by admin | December 2, 2011 8:13 pm
December 2, 2011—Witnessesses testifying before a U.S. House subcommittee largely agreed that Medicare pharmacy reimbursement is one of the core reasons behind critical shortages of generic injectable drugs, but they differed over whether 340B discounts are a factor.
[ms-protect-content id=”2799″]The House Oversight Subcommittee on Health Care held the Nov. 30 session to hear from experts on what is causing the shortages of more than 200 medications, the vast majority of them injectable oncology drugs, anesthetics, and emergency room products. The Senate Finance Committee has scheduled a hearing on shortages for Dec. 7 and the Health, Education, Labor, and Pensions Committee will hold another on Dec. 15.
According to the Food and Drug Administration (FDA), roughly three out of four drugs in short supply in 2010 were sterile injectable medicines. Fifty-four percent of those shortages were due to product quality issues, it said, and another 21 percent to production delays and capacity issues.
The House hearing focused mainly on oncology drugs and on economic forces fueling the shortages. Four of the five witnesses singled out the Medicare Modernization Act of 2003, which switched the basis of Medicare Part B reimbursement for physician administered drugs from average wholesale price (AWP) to average sales price (ASP) plus an add-on payment to cover overhead costs. This model, the witnesses said, effectively limits price increases to no more than 6 percent annually. Given generic injectable drugs’ relatively slim profit margins and relatively high production costs, they said, manufacturers have little incentive to keep making the drugs or to enter the market.
Sen. Orrin Hatch (R-Utah) is expected to introduce legislation soon[1] that would change the basis of Part B reimbursement for “medically necessary” drugs from ASP to wholesale acquisition cost (WAC). Dr. Scott Gottlieb, a resident fellow at the American Enterprise Institute and former deputy commissioner of the FDA, told the House subcommittee that such a move would allow generic firms “to more quickly adjust charges to match rising production costs and meet demand.”
340B’s Effect Disputed
Hatch’s bill, however, reportedly will also halt Medicaid rebates and 340B discounts on drugs in short supply for possibly up to three years. In his opening remarks, House subcommittee Chairman Trey Gowdy (R-S.C.) appeared to endorse the idea, noting that 340B’s recent expansion could be contributing to the shortage problem.
The panel’s ranking Democrat, Rep. Danny K. Davis of Illinois, took strong issue with such suggestions, as did Rep. Chris Murphy (D-Conn.).
Noting that his metropolitan Chicago district includes a number of 340B hospitals, Davis said he finds it “hard to believe this small but critically important program is of the magnitude to affect the drug market in this way.”
“We’re spending most of the time here talking about pricing, and yet the data coming from FDA suggests the biggest problem is manufacturing,” Murphy added. “None of the reasons the FDA cites are due to pricing issues and certainly none is related to 340B.”
Davis asked the witnesses if they could cite “any specific evidence that drug shortages are significantly affected by the 340B program.”
“We have seen no evidence to support that claim and I personally don’t find it to be highly likely,” answered Dr. Kasey Thompson, a vice president of the American Society of Health System Pharmacists (ASHP). “The 340B program makes up about 2 percent of the national drug market. It just doesn’t seem that likely.”
Dr. Michelle Hudspeth, chief of pediatric hematology and oncology at the Medical University of South Carolina, agreed, observing that none of the drugs in short supply during the past two years has had its 340B ceiling price fall to a penny.
“Drug manufacturers feel differently” about 340B and shortages, Gottlieb said. With the program’s expansion, “a growing proportion of drug utilization is beginning to shift into that program and it’s creating a lot of uncertainty in the marketplace.” he said. “I sympathize with the idea that we need to subsidize these hospitals. I just wish we could find a way to do it directly rather that doing it indirectly” through drug discounts.
“340B is a wonderful program,” added Ted Okon, executive director of the Community Oncology Alliance, which represents private practice oncologists and their patients. But, he observed, when Medicare drug reimbursement switched from an AWP to an ASP basis, generic drug manufacturers were forced to switch from competing on price margins to competing on actual sales prices. There has been steady downward pricing pressure on most generics since ASP-based reimbursement was introduced, Okon continued, and ASP masks the true magnitude of the decline in prices since it does not include 340B discounts, which have been increasing in volume. Medicaid rebates have been exerting further downward pressure on pricing, he noted.[/ms-protect-content]
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