Life Science Compliance Update

July 21, 2017

FDA Hearing on Innovation and Access


Earlier this week, the Food and Drug Administration (FDA) held a public hearing entitled “The Hatch-Waxman Amendments: Ensuring a Balance Between Innovation and Access,” to address the agency’s plan to increase competition on the drug market while fostering innovation. A variety of stakeholders including academics/researchers, payers/providers, pharmaceutical developers, and patient/consumer advocates provided diverse input to a panel of FDA employees. The panel included Anna Abram and Elizabeth Dickinson of the Office of the Commissioner at the FDA; Keith Flanagan, Maryll Toufanian, and Kathleen Uhl of the Office of Generic Drugs at the Center for Drug Evaluation and Research (CDER), FDA; Grail Sipes of the Office of Regulatory Policy at CDER; Peter Stein of the Office of New Drugs at CDER; and Markus Meier at the Bureau of Competition at the Federal Trade Commission.

Opening Remarks

The meeting opened with remarks made by Dr. Scott Gottlieb, Commissioner of the FDA and Janet Woodcock, the Director of CDER. Dr. Gottlieb noted,

FDA doesn’t have a direct role in how drugs are priced. But at FDA, we do play a key, if indirect, role in the eventual cost of medicines. For one thing, our regulatory requirements impact the cost of drug development. On some level, drugs are ultimately priced to some measure of the cost of the capital needed to create them. These costs aren’t just a reflection of the direct cost of drug development, but also lots of indirect costs. They include the cost of scientific and regulatory risk. They also include the costs associated with the time it takes to develop a drug and gain its regulatory approval, and the costs associated with the research and development of experimental products that ultimately do not make it to market.

He acknowledged that the FDA does have some ability to help reduce the time and uncertainty of drug development by ensuring its regulatory requirements are efficient, predictable, and science-based.

He also pointed to another way the FDA can have an impact on drug costs:

by encouraging competition. Consumers derive greater value when they have access to more choice and competition. This is especially true when it comes to new drug categories. Novel drugs that are therapeutically similar, or can be used interchangeably, can provide price competition. In other instances, they offer important clinical differentiation for patients who might not respond to one particular drug, but benefit from a medicine that works through a slightly different mechanism.

Commissioner Gottlieb further noted that the FDA will address “gaming” of the system that keeps generics out of the market. He said that the FDA is taking steps to “improve our own regulatory framework” including a highly efficient review cycle to “increase the speed at which generic drugs can enter the market.”


Academic Perspectives

Researchers and academics focused heavily on increasing competition through: reforming REMS regulations; addressing harms from citizen petitions; and brand pharmaceutical marketing practices.

Michael Carrier, an expert in the pharmaceutical industry and antitrust laws at Rutgers Law, stated that certain actions by brand companies distort the Hatch-Waxman Act to evade the system and impede entry of generics to the market, and that these actions “are not about innovation.” FDA panelists were interested in how to prospectively address the approximately 20 percent of reformulations, or changes in brand product, that are aimed at elongating exclusivity.

Harvard Medical School researcher Ameet Sarpatwari presented research showing that violations of REMS by brand companies restricted access to drug samples and therefore delayed generic entry. He used this data to advocate for the CREATES Act and FAST Generics Act, both of which he said would close REMS loopholes and potentially save up to $5.4 billion a year in reduced drug costs. Dr. Sarpatwari noted that in 2012, brand companies spent $24 billion marketing to physicians against generics, and $3.1 billion on marketing directly to consumers.

Payer and Provider Perspectives

Payers and providers expressed frustration with brand companies using FDA regulations to inhibit generic entry, including pay-for-delay, patent evergreening, and product-hopping.

Todd Ebert and Wayne Russell of the Healthcare Supply Chain Association proposed creating a more specific timeline for fast tracked applications for generic products, lowering the FDA review time to 8 months from the current 20 months, and prioritizing generics with no suppliers on the market. REMS reform continued to be a main topic for payers and providers.

Pharmaceutical Development Perspectives

Association for Accessible Medicines (AAM) President and CEO Chip Davis said that market realities allow for “gaming” of the system, noting that “innovation is flourishing but competition is not.” Davis stated that barriers for entry stall competition, and are exacerbated in low volume markets, as markets need at least three to four generics to reduce drug costs. He proposed waiving the requirement for a single, shared REMS system, reevaluating bioequivalence (BE) standards and improving the generic drug review process through PDUFA II. He noted that “failure to act will be significant and encourage anti-competitiveness.” The panel was receptive to Mr. Davis’s proposals, asking clarifying questions about the BE standard developments and low volume markets. All manufacturers believed that REMs should not be used to restrict access of generics to samples.

David Korn, Vice President of the Pharmaceutical Research and Manufacturers of America (PhRMA) stated that the innovator industry invests billions in research and development, and that IP protections supports long term sustainability for drugs on the market. He said that uncertainties in the patent system creates challenges for innovative companies, as patent challenges have been filed more frequently. The FDA panel asked Mr. Korn if there should be a requirement for companies to demonstrate reasoning for post approval changes and if these reasoning’s should be public.

John Murphy, Deputy General Counsel for Biotechnology Innovation Organization, noted that FDA efforts to publish a list of products where there is no competition “should go a long way to relieve concerns of competition for generics,” but also said that supplying unlimited samples for testing can be challenging for innovative companies.

Patient and Consumer Perspectives

Patient and consumer stakeholders echoed concerns about REMS and abuses of citizens petitions, though the bulk of the presentations centered around the patient experience. Speakers encouraged “regulatory humility” since abuse of government procedures presents a threat to competition.

The California Hurdle - SB 790 and Pharma


Seven states and the District of Columbia currently have regulations that limit or ban industry gifts to physicians, and it seems as though others are following suit. The California state Senate passed SB 790 in May 2017, a bill restricting pharmaceutical companies from giving gifts and incentives to medical professionals. This article reviews the changes SB 790 calls for, and what compliance professionals should keep an eye on.

The California Senate passed a bill (“SB 790”) in May 2017 that, if enacted, will change how pharmaceutical companies interact with health care professionals (“HCPs”). While standards and requirements for transfers of value are not new to pharmaceutical companies, SB 790 introduces new concepts for California, including:

• new standards for ‘allowable expenditures,’ which includes limitations on sponsorship of conferences or seminars that are educational, policy making, medical, or scientific;

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July 20, 2017

Accountable Care Organizations: Risk and Reward


In January 2015, HHS set the target of funneling 50% of Medicare payments through alternative payment models and tying 90% of fee-for-service payments to quality or value by the end of 2018. MACRA is part of that shift by changing the way Medicare pays physicians. Now, as reported by Modern Healthcare, the prospect of rewards from value-based care arrangements like ACOs is luring a “small but growing” number of ACOs into risker contracts with Medicare. However, as the article stresses, this is still a minority number of ACOs, with the vast majority in “upside-only” models where they share in savings but do not risk money if costs rise. It is also not clear that all ACOs taking on risk are prepared to be in such a structure.

ACO Models and MACRA

Under MACRA, the article points out that providers can avoid MIPS requirements if they have significant enough investments in eligible alternative payment models. However, most providers are not ready for this stage yet and CMS estimates around 10% of physicians in 2017 will qualify under MACRA as participating in an “advanced” APM.

Some of the existing Medicare models qualify as advanced APMs, but those participating in the ACO experiments are in models that do not qualify. The article notes that in 2017, only 42 of 480 ACOs in the Medicare Shared Savings Program qualify, for example. Other models are forthcoming, which should rise that number.

Investment Risk

Ultimately, the article describes, the upfront investment in infrastructure is risky enough for many ACOs, even without taking on downside risk. The average cost to participate in the Medicare Shared Savings Program was $1.62 million for 144 ACOs surveyed in the spring of 2016 by the National Association of ACOs. Forty-three percent said they'd “definitely or likely” quit the program if the CMS required them to assume risk for losses, although 84% said they would be willing in the next six years.

Revenue Loss?

According to a recent RAND survey, there are a number of scenarios under which a percentage of physicians increase their participation in advanced APMs, with the rest in the MIPS track. To project how much Medicare would spend on physician services under MACRA, the RAND researchers drew up three scenarios of physician participation in Advanced APMs. In each scenario, the percentage of physicians in these models increased from 8.5% in 2015 to 40% in 2030, with the rest in MIPS.

However, the scenarios differed by the relative riskiness — the potential upside and downside — of the advanced APMs chosen. In the lowest-risk scenario, physicians choose advanced APMs with financial risk similar to that for a CPCP medical home. In the highest-risk scenario, all the advanced APMs resembled Next Generation ACOs. The medium-risk scenario resembled a collection of medical home, Next Generation ACO, and MSSP Track 2 models. Generally speaking, the riskier the Advanced APM, the more money physicians stand to lose if they pump up the volume of services, according to the RAND study.

Results Still Questionable

CMS has promoted the cost savings of APMs, but reports from 2017 have raised doubts. Citing data from a number of APMs, a report found, for example, in 2014 CMS said the 20 ACOs in its Pioneer program, and the 333 in the Medicare Shared Savings Program, saved a total of $411 million. However, after paying bonuses to the strong performers, the ACO program reported a net loss of $2.6 million. And the fact that only nine health systems remain in Pioneer ACO program is telling, as many jumped ship over penalties tied to benchmarks deemed too high.

Even with this information, more recent research found that forty-seven percent of respondents said they don’t know which of MACRA’s two payment tracks they will fall under, indicating that most are still trying to figure out the ins and outs of the program, suggesting providers are still looking into possible ACO options that may best fit their practices.


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