveness and safety of drugs in many widely used drug classes, and to apply the findings to inform public policy and related activities in local settings.”

The DERP was started in 2000, when the state of Oregon saw its Medicaid drug spending rise 60 percent in one year. In an effort to limit pharmacy expenditures, Oregon passed legislation instituting a preferred drug list “for which effectiveness of drugs was to be considered first,” the DERP website explains. “If drugs were found to be equally effective, considerations would then be given to cost.”

Now with 11 state agencies participating—stretching from the Oregon Health Plan in the West to New York Medicaid in the Northeast—it’s clear that the push for value in health care, amplified by tightening state budgets, puts more pressure on pharmaceutical companies and medical device makers to demonstrate that their offerings are safe, effective and give good value for money. (Check out Idaho’s public list of preferred and non-preferred prescription medications for ailments from Alzheimer’s to ulcerative colitis.)

Of course, European health care authorities, led by Britain’s NICE, have been making these evaluations for years. And the U.S. made a small but symbolically important step in this direction, when the health care reform law included $1.1 billion to fund clinical trials and systematic reviews of published scientific studies to compare the effectiveness of different treatments.

The private sector tends to act more quickly than government when it comes to saving money, and insurance plans regularly use cost effectiveness data to ration expenditures, or make drug and device coverage determinations. Last year, Medco Health Solutions bought United BioSource—a company that evaluates the comparative effectiveness of drugs—for $730 million. WellPoint released its own comparative effectiveness guidelines last May.

Looking at drugs in terms of cost and benefit isn’t going away, and that presents challeges for executives in the pharmaceutical and medical device industries. Successfully communicating the impact of a new product with multiple audiences, including non-experts, will be a key skill for executives hoping to keep their drugs on formularies and state Medicaid preferred drug lists.

Cameron McClearn is a partner at Monitor and co-leader of Monitor’s Global Market Access initiative. He is based in Monitor’s New York office and can be reached via e-mail at Cameron_McClearn@Monitor.com

Lots of industry CEOs traveled to the White House and shook hands with President Obama during the spring and summer of 2009, and while the specifics of those conversations haven’t been made public, the result was industry support of healthcare reform, and a pledge of $80 billion in savings on drug spending over ten years.

Industry support, political and financial, comes at a price, and in some respects, the Patient Protection and Affordable Care Act was notable for what it didn’t contain: shortened data exclusivity periods, Medicare and Medicaid dual eligibility rebates, pay for delay restrictions on generic market entry, and most importantly, no recourse for price negotiations to leverage the market power of the Centers for Medicare & Medicaid Services (CMS) under the Medicare part D drug benefit.

Those hard-won omissions protected industry profits, but now they’re back on the table, as reducing the national deficit has become one of the noisiest political issues in the US, just in time for the start of election season. The Obama Administration’s proposed budget for 2012, and a new deficit reduction framework that “builds on the Affordable Care Act by including new reforms aimed at further reducing the growth of health care spending – a major driver of long-term deficits,” both target the very practices that industry thought it had safeguarded during healthcare reform negotiations.

PhRMA is crying foul. “Unfortunately, the President’s approach to reducing our deficit fails to consider the impact on the entire policy tapestry – local and federal – that influence our industry’s current and future health,” said John Castellani, PhRMA president and CEO, in a statement following Obama’s budget speech last Wednesday. “Specifically, proposals to expand rebates, saddle seniors with higher premiums and slash data protection for biologics are bad for patients and are bad for innovation.”

Obama’s speech at George Washington University last week didn’t directly address shortening biologic data exclusivity protections from 12 years to seven years, for example, but industry read between the lines when the President said things like “We will cut spending on prescription drugs by using Medicare’s purchasing power to drive greater efficiency and speed generic brands of medicine onto the market.”

However, a description of terminations, reductions, and savings included with the proposed budget for 2012, released in February, was explicit: “Under the Administration proposal, beginning in 2012, innovator brand biologic manufacturers would have 7 years of exclusivity and would be prohibited from receiving additional exclusivity by ‘evergreening’ their products.” That change would reduce federal spending by $2.3 billion, between 2012 and 2021, according to the budget document. Prohibiting “brand and generic drug companies from delaying the availability of new generic drugs” would save the government $8.8 billion during the same period, the document says.

As detailed in the deficit reduction framework released last week, Obama will also strengthen the Independent Payment Advisory Board (IPAB), created by the Affordable Care Act. Specifically, the IPAB will set a target cost for Medicare beneficiaries, based on GDP per capita data plus 0.5 percent, and recommend actions to Congress if costs rise above that target. The IPAB will also get additional enforcement mechanisms, such as “an automatic sequester as a backstop” to other Medicare reforms, to keep costs in check, according to the framework.

On top of that, new price negotiations between CMS and industry are likely to occur around the issue of the notorious dual-eligibles, those nine million beneficiaries eligible for both Medicare and Medicaid that consume 40 percent of total Medicaid spending, according to the deficit reduction framework. An Obama 2012 budget proposal would also “enforce Medicaid rebate agreements,” and “increase penalties on drug manufacturers for fraudulent non-compliance with Medicaid drug rebate agreements.” The budget doesn’t attempt to predict how much money those two proposals would save the government, but the HHS Office of Inspector General’s December 2010 report on industry fraud and abuse did impose significant multi-million dollar fines on several companies for violations of the rebate rules. A report from The National Commission on Fiscal Responsibility and Reform, which also came out in December, estimated that $49 billion could be saved through 2020, and $7 billion through 2015, by extending the Medicaid drug rebate to dual-eligible beneficiaries.

So what did industry get for its support of healthcare reform and $80 billion? Well, no one is talking about importing drugs from Canada, at the moment. Nor is there as much interest in a proposal recently floated by legislators in both parties to tighten or eliminate the tax deductibility of promotional ads for prescription medicines. But the move to gore the industry asset ox is definitely on in Washington, and big pharma will need all its lobbying clout to keep that $80 billion “contribution” from moving into the triple digits. At some point, it’s going to add up to real money.

Solomon has 30 days to explain to the OIG why he should not be punished for illegal activities conducted by Forest Pharmaceuticals, a subsidiary, which pled guilty to a felony obstruction of justice charge, two misdemeanors related to distribution of an unapproved drug – Levothroid – and the off-label promotion of two anti-depressants, Lexapro and Celexa, last September. Forest settled those charges – criminal and civil – by coughing up over $313 million.

It’s not the first time a CEO has been taken to task by the OIG – three executives including the CEO of Purdue Pharma were banned from Medicare and Medicaid in 2007, and lost their jobs as a result – but with Purdue, those executives pled guilty to misdemeanor charges. Eighty-three-year-old Solomon, however, was not named in the criminal or civil proceedings of the Forest case and eventual settlement.

“One of the things that is different about this notice of intent to exclude, is that it’s an action taken against an individual who was not charged by the Justice Department,” said Ginny Gibson, partner at the law firm Hogan Lovells. “In the other cases, the Justice Department has taken action against the person or entity that the Inspector General is acting against. This is an exclusion of someone who did not commit a felony, so there’s no mandatory exclusion, and he did not plead guilty to a Park Doctrine misdemeanor.”

The so-called Park Doctrine gives the Inspector General the power to exclude executives charged with a misdemeanor from federal healthcare plans, and FDA released new guidance on Park Doctrine prosecutions in February. While Forest Pharmaceuticals did plead guilty to criminal misdemeanors as part of the settlement, Solomon is CEO of the parent company, Forest Labs, and therefore once removed from those charges, said Gibson. However, Forest Labs did settle civil fraud allegations in connection with the False Claims Acts, involving Levothroid, Celexa and Lexapro.

In a statement, Forest Labs’ vice president and general counsel, Herschel Weinstein, said that “numerous other major pharmaceutical companies have pled guilty to much more egregious offenses, and none of them has faced the exclusion of a senior executive who has not himself been convicted of a crime or pleaded guilty to a crime.” That may be true, but the settlement with Forest Labs in September of 2010 closely coincided with the October release of the OIG’s Guidance for Implementing Permissive Exclusion Authority, under the Social Security Act, which states, among other things, that “OIG will consider the conduct alleged by the government in a civil False Claims Act settlement with a corporate parent of the convicted or excluded entity,” as grounds for exclusion.

“Under the permissive exclusion guidance, if Solomon was an officer or managing employee of Forest Pharmaceuticals, and if he was exerting either operational or managerial control, or directly or indirectly conducting day-to-day operations, presumptively, he could be excluded [under the new guidance],” said Gibson.

In order to incentivize the formation of ACOs, the CMS guidelines for the Medicare Shared Savings Program would reward ACOs that treat Medicare Part A and Part B beneficiary populations at or under a pre-determined cost benchmark; for those ACOs that keep costs below the benchmark, as much as 60% of the money saved would be distributed back to ACO members. Benchmarks for specific ACOs would be determined by average per capita Medicare Parts A and B expenditures, according to the proposed guidelines. Exceeding the benchmark, however, means being held accountable, or paying the government for overage costs.

Are physicians ready to take on that kind of risk? “Frankly I think that [risk] is one of the things that will limit the number of institutions or organizations that are interested in playing here,” said Dan Mendelson, CEO of Avalere Health, a consulting firm. “If you have excellent data systems, and you understand risk, and you have control over your providers in terms of utilization, you’re probably a managed care company already,” he said. Managed care organizations are not eligible for the Shared Savings Program. Jeremy Lazarus, speaker for the American Medical Association (AMA) House of Delegates, said in a statement that “ACPs offer great promise for improving care coordination and quality while reducing cost, but only if all physicians who wish to are able to lead and participate in them.” A spokesperson for the AMA said more time was needed to digest the guidelines, before making additional comment on whether a critical mass of physicians would join or create ACOs.

Regarding the impact of ACOs on drug sales, Mendelson noted a “broad flexibility for ACOs to introduce concepts like step therapy,” or the practice of beginning treatment with the safest and cheapest drug therapy. With ACOs, the “organization controlling the spend is no longer the physician, it’s now the system,” said Mendelson. “From that perspective, [ACOs] look more like Kaiser [Permanente] than like selling into an oncology practice.”

John Kamp, executive director of the Coalition for Healthcare Communication, said ACOs represent additional pressure toward the use of generics and other cheap alternatives. In order to cope with those pressures, drug marketers will need to become more sophisticated in “talking about the system economics of using specific new drugs, as well as the individual patient outcome,” said Kamp. “The short-term cost pressures are much more acute than long-term cost savings.”

To participate in the Shared Savings Program, an ACO will need at least 5,000 beneficiaries on its roster, healthy and sick, according to the guidelines. “One of the things that emerges here is that if you can enroll patients who do not have multiple sclerosis or cancer or other biotech-targeted conditions, you’re going to do better,” said Mendelson. “There’s an incentive for the selection of healthy patients that the government will need to mitigate over time.” According to the guidelines, ACOs taking steps to avoid “patients at risk in order to reduce the likelihood of increasing costs” will face sanctions, which could include “termination from the program.”

Health providers eligible for participating in the Shared Savings Program include physicians in group practices, networks of individual practices, partnerships or joint venture arrangements between hospitals and physicians, hospitals employing physicians, and “other groups of providers of services and suppliers as the Secretary determines appropriate,” according to the guidelines. ACOs must enter into a three-year agreement with CMS to be eligible for the savings incentives, using one of two proposed models described in the guidelines.

Last week, Erskine Bowles and Alan Simpson, co-chairs for President Obama’s bipartisan National Commission on Fiscal Responsibility—formed as an attempt to create a long-term plan to reduce the national deficit—released their preliminary report. Intended as a model for discussion and a way to test the waters before the full Commission report is due next month, proposes to cut federal spending to an overall target of no more than 20.5 percent of GDP by 2040.

Health outlays are given relatively mild treatment in the report.  It proposes no new structural changes to the subsidized Medicare and Medicaid programs, even though most experts agree that a significant overhaul is needed if serious reductions in the deficit are to be achieved. Instead, the chairs rely heavily on existing projections of cost savings as the comprehensive new reform bill is implemented. It also builds on pilot projects linked to cost efficiencies to be drawn from operation of the new health insurance exchanges at the state level that will be introduced in 2013-2014.  In essence, the report carefully avoids throwing a new spanner into the machinery of Obamacare.

There are some add ons to reform that did not make it into the legislation approved by Congress in March, including comprehensive medical malpractice reform. Bowles and Simpson also propose a rise in the rebate floor for Medicare Part D — payments are already slated to rise from 15 per cent to more than 20 per cent — as a way to capture additional savings.  Many of the estimated 30 million new eligibles for insurance cover expected after 2014 will qualify for Medicaid drug coverage; higher rebates will reduce big pharma’s potential revenue gain from this covered population, undermiining one of its key objectives in reform.

Another significant proposal is to strengthen the role of the new Independent Payment Advisory Board, which in the Obama reform bill has the power to mandate – subject to a congressional option to intervene – reductions in both private and public sector payments for Medicare in line with larger indicators like inflation and GDP growth.  Finally, the chairs favor the US joining the rest of the industrialized countries by endorsing an annual global target for total federal healthcare spending after 2020, at no more than GDP plus 1 percent.

Although it is unclear whether these ideas will find their way into law, the direction is clear: health care spending will be subject to formalized cost constraint rather than being left to mediation by market forces. Medicines have never benefited from the reliance on global budgets, because medicines are easy to single out and can be viewed as discretionary commodity purchases, where more of the burden can be shifted to the patient. In other words, global budgets place the industry in the difficult position of being “lender of first resort” when governments start seeking ways to meet their targets, which also are distinguishable by being overly optimistic.

Perhaps the biggest negative of all is the Bowles-Simpson blueprint injects a further note of uncertainty into the long pharma planning cycle.  Companies will have to try to factor in the likelihood of the final Commission report advocating something radically new in controlling drug and health care costs, precisely at a time when the GOP Congress is proposing to rollback or repeal major elements of the Obama reform package.  A predicatable pathway to a new ideal state of US health care new seems more remote than ever.

FDA aims to instigate a pilot project, due to begin after a public comment period, to explore an ‘overlapping’ decision-making and approval process with CMS — where the product sponsor and both agencies agree to a parallel review — designed to speed up a product’s journey from FDA marketing approval to CMS national coverage determination (NCD).

At present, the process can be frustratingly slow, as products undergo another review by Medicare officials for health insurance coverage purposes after winning FDA approval. In its September 16 notice, FDA conceded that a “positive coverage decision after a long time lag following FDA approval or clearance can delay consumer access to new medical products.”

The planned move could have some far-reaching implications. Reuters highlighted that the process could affect people not on Medicare, as Medicare’s coverage decisions often influence private insurers’ own reimbursement policies. Ultimately, “a decision by Medicare to cover a new product can speed its adoption in the wider marketplace”.

But concerns were voiced by Edward Berger, of Larchmont Strategic Advisors, in a blog post for MassDevice News. Berger raised doubts about the project’s potential for synchronicity, and warned that it could herald the widely feared arrival of health economics to the regulatory approval process, a state of affairs well known in Europe.

“The intrusion of cost-benefit considerations into the regulatory approval equation has for some time defined industry’s worst nightmare and the fear… is that free communication between FDA and CMS would open the door to using cost as a market approval consideration,” said Berger. He added that existing examples of Medicare coverage and payment determinations that “were essentially simultaneous with FDA market clearance” (such as drug-eluting stents), have established that the “vast majority of new technologies and drugs have not benefited from the compressed timeline to coverage that is the attraction of a parallel review process.”

Public comments on the FDA/CMS proposal can be submitted at regulations.gov until December 16.

Sound harsh? Lewis Morris, a 29-year veteran of the Office of the Inspector General and its top lawyer, was more than happy to make the “responsible corporate official” case to Pharm Exec.

Pharm Exec: Can you begin by explaining what you do as the counsel to the Office of the Inspector General?

Lewis Morris: Over the last decade, the Department of Justice and the Inspector General’s Office have been pursuing a significant number of cases involving the pharmaceutical industry, as well as device manufacturers, hospitals, and doctor. Under the civil False Claims Act, a company can be liable either for promoting the off-label use of a drug, for misrepresenting the pricing of a drug to Medicaid or Medicare, and other fraudulent conduct. In addition, a pharmaceutical manufacturer can be liable under our criminal authorities for submission of fraudulent claims, paying kickbacks to doctors, and other activities. After a case has been thoroughly investigated by our agents and other partners in law enforcement, the question becomes how to structure a global settlement that puts the matter to rest in the best interests of the American people—and that’s where our Office of Counsel comes in.

The OIG has a unique authority to exclude from Medicare and Medicaid any individual or entity that has been convicted of healthcare fraud, abuse, or related offenses. If a company has engaged in, say, a $100 million fraud—that’s a pretty modest sum these days—we have to make a decision whether to seek to throw them out of the Medicare and Medicaid programs. If they’ve been convicted of Medicare fraud, a criminal conviction, their exclusion is mandatory. More likely than not, that would be a deal breaker for any company [because most of its profits come from sales to the federal government]. It’s not going to voluntarily commit suicide by pleading to a criminal charge. So they’re likely to have brought their high-priced lawyers into the act, negotiated a settlement, which gives them at least the option of staying in business.

Pharm Exec: There’s been talk in the media that you’re going to start going after individual executives at drug companies responsible for committing healthcare fraud. Is that true?

Morris: Yes. Part of our strategy is to say to companies, “it’s not business as usual anymore.” And the reason is that the first time around, we give everybody the benefit of the doubt. Everybody was entitled to have one mistake in the integrity of their company. And, particularly, in light of the importance of pharmaceuticals and the needs of our beneficiaries, that is a good policy.

Pharm Exec: Do you prioritize your array of tools—selling meds, relinquishing exclusivity, holding individual executives accountable—in terms of severity?

Morris: We are going to look at the facts and the circumstances of a particular case and decide which of our many tools will do the best job of protecting our beneficiaries and our program. But ultimately the Inspector General’s Office is not here to mete out punishment. We are here to protect the integrity of the Medicare and Medicaid programs, to promote their efficiency and their effectiveness, and Congress has given us a mandate to remove from the program those who have abused our patients and demonstrated that they’re not trustworthy.

Read the whole Q&A in the June issue of Pharm Exec.