Vantage point – Are charities the best way to pay for costly drugs?

When sales of its blockbuster prostate cancer drug Xtandi faltered last quarter, Pfizer pointed a finger at disruptions in charity care subsidies for low-income Medicare beneficiaries. While this could be read as reaching for a plausible explanation to defend a huge M&A move, the company has highlighted a weakness in how the US pays for drugs for the elderly that could have much wider repercussions.

Medicare enrolees must spend more than $7,000 before their financial obligations truly ease, a sum that patient assistance charities can step in to help cover. Last year, however, those paying out of pockets costs for prostate cancer patients ran out of cash, in part because of a government enquiry into pharma donations to these funds. The shortfalls appear to have eased in 2017, the head of the biggest US foundation told EP Vantage, but the disruption suggests that other high-cost drugs could be vulnerable to swings in patient support (see tables below).

Give it away

The dashboard warning light came on when Johnson & Johnson and Pfizer reported slipping revenue for their prostate cancer drugs Zytiga and Xtandi in their first quarter earnings reports. The reason, both companies said, was increased utilisation of underfunded patient assistance programmes, without fully explaining why this would lead to shrinking sales. The companies did not reply to requests to discuss the issue with EP Vantage

The simplest explanation is provided by Evercore ISI analyst Umer Raffat, who says qualifying patients are probably receiving Xtandi but Pfizer is not being fully reimbursed.

As to why the programmes are underfunded, the reasons are more complicated. In an interview with EP Vantage, Daniel Klein, chief executive of the Patient Access Network (PAN) Foundation, said in 2016 every prostate cancer programme ran out of funding and could not offer assistance for six to eight months, which he described as “unusual”. The PAN Foundation’s prostate cancer fund is closed now, but he said it will probably open and close two more times based on pledged donations.

Explaining the long 2016 closures, Mr Klein pointed to a combination of factors that included scrutiny of drug pricing, formulary adjustments that may have increased enrollee cost sharing, discussion of health care reforms during the US presidential campaign, and finally reduced donations by pharma companies.

The last factor was one highlighted by Pfizer chief executive Ian Read. The US Justice Department has subpoenaed documents from seven biopharma groups, including Pfizer and J&J, seeking information about their relationship with the PAN Foundation and other patient assistance funds.

The US attorney’s office for Massachusetts, which launched the investigation, would not comment on the nature of the enquiry. ISI Evercore’s Mr Raffat writes that the signs point to prosecutors’ concerns that biopharma donors may have been trying to direct patient access donations to patients seeking their specific drugs in violation of federal anti-kickback laws.

Chilling effect

Drug companies are allowed to give direct assistance to patients covered by commercial insurance. For government programmes like Medicare and Medicaid, however, anti-kickback regulations require that the assistance be funneled through an arms-length non-profit body to which drug companies can donate; to give direct assistance would be seen as an illegal inducement for providers to prescribe certain drugs and artificially drive up spending by taxpayer-backed programmes.

That guidance was set out by the HHS inspector general’s office in 2005, just before Medicare beneficiaries started receiving government coverage for their prescription drugs. In 2014, the inspector general’s office put out supplemental guidance with refined advice: The charities were not to share any specific information with the donors about how many enrolees received specific drugs, to prevent drug companies from linking their donations to the number of prescriptions provided through the programme.

This guidance was further clarified in a 2015 correspondence between the inspector general and the PAN Foundation, which has spent $2.5bn in donor funds in 50 disease-specific programmes since 2004. The HHS barred the charity from establishing single drug or single company drug programmes, defining them so narrowly that only a single drug qualifies, or limiting assistance to expensive, speciality or on-patent products.

Mr Read described the investigation as having a “chilling effect” on donations, a claim that Mr Klein believes is plausible: “Some of the manufacturers may be saying they’re dotting their Is and crossing their Ts.”

But he added that there may have been other reasons contributions slowed down in 2016. “It could just be that the manufacturers were worried about the growing number of patients [needing assistance]. I think the manufacturers might be getting nervous that they might have to increase their budgets,” Mr Klein said. “It could be the fact that they’re just deciding to re-evaluate their donations to a particular area because they’re not feeling, for business reasons, it’s achieving their objectives.”

It also seems very likely that the protracted takeover battle for Medivation, that lasted almost six months until Pfizer’s knock out bid in August 2016, will have resulted in disruptions to donations.

The vulnerable

If biopharma groups are reconsidering their level of support, some drugs are more vulnerable to underfunding than others because of their per-beneficiary cost or average cost-sharing. The following tables captures drugs covered by Medicare part D that fall into one or the other of these two groups in 2015, the last year for which Medicare data are available.

Drugs for which Medicare beneficiaries pay dearly
Company Product 2015 average annual beneficiary cost share 2015 Medicare spending 2015 US sales 
Mallinckrodt Acthar $8,007 $504m $1,037m
Gilead Sciences Harvoni $5,497 $7,031m $10,090m
Gilead Sciences Sovaldi $5,205 $1,318m $2,388m
Novartis Gleevec $4,419 $1,233m $2,533m
Celgene Revlimid $4,213 $2,077m $3,535m
Gilead Sciences Letairis $4,018 $463m $700m
Abbvie/Johnson & Johnson Imbruvica $3,849 $591m $985m
Teva Copaxone $3,730 $1,382m $3,240m
Biogen Tecfidera $3,555 $875m $2,908m
Johnson & Johnson Zytiga $3,300 $790m $1,070m
2015 total annual spending per user 2015 Medicare spending 2015 US sales
Mallinckrodt Acthar $162,371 $504 $1,037m
Gilead Sciences Harvoni $92,847 $7,030 $10,090m
Gilead Sciences Sovaldi $89,297 $1,318 $2,388m
Novartis Gleevec $81,152 $1,233 $2,533m
Celgene Revlimid $68,217 $2,077 $3,535m
Gilead Sciences Letairis $64,795 $463 $700m
Abbvie/Johnson & Johnson Imbruvica $57,653 $591 $985m
Novartis Afinitor $51,404 $393 $892m
Teva Copaxone $50,048 $1,382 $3,240m
*Pfizer/Astellas Xtandi $46,751 $791 $1,237m
*Rights owned by Medivation in 2015. Sources: Centers for Medicare and Medicaid Services, EvaluatePharma.

Prostate cancer appears to have been the only therapy area hit by disruptions – at least as far as companies are prepared to publically admit. But the substantial co-pays associated with many of these therapies surely leave them open to similar issues, whether they be caused by a major M&A move in the space, further government intervention or simply a shift in business strategy by the drug manufacturers.

In the cost-share analysis, it is interesting to note that many of these drugs, taken on their own, would put Medicare enrolees into the coverage gap called the “doughnut hole”, in which patients must cover around half of all drug costs until catastrophic coverage kicks in at around $7,000. That coverage gap exposes patients to around $4,000 a year in out-of-pocket costs, which for retirees on fixed income is a huge burden – thus patient access foundations were created.

This has created a situation in which drug companies have become among the largest charities in the US – Mr Klein’s Medicare-focused foundation, supported heavily by the biopharma sector is the 14th largest in the US with $798m, while Bernstein analyst Ronny Gal has written that pharma companies’ charities assisting the commercially insured population constitute 10 of the 20 largest charities in the US.

Contributions amount to $10bn, or 7.7% of companies’ sales, general and administration spending, Mr Gal wrote.

In the US biopharma groups are in a situation where they are able to increase drug prices but have to subsidise coverage for, in many cases, huge patients groups. This dichotomy raises questions about how the US health care system pays for and assesses the social benefits of drugs, and the situation is surely going to become more pronounced as the population ages. The sector might want to consider advocating a redesign of Medicare’s drug coverage to shift the cost burden away from sick, low-income patients. Otherwise it could find itself being forced to pick up an ever growing bill. 

To contact the writer of this story email Jonathan Gardner in Virginia at [email protected] or follow @ByJonGardner on Twitter

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