Trade Secrecy and Public Payers

By: Marcus J. Hopkins, Blogger

This past month, I attended the Hepatitis Appropriates Partnership (HAP) and National Viral Hepatitis Roundtable (NVHR) meeting, as well as the National Alliance of State and Territorial AIDS Directors (NASTAD) Technical Assistance (TA) conference in Washington, D.C. To both of these events, I went as a representative of the Community Access National Network (CANN), but I also went as “myself.”

Going as “myself” is a complicated task, no matter the location, as I have several informational gaps in my knowledge about the finer points of crafting policy, and going to these conferences often leaves me feeling like something of a fraud. I haven’t finished my education (and at this point, don’t really have the time to do so), and even then, I wasn’t going to school to study public policy – I was going for Health Communication in an effort to better increase my ability to adequately assist lower- and middle- income people living in Appalachia to access comprehensive healthcare for HIV.

So, when it comes to these meetings, I often find myself nodding along and saying, “Absolutely,” a lot, even when I have no idea what the heck the person is talking about; in the performing arts world, we call this, “Fake It, Until You Make It.” And so, I often leave sessions and conferences with more questions than when I entered, because in order to keep up, I have to almost immediately figure out what’s going on around me.

Perhaps, that is why I was tapped to serve in my capacity with CANN – I’m not just a very good writer (if I do say so, myself), I am also a patient. As such, I can safely say that, despite being a very knowledgeable and informed patient, I still have several information gaps – like many patients. There are some very basic pieces of information that I, as both a patient and a consumer, feel that I should know – that everyone should know – so that I can better advocate for myself.

The one thing that stuck out to me more than anything else during these meetings (in the context of “myself”) was that there is virtually no transparency when it comes to the world of pharmaceutical pricing. As an advocate for open governance, I’ve always been a firm believer that if my tax dollars are being used to pay for something, I have a right to know how they’re being used. This is the basic tenet of public governance –“How’s the money being spent, and how much of it is being spent on what?”

This is where things become interesting. As I reported in the last HEAL Blog, “Behind the Scenes at Hepatitis, Inc.,” certain laws prevent the Centers for Medicare and Medicaid Services (CMS) from discovering the actual price being paid by the 59 AIDS Drugs Assistance Program (ADAP) and 56 Medicaid programs for Hepatitis C (HCV) medications. Furthermore, beyond a single Federal statute, each state may or may not have its own statute that prevents those programs from discussing with any other state the price they’re paying for drugs.

Basically, we have a system in which private companies (in this case, pharmaceutical companies) have the right to enter into negotiations with both privately and publicly funded payers and enter into pricing and rebate agreements with them in total secret, and all of this is legally protected as a Trade Secret, making that information not only invisible to the public, but invisible between the states. This is, according to Pratap Khedar, a principal at pharma marketing consultancy ZS Associates, “…a very efficient free market…between the insurance company and the pharma company” (Herper, 2012).

For the private insurance companies, this seems fair – they are two privately held entities who can and should be able to enter into bargaining proceedings as manufacturer and buyer. This is the cornerstone of the free market – “I have a good to sell; let’s negotiate on the price.” These entities absolutely should be allowed to keep the amount that they pay per unit confidential.

It is, however, with the public payer/private manufacturer secrecy that I have a serious problem. With any other government office, whenever a deal is struck between a private company and the government, the amount the government has agreed to pay, as well as a breakdown of that agreement, are generally subject to public records and Freedom of Information Act (FOIA) requests. With pharmaceutical companies, however, this is not the case.

“Congress has created a system so that even the states, which buy tens of millions of dollars worth of these drugs, have no idea what we pay on a per-unit basis,” said the Democratic former Montana Govenor, Brian Schweitzer (Cross, 2011).

“Actually, Schwierzer does know what the state pays – but, before acquiring the information last summer, had to have his chief counsel sign a written agreement not to disclose it publicly,” reported Mike Dennison of the Billings Gazette (Cross).

Schweitzer came across the information in the summer of 2010, when he was attempting to compare what Montana’s Medicaid program was paying for drugs compared to the cost in Canada (Cross), but discovered in the process that, while he, as the governor of the state of Montana, could access that information, he could not share what his state’s Medicaid was paying at a price-per-unit level – he could only give very broad estimates based on Wholesale Acquisition Costs (WACs) or Acquisition Wholesale Prices (AWPs).

For those readers who are unfamiliar with those two measures, either the AWP, the WAC, or occasionally the Direct Price (DIRP) is the price that is published for the public. Whenever someone says, “Sovaldi (Gilead) costs $87,000 for twelve weeks of treatment,” they are quoting one of those numbers.

What most consumers – particularly those with lower incomes, knowledge levels, healthcare knowledge, or interest in the information – don’t know or understand is that those prices are practically meaningless, as virtually no payer (insurers, private or public) actually ever pays those prices. Instead, they negotiate with pharmaceutical companies and drug manufacturers in order to pay a lower, undisclosed amount, achieving those low numbers either by direct pricing agreements, or by entering into rebate programs.

Rebate programs in the pharmaceutical world operate much as they do in the commercial retail world – the payer pays the pharmacy to fill the prescription, the pharmacy fills the prescription and reports back to the payer, the payer submits a rebate form to the manufacturer, the manufacturer receives the rebate forms and cuts a check for an undisclosed dollar amount, and that check is sent back to the payer.

With both the agreements and the rebate programs, the idea is volume – those states/payers who pay to fill more prescriptions than other states/payers are more likely to receive much more generous pricing and rebate arrangements. For national private insurance companies and pharmacies (Wal-Greens and CVS, for example), this is a great deal, as they can pay to fill several thousands or millions of prescriptions each month.

The rub comes with public payer options, like Medicaid and Ryan White, Part B (ADAP). Ostensibly, this type of closed loop free market should benefit them, as well; instead, the states who are in the direst circumstances – primarily those states that are largely rural, an Appalachian state, are in the South, or are lower-income – end up with the worst pricing arrangements.

Take the example of Stribild (Gilead):

When I lived in California, my ADAP coverage lapse, and there was a period of time where I had to wait for my application to be approved for the new year, during which I ran out of medications. I asked my AIDS Healthcare Foundation (AHF) pharmacy if I could purchase the pills from them, individually, out of pocket, and they agreed to do so at the price of $68 per pill.

So, I did the math:

  • $68/pill x 30 pills/bottle = $2,040/bottle
  • $2,040/bottle x 12 months/year = $24, 480/year

When I first moved to West Virginia, I had to apply for ADAP in my new state. In the application process, they inquire as to how much my current prescriptions cost, which led me to ask the pharmacy for the cost of my prescriptions. After needling them for over an hour, they finally gave me an estimated price of $37,000/year.

Again, I did the math:

  • $37,000/year / 12 months/year = $3,083.33/bottle
  • $3,083.33/bottle / 30 pills/bottle = $102.78/pill.

Did you catch that trick?

The state of California, whose economy is comparable to that of the entire nation of Brazil, pays $68 per unit, while West Virginia, whose economy is comparable to that of the landlocked Eastern European nation of Belarus (best known for its Stalinist architecture and the KGB Headquarters overlooking Independence Square), pays an estimated $102.78/pill (Tippett, 2015).

“But, this,” one might say, “is the nature of business. States who don’t purchase as much of any good will ultimately end up paying more that those states who do.”

This argument does and should hold true for private payers; for public payers, however – particularly Federally-funded public payers – this should never be the case.

Yet again, we are faced with the dual realities of an insurance-based healthcare market and Federally-funded, but state-administered public health programs. The richest states are more likely to benefit, while the poorest states end up paying a higher price for access to treatments than those who live in more urban areas. In a nation where all citizens in all fifty states and the outlying territories are supposed to have equal access and opportunity, there is little parity.

So, what does this mean for poor states’ Medicaid and ADAP budgets? Basically, they get screwed, because, even though they ostensibly have fewer overall clients to serve, they end up paying more for medications than their richer counterparts.

Why I bring up the public payer issue relates to a recent initiative sponsored by AHF in the state of Ohio that would require Ohio agencies and publicly-funded entities from buying prescription drugs at higher prices than what the U.S. Department of Veterans Affairs pays (Associated Press, 2015).

The way this legislation is worded leads voters to think, “Well, the VA must be getting a great price on these drugs! We wouldn’t skimp on healthcare for our nation’s veterans! THIS IS AMERICA!”

As such, it is likely to achieve the adequate number of signatures to force a vote in the Ohio legislature, and potentially go directly to voters if the legislative body fails to act within four months.

The reality, however, is that, because payers cannot legally reveal, either to the public or to each other, how much they actually pay for medications, certain entities may, in fact, pay less than the VA through their own negotiations. This means that the initiative could, in effect, mean that Medicaid and OhDAP could be paying more, if they’re forced to pay the VA price.

The sponsors of the initiative, AHF and its president Michael Weinstein, fully know that this is the case, which makes this proposal a rather open attempt to force a single pharmaceutical company – Gilead – to reduce its drug prices, as well as to enter into pricing negotiations with ADAP programs.

Gilead, the maker of the popular drugs Stribild (HIV), Truvada (HIV, PrEP), Sovaldi, and Harvoni, have weathered a fair amount of criticism in the last few years, mostly in relation to its drug pricing practices. While they have, in the past, attempted to allay the fears of lower-income patients who were denied coverage, the company went forward with a plan to strictly tighten the qualifying requirements for their HCV Patient Assistance Program (PAP), Support Path, in July of this year. This was largely in response to the continued, yet unofficial, practice by insurance companies of sending their client to Support Path to get their medications for free, straight from Gilead, after agreeing to reduced prices and rebates.

What frustrates me the most about this entire situation is my belief that every publicly-funded entity should be held accountable for how our money is spent, up to and including the specific prices these organizations pay for goods and services. Instead, pharmaceutical companies with virtually limitless resources, all but write Federal and state Trade Secrets statutes themselves; they should just start sending their bought and paid-for elected officials out onto the floor wearing their company logos on their backs. As a result, it’s very unlikely that we’ll see any forward momentum on this issue.

References:

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Disclaimer: HEAL Blogs do not necessarily reflect the views of the Community Access National Network (CANN), but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about Hepatitis-related issues and updates. Please note that the content of some of the HEAL Blogs might be graphic due to the nature of the issues being addressed in it.

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