HHS May Revamp Reimbursement Policies For Critical Medicines

Inside Health Policy

June 11, 2021 1:37 pm

The Biden administration has asked HHS to study whether new reimbursement policies could be used to shore up domestic supplies of critical medicines, including the possibility of new federal payment policies that hike profit margins for certain generic sterile injectables and cancer drugs, procurement guarantees and flexible acquisition policies.

Overhauling reimbursement is one of several ways the administration is looking to secure the domestic pharmaceutical supply chain, according to a new White House report authored by HHS, FDA and the Assistant Secretary for Preparedness and Response.

HHS will set up a working group to review how current reimbursement models contribute to a lack of resilience for sterile injectables on the critical drug list as well as chemotherapeutics that have been in shortage in the past five years, according to the report, released Tuesday. The group might also include other sterile injectables at risk of shortage, such as sterile pediatric oncology drugs, in its review.

A key problem the White House hopes to tackle is generic drug makers’ reliance on low-cost foreign sites and suppliers due to the industry’s low profit margins.

“For lower cost drugs, profit margins from federal payers may play a role in ensuring that sterile injectables are at least risk of being in short supply. Accordingly, to reduce likelihood that these products will go into shortage due to low margins, the U.S. Government will review reimbursement models to determine updates that may improve supply chain resilience,” the report says.

The Biden administration also will investigate new financial incentives to spur investment as well as procurement guarantees.

The administration hopes to encourage new generic drug makers to enter the market and existing ones to upgrade their faculties by creating new incentives to invest in specialized equipment and processes. Among other things, the Biomedical Advanced Research and Development Authority will continue to help with manufacturing techniques.

But generic drug makers have said they also need a consistent demand for products to justify investment.

The administration will consider providing procurement guarantees, while also leveraging acquisition flexibilities, to show it is committed to buying products from domestic and small firms.

“These [procurement guarantees] will need to be established in a careful and nuanced manner to ensure that they service the needs of agencies, including DOD and the Department of Veterans Affairs (VA), and to ensure consistence with U.S. procurement laws and obligations,” the report warns.

The White House also says it’s important that the upfront investments are economically feasible. Regulators need to quantify the long-term benefits, which could include improved treatment when there are fewer drugs in shortage, reduced costs for purchasing alternative treatments, additional jobs and reduced dependence on strategic competitors, among others, the report says.

The report notes that in 2011, when drug shortages peaked, 56 percent of the shortages among sterile injectables were caused by quality-related manufacturing failures, which eventually led to patients needing to take alternative treatments. Product discontinuation accounted for 9% of sterile injectable shortages.

Some of these discontinuations might be related to lower reimbursement for older sterile injectables, as when drug companies reach manufacturing capacity, less profitable products might no longer be produced in favor of the more profitable ones.

The White House also wants to make sure its market-based reforms don’t advantage one group over another. “Several categories of stakeholders should be considered, including drug manufacturers, large and small, supply chain intermediaries such as GPOs, pharmacy benefit managers, and wholesalers; patients and health care providers such as hospitals and pharmacies; payers (both public and private); and workers at all levels of the supply chain,” the report says.

Government purchasing organizations could be on the hot seat. Contracting practices done by GPOs might have led to limits in the diversification of supply, the report says. GPOs might either contract with certain drug makers that will pay to become the sole supplier of a product or further link discounts to hospitals with sole supplier contractual arrangements.

A 2012 House Staff Report on drug shortages noted that GPO contracting can lead to only a few manufacturers producing certain generic injectable medicines, and both GPO contracts and the Medicare Modernization Act, which lowered reimbursement for injectable medications, have led to only around three companies producing a product.