1. Comparing Cost, Coverage and Access to Pharmaceuticals under Australian and US Policy Frameworks Ruth Lopert Harkness Fellow in Health Care Policy Harkness Fellow in Health Care Policy Department of Health Policy George Washington University & Principal Adviser Pharmaceutical Policy Taskforce Pharmaceutical Policy Taskforce Department of Health and Ageing, Canberra Department of Health and Ageing, Canberra

2. Background Australian Pharmaceutical Benefits Scheme (PBS) − in operation > 50 years − objectives: equity, universality, affordability, − comprehensive but closed formulary − fixed co-payments, capped out of pocket costs − evidence-based formulary decision-making − value for money a key consideration − monopsony “purchasing” power and regulated pricing => prices generally much lower than in US To the US pharmaceutical industry the PBS is a non-tariff barrier To (some) US policy makers Australia is a nation of “free riders”

3. Background 2002 TPA mandate to USTR − to seek “..elimination of price controls and reference pricing” abroad − tested for first time in the AUSFTA, later in KORUS-FTA AUSFTA Agreed Principles − “ … promote timely and affordable access to innovative pharmaceuticals through transparent, expeditious, and accountable procedures” − “… recognize the value of innovative pharmaceuticals through the operation of competitive markets or … procedures that appropriately value the objectively demonstrated therapeutic significance of a pharmaceutical. “ Text reflects different understandings of what is “innovative” − a mechanism to pressure Australia to increase drug prices?

4. Background design features (prerequisites for GOP support) Medicare Part D design features (prerequisites for GOP support) –limit overall spending –use competition to drive down prices –offer a wide choice of drugs and plans –rely on the private sector for the structure –“no interference” in price negotiation (=> a windfall to PhRMA ) Standard benefit (in 2007) –$265 deductible plus 25% coinsurance up to $2400 –nil between $2400 and $5451 –5% after $5451 ($3850 OOP) - but 5% of Gleevec is still $200-600/month Providers establish individual formularies –CMS regulations / US Pharmacopeia sets Model Guidelines –2 drugs in each class / all drugs in 6 protected classes / 1 in each subclass –plus tiers, cost sharing, quantity limits, step therapy, prior authorization

5. Research questions Australian PBS and Medicare Part D − largely antithetical policy frameworks Key questions − Are the programs comparable in terms of affordability, access, coverage? − Is it possible to deliver comparable coverage under fundamentally different policy frameworks? − How / to what extent do the two systems identify and reward pharmaceutical innovation?

6. Methods Semi structured interviews with Part D providers –Top 10 providers = 72% of enrolments in 2006 –Interviews with 6/10 so far, 2 outright refusals Contextual interviews –with US Pharmacopeia, CMS, pharma companies, AHIP Data collection –Part D data: plan design, premiums, formularies, drug prices, OOP costs, tier arrangements, UM tools – very difficult –no aggregated pricing data available –PBS data: in public domain, easily accessible

7. Methods (2) Compare characteristics, costs across specific drugs –comparisons across different therapeutic areas –comparisons based on sample regimens / scenarios –comparisons of innovative drugs identified using FDA and Canadian criteria Volume of data problematic –no substantive differences in prices or formularies across different regions (though some differences in premiums) –solution to use price and formulary data based on NY state plans

8. Results (1) Part DPBS Multiple providersSingle provider

9. Results (1) Part DPBS Multiple providersSingle provider Emphasizes, choice, market based competition, individual rights. Equity, timely access, affordability, universality and (limited) choice

10. Results (1) Part DPBS Multiple providersSingle provider Emphasizes, choice, market based competition, individual rights. Equity, timely access, affordability, universality and (limited) choice Broad formularies (but not necessarily greater access) Restricted but generally comprehensive formulary

11. Results (1) Part DPBS Multiple providersSingle provider Emphasizes, choice, market based competition, individual rights. Equity, timely access, affordability, universality and (limited) choice Broad formularies (but not necessarily greater access) Restricted but generally comprehensive formulary Confidential formulary decision- making, driven by cost and CMS rules? Transparent evidence based formulary decision-making

12. Results (1) Part DPBS Multiple providersSingle provider Emphasizes, choice, market based competition, individual rights. Equity, timely access, affordability, universality and (limited) choice Broad formularies (but not necessarily greater access) Restricted but generally comprehensive formulary Confidential formulary decision-making, driven by cost and CMS rules? Transparent evidence based formulary decision- making Individual coverage determinations and rights of appeal (real or imagined?) No individual coverage determination or right of appeal

13. Results (1) Part DPBS Multiple providersSingle provider Emphasizes, choice, market based competition, individual rights. Equity, timely access, affordability, universality and (limited) choice Broad formularies (but not necessarily greater access) Restricted but generally comprehensive formulary Confidential formulary decision-making, driven by cost and CMS rules? Transparent evidence based formulary decision- making Individual coverage determinations and rights of appeal (real or imagined?) No individual coverage determination or right of appeal Unstable, unpredictable benefitAffordable, stable, predictable benefit

14. Results (1) Part DPBS Multiple providersSingle provider Emphasizes, choice, market based competition, individual rights. Equity, timely access, affordability, universality and (limited) choice Broad formularies (but not necessarily greater access) Restricted but generally comprehensive formulary Confidential formulary decision-making, driven by cost and CMS rules? Transparent evidence based formulary decision- making Individual coverage determinations and rights of appeal (real or imagined?) No individual coverage determination or right of appeal Unstable, unpredictable benefitAffordable, stable, predictable benefit High and unstable prices; high, unpredictable OOP, variable co- payments and co-insurance Prices variable to payer, but low and predictable OOP for consumers; fixed, flat co- payments and stop loss protection

15. Results (1) Part DPBS Multiple providersSingle provider Emphasizes, choice, market based competition, individual rights. Equity, timely access, affordability, universality and (limited) choice Broad formularies (but not necessarily greater access) Restricted but generally comprehensive formulary Confidential formulary decision-making, driven by cost and CMS rules? Transparent evidence based formulary decision- making Individual coverage determinations and rights of appeal (real or imagined?) No individual coverage determination or right of appeal Unstable, unpredictable benefitAffordable, stable, predictable benefit High and unstable prices; high, unpredictable OOP, variable co-payments and co-insurance Prices variable to payer, but low and predictable OOP for consumers; fixed, flat co-payments and stop loss protection Government exp. per capita $1,690 in FY 2006 Government exp. per capita $1023 /$528 in FY 2005-06

16. Results (2) – Costs Drug/dose Median Full Price NY PDPs Median Full Price NY PDPs * PBS Dispensed Price** alendronate70 mg$73.39 $25.44 atorvastatin 10mg$75.43$33.23 citalopram 20 mg$11.04 $23.28 clopidogrel 75mg$125.91 $72.75 coumadin 5mg $26.24$9.25 donepezil 5 mg$148.24 $25.44 esomeprazole 40 mg$136.31 $25.44 levothyroxine 100 mcg$8.39 $2.91 metformin 500mg$11.74 $3.77 nifedipine ER 90 mg$65.38 $25.44 ramipril 5mg $46.01$14.87 rosiglitazone 4mg$93.81 $53.49 simvastatin 20mg$111.51 $38.62 * Prices for 30 day supply ** Exchange rate USD 1.00 = AUD 1.20694 as at 1 May 2007 (www.oanda.com)

17. Results (3) – Costs Example Regimen Part Medicare Part D PBS donepezil 5 mg enalapril 10 mg alendronate70 mg levothyroxine 100 mcg esomeprazole 40 mg nifedipine ER 90 mg citalopram 20 mg WellCare Classic Monthly premium $14.90 Gap costs $506.77 Annual OOP $4,678.80* Annual OOP $877.43 ramipril 5mg coumadin 5mg frusemide 20mg slow-K 10 Meq atorvastatin 10mg lansoprazole 30mg ER AARP MedicareRx Plan Monthly premium $27.40 Gap costs $329.18 ** Annual OOP $2,828.90* Annual OOP $877.43 rosiglitazone 4mg carvedilol 6.25mg glyburide 5mg lisinopril/HCTZ 20/25 mg metformin 500mg clopidogrel 75mg simvastatin 20mg Humana PDP Complete Monthly premium $82.10 Gap costs $422.84 Annual OOP $4,533.86* Annual OOP $877.43 * Total annual OOP including monthly premiums ** Plan provides gap coverage for generics with $5 copay

18. Results (3) – Costs Example Regimen Part Medicare Part D PharmacyDirect (Aus)*** donepezil 5 mg enalapril 10 mg alendronate70 mg levothyroxine 100 mcg esomeprazole 40 mg nifedipine ER 90 mg citalopram 20 mg WellCare Classic Monthly premium $14.90 Gap costs $506.77 Annual OOP $4,678.80* Annual total cost $3,372.64 ramipril 5mg coumadin 5mg frusemide 20mg slow-K 10 Meq atorvastatin 10mg lansoprazole 30mg ER AARP MedicareRx Plan Monthly premium $27.40 Gap costs $329.18 ** Annual OOP $2,828.90* Annual total cost $1,170.33 rosiglitazone 4mg carvedilol 6.25mg glyburide 5mg lisinopril/HCTZ 20/25mg metformin 500mg clopidogrel 75mg simvastatin 20mg Humana PDP Complete Monthly premium $82.10 Gap costs $422.84 Annual OOP $3,548.66 * Annual total cost $2,578.67 * Total annual OOP including monthly premiums ** Plan provides gap coverage for generics with $5 copay *** Online retail pharmacy, prices for private prescriptions

19. Results (4) - Comparing the valuation of innovative drugs * As a proportion of Part D price **S100 item – price excludes wholesale margin ***Ex PBS – funded under separate program Proprietary Name INNQuantityIndicationMedian Price NY PDPs Dispensed Price PBS Difference (PBS - Part D)* Actimmune interferon γ- 1b 2MU, 12 Chronic granulo- matous disease $1,340.03$2,125.48** 59% Alimta pemetrexed 500mg, 1 NSCLC $2,314.20$1,369.16 -41% Cerezyme imiglucerase 400 units Gaucher’s Disease $1,588.54$2,047.55*** 29% Emtriva emtricitabine 200mg, 30 HIV $328.41$247.26** -25% Enbrel etanercept 25mg, 8 RA, PsA, etc $1,329.48$1,489.49 12% Fabrazyme agalsidase β 35mg Fabry’s Disease $4,512.93$4,981.60*** 10% Fuzeon enfuvirtide 90mg, 60 HIV $2,171.83$1,870.97** -14% Gleevec imatinib 400mg, 30 CML, GIST $2,994.89$3,125.53 4% Iressa gefitinib 250mg, 30 NSCLC $1,810.25$3,165.10 75% Pegasys pegif’n α-2a 180mcg, 4 Hepatitis C $1,673.21$1,167.74** -30% Remicade infliximab 100mg RA, PsA, etc $591.08$758.24** 28% Rilutek riluzole 50mg, 60 MND / ALS $870.86$586.55 -33% Taxotere docetaxel 80mg, 1 Breast,ovarian,NSCLC $1,409.17$746.14 -47% Viread tenofovir 300mg, 30 HIV $514.54$434.25** -16%

20. Results (5) – Access and coverage Access and coverage are multi-dimensional − direct comparisons complex − breadth of Part D formularies generally wider than PBS − but difficult to assess availability of individual drugs and access not guaranteed from year to year − impact of tiers and utilization management tools difficult to establish − higher OOP a potential barrier to access (is breadth of formulary less important?) − unclear whether individual coverage decisions and appeal mechanisms improve access − will future efforts to increase Part D competition lead to trade-offs on access?

21. Results (6) – Part D formularies and innovation Significant homogeneity in provider responses − high degree of adherence to USP Model Guidelines − P&TCs find comparing treatments difficult, so often don’t − no specific consideration of “innovation” − formulary design largely driven by cost - not value − USP Model Guidelines and CMS Rules constrain price negotiation for new drugs … − … and “negotiated” prices don’t preclude increases through the year

22. Conclusions – Answers to key questions Costs: substantially higher costs to Government under Part D –coupled with much higher out of pocket costs –prices generally lower for “me-toos” and generics under PBS –prices for some innovative medicines higher Coverage and Access: difficult to assess due to multi dimensionality –non-uniform Part D benefit, differences in timing of registration –access under Part D not guaranteed from year to year –uncertain effect of higher (and rising) out of pocket costs Valuation of innovation: non explicit and non uniform under Part D –not really a competitive market –objective measurement of therapeutic significance, if it occurs, does not directly drive price

23. Conclusions - Implications for US Policy Makers Problems inherent in Part D structure – complexity / excessive choice / instability –high OOP, coverage gap, no stop loss protection –structure institutionalizes risk selection –formulary selection driven largely by cost => inappropriate utilization, higher costs elsewhere in Medicare? –limited capacity to negotiate prices; drug prices too high and rising –limited competition, may decline with consolidation and lessening of risk protections –efforts to increase competition may reduce access Not a rational model Not a sustainable model

24. Conclusions - Implications for Australian Policy Makers PBS a more transparent, stable, equitable and affordable benefit –albeit with less emphasis on individual rights Prices in regulated markets not always lower –but evidence based assessment of therapeutic significance may offer more explicit recognition of innovation PBS shows greater adherence to AUSFTA “Agreed Principles” – a defensible position against any future claim to the contrary?

25. Acknowledgements and Thanks Professor Sara Rosenbaum, George Washington University Dr Marilyn Moon, American Institutes for Research Dr Kosali Simon, Cornell University Professor Bruce Stuart, University of Maryland, Baltimore Professor Lloyd Sansom and Dr Libby Roughead, University of South Australia Commonwealth Fund, Robin Osborn and International Fellowship Program staff