Drugmakers realise they need to demonstrate the value of their new treatments to payers, but many are concerned about their ability to do so.
That is one of the key findings from a new report from the Economist Intelligence Unit, sponsored by Quintiles. The analysis, called 'The Value Challenge', is based on findings of a survey of 399 senior executives from the life sciences industry, and it states that the situation is "further complicated by a shift in the balance of power among industry stakeholders, each of which may require different evidence to be convinced of a product’s value".
The EIU report argues that the value challenge is "not just a temporary symptom of current economic conditions, but a long-term issue that is a leading concern for a majority of drug companies worldwide". Moreover, although deteriorating financial circumstances are prompting some payers —particularly governments —to focus more closely on reducing pharmaceutical spending, "the demand for proof of value has been evolving for decades".
However, many stakeholders, especially biopharma companies, "lack confidence in the industry’s ability to respond to the value challenge", the report claims. Only about one-half of survey respondents say that the pharmaceutical sector is adjusting well to increasing demands for proof of value.
All respondents are harsher about biopharmaceutical companies’ ability to demonstrate value and, among payers and regulators, only 25% are confident about the broader claims of value made by these firms. However, 68% of life sciences respondents saw the growing demand to provide value has had an important impact on their business models; 85% have made at least one change to their model for this reason, 82% to their R&D strategy, and 78% to their commercial plans.
The EIU survey also notes that biopharmaceutical companies see their market power decreasing, but others still regard them as dominant players. The report quotes Ed Pezalla, national medical director for pharmaceutical policy and strategy at US insurance major Aetna, as saying that “the industry is still making decisions about what drugs come to market and what they can charge. It is just beginning to pay attention to payer sensitivity.”
A Correction Has Been Published
Perspective
The Shortage of Essential Chemotherapy Drugs in the United States
Mandy L. Gatesman, Pharm.D., and Thomas J. Smith, M.D.
N Engl J Med 2011; 365:1653-1655 November 3, 2011
Comments open through November 9, 2011
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For the first time in the United States, some essential chemotherapy drugs are in short supply. Most are generic drugs that have been used for years in childhood leukemia and curable cancers — vincristine, methotrexate, leucovorin, cytarabine, doxorubicin, bleomycin, and paclitaxel. 1 The shortages have caused serious concerns about safety, cost, and availability of lifesaving treatments. In a survey from the Institute for Safe Medication Practices, 25% of clinicians indicated that an error had occurred at their site because of drug shortages. Many of these errors were attributed to inexperience with alternative products — for instance, incorrect administration of levoleucovorin (Fusilev) when used as a substitute for leucovorin or use of a 1000-mg vial of cytarabine instead of the usual 500-mg one, resulting in an overdose. Most cancer centers quadruple-check drugs for accuracy, and we're unaware of any documented death of a patient with cancer such as the nine deaths in Alabama attributable to the use of locally compounded liquid nutrition because the sterile product was not available. However, it is only a matter of time.
These shortages have increased the already escalating costs of cancer care. Brand-name substitutes for generic drugs can add substantial cost. For instance, Abraxane, a protein-bound version of paclitaxel, costs 19 times as much as equally effective generic paclitaxel (see table
Average Wholesale Prices (AWPs) of Selected Oncology Drugs in Short Supply and Their Potential Alternatives. ). Since 2010, health care labor costs in the United States have increased by about $216 million because of the increased time and work required to manage drug shortages. 2 A gray market for essential drugs — an unofficial alternative market of drugs obtained by vendors outside the usual distribution networks — has grown rapidly, with unregulated vendors charging markups of up to 3000% for cancer drugs.
The main cause of drug shortages is economic. If manufacturers don't make enough profit, they won't make generic drugs. There have been some manufacturing problems, but manufacturers are not required to report any reasons or timetable for discontinuing a product. Contamination and shortages of raw materials probably account for less than 10% of the shortages. In addition, if a brand-name drug with a higher profit margin is available, a manufacturer may stop producing its generic. For instance, leucovorin has been available from several manufacturers since 1952. In 2008, levoleucovorin, the active l-isomer of leucovorin, was approved by the Food and Drug Administration. It was reportedly no more effective than leucovorin and 58 times as expensive, but its use grew rapidly. Eight months later, a widespread shortage of leucovorin was reported.
The second economic cause of shortages is that oncologists have less incentive to administer generics than brand-name drugs. Unlike other drugs, chemotherapeutics are bought and sold in the doctor's office — a practice that originated 40 years ago, when only oncologists would handle such toxic substances and the drugs were relatively cheap. A business model evolved in which oncologists bought low and sold high to support their practice and maximize financial margins. Oncologists buy drugs from wholesalers, mark them up, and sell them to patients (or insurers) in the office. Since medical oncology is a cognitive specialty lacking associated procedures, without drug sales, oncologists' salaries would be lower than geriatricians'. In recent decades, oncology-drug prices have skyrocketed, and today more than half the revenue of an oncology office may come from chemotherapy sales, which boost oncologists' salaries and support expanding hospital cancer centers.
Before 2003, Medicare reimbursed 95% of the average wholesale price — an unregulated price set by manufacturers — whereas oncologists paid 66 to 88% of that price and thus received $1.6 billion annually in overpayments. 3 To blunt unsustainable cost increases, the Medicare Modernization Act mandated that the Centers for Medicare and Medicaid Services (CMS) set reimbursement at the average sales price plus a 6% markup to cover practice costs. This policy has reduced not only drug payments but also demand for generics. In some cases, the reimbursement is less than the cost of administration. For instance, the price of a vial of carboplatin has fallen from $125 to $3.50, making the 6% payment trivial. So some oncologists switched to higher-margin brand-name drugs. 4 Why use paclitaxel (and receive 6% of $312) when you can use Abraxane (for 6% of $5,824)?
Now practices are struggling to treat their patients because of the unavailability of drugs. Short-term solutions include gray-market purchases, which more than half of surveyed hospitals say they've made, but that option introduces safety and quality-control issues. Pharmacists are intensively managing inventories and alerting prescribers to developing shortages and potential alternatives. Some centers now have a red–yellow–green system for quickly recognizing developing shortages and determining which patients get priority (usually those with curable cancers) when supply is limited.
Long-term, non–market-based solutions have been elusive. Proposed legislation would require manufacturers to give 3 to 6 months' notice before discontinuing a drug in order to allow others to pick up production. However, it is likely that gray-market vendors would buy the remaining inventory of such drugs and charge huge markups. Creating a national stockpile is impractical: Do we stockpile the drugs and then waste whatever is not used or stockpile the ingredients and make new batches as needed? A national health care plan with a single formulary and a central pharmacy stockpile is possible for Medicare or Veterans Affairs but unrealistic given oncologists' dependence on drug income and difficulties with timely, safe distribution.
Market solutions take one of two approaches: let the market work and accept short-term uncertainties or regulate the market more tightly. For instance, the CMS could reimburse at the average sales price plus 30%, but that wouldn't help if the drug price has fallen from $125 to $3.50 per vial. The government could set a floor for average sales prices to encourage the production of generic drugs, but that would increase the total cost of cancer drugs unless brand-name prices were reduced. Europe has fewer shortages for that reason: prices are set higher for generics so that companies will make them, but prices of brand-name drugs are often much lower than U.S. prices.
More far-reaching reforms of oncology practices and reimbursement are necessary if there is no national intervention or federal market regulation. One solution is adopting clinical pathways for which practices are paid disease-management fees that are not based on chemotherapy sales. For instance, one large oncology group has developed care pathways specifying preferred drug combinations and sequences — for example, allowing only a few first-line, mostly generic regimens for patients with non–small-cell lung cancer, as compared with the 16 possible drugs and many more combinations included in National Comprehensive Cancer Network pathways. This approach has been shown to result in equal or better survival, less use of chemotherapy near the end of life, and 35% lower costs than usual care. 5 Another solution is to pay physicians salaries, as Kaiser Permanente, Veterans Affairs, and most academic centers do, but that would reduce oncologists' earnings at a time when a 40% workforce shortage is predicted, so the effect must be monitored.
To ensure a predictable supply of generic cancer drugs, manufacturers need reasonable markets and profits, and oncologists need incentives to use generics. Standardized clinical pathways with drug choices based only on effectiveness will enable the prediction of drug needs, practices for effective management of inventory, and planning by manufacturers for adequate production. Such pathways, disease-management fees, and physician salaries would dramatically change oncologic practice, but since drug costs will increase by 4 to 6% this year alone, they are necessary. The current system not only is unsustainable but also puts oncologists in potential ethical conflict with patients, since it hides revenue information that might influence drug choices and thus affects costs and patients' copayments.
The only good news is that the drug shortages may catalyze a shift from a mostly market-based system to one that rewards the provision of high-quality cancer care at an affordable cost.
Disclosure forms provided by the authors are available with the full text of this article at NEJM.org.
This article (10.1056/NEJMp1109772) was published on October 31, 2011, and updated on November 2, 2011, at NEJM.org.
Source Information
From the Virginia Commonwealth University Health System, Richmond (M.L.G.); and the Sidney Kimmel Comprehensive Cancer Center, Johns Hopkins Medicine, Baltimore (T.J.S.).
"Food Fraud is a much broader set of crimes than just counterfeiting or adulteration," says John Spink, the associate director of Michigan State University's Anti-Counterfeiting and Product Protection Program. "The term Economically Motivated Adulteration has been used by [the U.S. Food and Drug Administration], and although there has been a lot of activity using this term in the food industry, it actually involves all FDA regulated products."
Spink and Douglas Moyer, both faculty at Michigan State University, published a paper in the Journal of Food Science in November specifically aimed at defining the public health risks of food fraud, hoping to provide a base reference for the issue and help shift the current focus on intervention to one of prevention.
"The food-related public health risks are often more risky than traditional food safety threats because the contaminants are unconventional," write Spink and Moyer. "Current intervention systems are not designed to look for a near infinite number of potential contaminants."
As it stands now, food fraud crackdowns often focus on the economic impact of cheating the system, not public health, and are reactive, not preventative.
In late November, European Union's Europol teamed up with Interpol to conduct a week-long, multi-country food fraud operation. Agents seized hundreds of tons of fake and substandard food and drink--including champagne, cheese, olive, oil, and tea--from Bulgaria, Denmark, France, Hungary, Italy, The Netherlands, Romania, Spain, Turkey and the United Kingdom.
Known as "Operation Opson," the effort, which took six-months to plan, ultimately turned up a lot of fraudulent food.
The team seized 13,000 bottles of substandard olive oil, 30 tons of fake tomato sauce, around 77,000 kg of counterfeit cheese, more than 12,000 bottles of substandard wine worth 300,000 EUR (or nearly $400,000), five tons of substandard fish and seafood, and nearly 30,000 counterfeit candy bars. Authorities also said the sale of fake or substandard caviar on the internet was under investigation.
Interestingly, when Interpol-Europol announced the results, they specifically cited public health as a key reason to crack down on fraudulent food practices.
"Consumers buying these goods, either knowingly or unknowingly, are putting their health at risk as the counterfeit food and drink are not subject to any manufacturing quality controls and are transported or stored without proper regard to hygiene standards," authorities said about the operation.
Interpol-Europo said Operation Opson, which means "food" in ancient Greek, had three critical goals:
- Raise awareness of the dangers posed by counterfeit and substandard foods;
- Establish partnerships with the private sector to provide a cohesive response to this type of crime;
- Protect consumers by seizing and destroying substandard foods and identifying the criminals behind these networks.
"One of the main goals of this operation was to protect the public from potentially dangerous fake and substandard food and drinks, which is a threat that most people are not even aware of," said Simone Di Meo, Criminal Intelligence Officer with Interpol's Intellectual Property Rights programme and coordinator for Operation Opson.
Explicitly linking fraudulent or substandard food to public health risk is something Spink and his team at Michigan State University would like to see happen here in the United States more often.
"I find it amazing, and refreshing, that Interpol-Europol have focused this Operation Opson on a underappreciated product risk. Most times, consumers and even lawmakers, consider product counterfeiting to be a technical problem with economic losses. While they may understand the risks of pharmaceutical drug counterfeiting, they are often unaware of the food risks," said Spink. "Any and every type of food fraud has a public health vulnerability - we may not have experienced an actual public health incident, but the bad guys are not following good manufacturing practices."
Photo courtesy of Europol.
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