19. David Farber Explains How International Reference Pricing Would Impact Older Adult‪s‬

Published March 10, 2021

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Show Notes

What is international reference pricing, and how would it impact older adults and their access to prescription drugs? David Farber, a partner at King & Spalding LLP, explains in this episode hosted by Alliance for Aging Research Vice President of Public Policy Michael Ward.

Learn more at https://www.agingresearch.org/advocacy-topic/drug-pricing.

Episode Transcript

Michael Ward:

Hello, and welcome to This is Growing Old, a podcast from the Alliance for Aging Research. My name is Michael Ward, and I am the Vice President of Public Policy at the Alliance. During today’s podcast, we’re going to talk about prescription drug pricing. Adults aged 65 and older are eligible to receive coverage for prescription drugs through Medicare Part D. During the previous Administration, several proposals for international reference pricing were released, which would have aligned the price Medicare pays for prescription drugs with the price paid in other economically advanced nations, despite key differences in other nations’ approach to healthcare. I am thrilled to guest host today’s episode, where we will speak with David Farber, a partner at the law firm King & Spalding. David is a recognized expert on international reference pricing, healthcare reimbursement, and the regulatory approval process for drugs and medical devices. David, thank you for joining us today.

David Farber:

Thanks so much. I really appreciate being here. You also didn’t mention that I am proud to represent pro bono the Alliance for Aging Research and am grateful for the friendship and relationship. One last disclaimer, since I am a lawyer, the views that I’ll talk about today are my own, not my firms, not any of its clients. But with that, let’s dive in.

Michael Ward:

All right. Thanks, David. So I guess just to start with the basics, what is international reference pricing?

David Farber:

So international reference pricing is the idea of pegging reimbursement for prescription drugs or biologics in the United States to a market basket or individual price used by any other country anywhere else in the world. And we can dive a little bit into the details and start to define that, but broadly speaking, that’s the idea. So let me add that there are currently sort of two flavors of international reference pricing that have been discussed over the last two years. And we’ll get to the proposed implementation that was rolled out last November. But one flavor is to have a reference price index sometimes called the International Pricing Index or IPI where one would look at a basket of different prices across different countries other than the United States and create an index on average. Whether it’s a weighted average or by population, there are different ways to do the average and to come up with that sort of composite number. The other is an idea called Most Favored Nation, which is to take the very lowest price among some select group of countries, and that becomes the reference price for US pricing.

Michael Ward:

Okay. So really we’re talking about two different versions here of a similar proposal, but one that would create an average price for a drug and one that basically takes look at other countries and takes the lowest price that’s available anywhere.

David Farber:

Exactly. Exactly.

Michael Ward:

And broadly, how would international reference pricing models impact older adults and their access to prescription drugs?

David Farber:

My answer in one word is poorly. To state it bluntly, the idea of pegging US prices, whether it’s to a market basket or to a most favorite nation lowest price, is a really bad idea for multiple reasons. First, the dynamics in the US marketplace, how the US prescription drug market operates, even when we’re talking about Medicare, which is really the topic of today’s conversation is fundamentally different than how healthcare is provided or how drugs and biologics are reimbursed in other countries. And a blunt tool like IPI or MFN, the International Pricing Index for the Most Favored Nation is just wildly inappropriate for the US market. Second, and this is important to recognize, the reimbursement that we’re talking about here, and we’ll get into this in a few moments is really not paying pharmaceutical manufacturers for their products.

David Farber:

It’s reimbursing providers, oncologists, family doctors, physicians, and others who are the ones who buy and then bill the Medicare program for their product. So no one could debate whether or not there would be an impact on pharmaceutical manufacturers. But the reality of here is those entities that get hurt will through the proposed change would be positions and many have openly stated. Again, we can talk about this in a few minutes, that if these ideas were to be implemented, they would have to pull out of the market and would not be able to serve their patients. So for older adults, who are the ones who largely benefit from the Medicare program, this would be a bit of a disaster if it were actually implemented. Fortunately, it has not been.

Michael Ward:

Yeah, I know that one issue that patient-focused organizations, including the Alliance for Aging Research have noted about reference pricing are really the challenges inherent to the drug pricing methodology that is utilized by a number of other nations, as well as the Institute for Clinical and Economic Review here in the United States. And the metric is known as quality-adjusted life years or QALYs, places a lower value on aging adults, as well as individuals with a disability or a chronic disease. For a broad audience, can you describe the issues, perhaps more than one with QALYs and how these issues manifest in decisions that impact patients and potentially create harm?

David Farber:

Yeah, I’m glad you mentioned QALYs. I should’ve mentioned that earlier, but when I refer to the fundamentally different methodologies that countries, other than the United States, apply, QALYs is a huge issue, and it should be highlighted. In essence, what a QALY does is it ascribes a dollar value to a life year, but in doing so, it does so for you and me, for working healthy adults, we have a particular value in sort of in the quality model. What the effect of that, however, is it very much discriminates against the elderly, against the disabled, against anybody who’s not sort of that classic healthy working adult population. And that’s a real problem because by undervaluing their lives and discriminating against them, the QALY just ends up throwing off the analysis altogether. Now in the United States, the Medicare program does not use QALYs.

David Farber:

There may be a little gray area about that. We’ll debate that a different day, but by and large QALYs are not used in the Medicare program. In contrast, overseas, they’re used in almost every national healthcare program and used in the calculations made by governments to set those  “reference prices” that we’ve been talking about earlier. So I would hope that in the United States, we would not import these discriminatory methodologies that badly underserve the elderly, the disabled, and anybody else with a severe illness. You mentioned ICER. We should talk about that for a second. ICER, unfortunately, is a private not-for-profit. ICER metrics are not used in Medicare rate-setting or reimbursement for now and we hope it stays that way. But ICER also uses QALYs and is an open defender of them. A bit shocking because there was a National Council of Disabilities report, I think it was October 2019, that very clearly laid out the problems with QALYs and why they should not be used in the American healthcare system.

Michael Ward:

Yeah. I think that’s really important. And I know, especially in a number of diseases that impact older adults as we’re thinking about disease, for example, QALYs in particular, people tend to get Alzheimer’s late in life. And so, they have a shorter anticipated remaining lifespan left. So when treatments for Alzheimer’s are put through this rubric, this methodology, it turns out that potential cures or treatments for symptoms of Alzheimer’s really don’t score very highly. And so, we see that for this particular condition that patients may not be able to have access to two drugs in this space, and we’ve seen that in other countries.

Michael Ward:

So I think it makes sense. Now, we can talk a little bit about what happened a few months ago in November 2020, the Trump Administration introduced the Most Favored Nation interim final role, which we’ll refer to as the MFN role that would have implemented a version of international reference pricing here in the US. The policy was to go into effect on January 1 of this year, but three separate federal courts awarded injunctions prevented the MFN from moving forward. What were the issues with the program and what were the impacts on patients that made the MFN so problematic?

David Farber:

Sure. So a little bit of history here leading up to November, this idea of the IPI or the MFN had a long history across the Trump administration. References to the IPI at least were included in the Trump Administration healthcare blueprint, and the drug pricing blueprint that it issued probably three years ago now. There were various executive orders that made reference to IPI and MFN, there was a shift. Originally, the idea was the International Pricing Index, it’s market basket that we talked about earlier. And then in 2020, there was a pivot within the Administration to the MFN model, the lowest single price. The executive order also talked about Part B as in boy and Part D as in David drugs, when the interim final rule came out on November 20, fortunately, it was only Part B, although that was a disaster enough.

David Farber:

So we should acknowledge, it could have been much worse and effected a much broader swath of drugs, but it was only the Part B as in boy, the physician administered drugs. So what happened? As is typical of all administrations leaving office in the last 60 days, they tried pump out as many rules and new policies as they can. There’s a magic I won’t get into about why 60 days, but it takes a rule 60 days to become effective. And you want to become effective before January 20 when the Administration changes, old Administration goes out, new Administration comes in. And it’s inevitable that new administrations almost always freeze the old administrations rules and delay the implementation dates. That happens every time there’s a change in the White House.

David Farber:

So that was the magic date around January 20. The problem that the Administration had was that there was no proposed rule that had ever laid out the outlines of how an IPI or an MFN program would work. And so, the Administration chose in a very rushed and hurried manner to just dump something into the federal register that they called an interim final rule. Now, an interim final rule is a legal process by which you can sort of propose rulemaking and have it effective immediately if there are certain emergency circumstances. The emergency circumstances cited by the rule were the COVID pandemic, of course, one had absolutely nothing to do with the other. It was inevitable that multiple stakeholders would immediately litigate, and that’s exactly what happened. So the interim final rule was published November 20 with an effective date of January 1, less than 60 days, that enough in itself would have been challenged.

David Farber:

But the whole idea of sort of dumping this interim final rule into the federal register and saying, it’s going to be effective without sort of noticing comment, was again, sort of the obvious flaw in the rule, and that was the basis upon which four different lawsuits actually were filed. PhRMA, the manufacturer trade association filed in Maryland. BIO, which represents the Biotech industry, filed in San Francisco Regeneron, which one of the drugs on the list filed in New York, and the Community Oncology Alliance filed in federal district court in D.C.

David Farber:

And very quickly preliminary injunctions were sought by all of those entities. Quickly out of the Maryland court, we got what in hindsight looks like sort of the obvious result, which was the court said, “You can’t do a rule making like this. The pandemic is not the emergency event that justifies an interim final rule.” The Administration has been talking about this for three years and suddenly there is this manufactured emergency that does not hold water. And so, injunctions were issued by the Maryland court  and very shortly thereafter by the San Francisco court in the BIO case.

David Farber:

And shortly after that, by the New York court in the Regeneron case and the D.C court just wrote on all those injunctions and said, “No point in going forward with our case, there are three other injunctions and that’s that.” So that’s how it quickly played out. The real issue was the process by which this interim final rule was introduced into the record. But there were a lot of other issues raised, including some of the access issues and the quality issues that, that Alliance for Aging Research raised in the San Francisco case. But those issues were never addressed and probably won’t be addressed given that the injunctions are in place.

Michael Ward:

So to that point, so the lawsuits were awarded an injunction by various courts. And of course, we’ve had a recent change in Administration on January 20. And so, how does this all tie together? Can you share the current status of the MFN and kind of what the changeover in Administration means for this potential proposal’s prospects?

David Farber:

Sure. So multiple ways to take that question, in short, the courts did the Biden Administration a big favor because the Biden Administration now does not need to address whether or not to stay the rule and then potentially try change it. And the courts have already done that work for the Administration so that decision is made and it’s easy. The status of the cases right now is that the Justice Department opted not to appeal the injunctions so the injunctions remain in place. Regeneron in its case, in New York, even with that fact, still filed papers to try and make the injunction permanent, the court chose not to address that and take that issue up, the Justice Department objected. They said, “Let’s see how this all plays out.” And so, our next update from the Regeneron case in New York will be on May 10 when both Regeneron and the Justice Department will file status reports with the court.

David Farber:

We’ll see if the New York court takes its temporary or preliminary injunction and makes it into a permanent injunction. Regeneron’s view, by the way, is that this whole process was so improper that if the government wants to pursue this idea of MFN, they need to start a whole new rulemaking. I should note by the way that this was an interim final rule. And although the effective date of January 1 was stayed, with an interim final rule, you both get immediate implementation date and a common period, and then a final rule, a permanent final rule that comes out afterwards. The comment period continued on. Many comments were filed, most opposing the idea of an MFN model for QALYs reasons, and some of the other reasons we talked about. We don’t know where CMS and the CMMI, the Innovation Center, because this is really done through Innovation Center authority. We don’t know where the innovation center is going to come out.

David Farber:

Will they ditch the existing rule and, and propose a new model and new innovation, will they try finalize this? That’s all to be determined. And we don’t really know much about the Biden administration’s thinking on this now, because they have the luxury of court orders being in place and the injunctions freezing everything. But at some point down the road, whether it’s May or June or July, the Biden Administration is going to need to grapple with this. Through the President’s campaign statements, the MFN did not really seem to be a favorite idea of President Biden or the team around him. I should note that the idea of an IPI did appear in the Democrat drug pricing legislation from the last Congress, H.R.3 of the 116th Congress. There was a variation on this theme. It would have applied to both Part B and Part D. Will the Democrats, when they introduce new drug pricing legislation, carry this idea forward?

David Farber:

We don’t know. There were many Hill Democrats who suggested two years ago that they were including this idea in their legislation to attract president Trump’s attention and to dare him to support his own ideas that they had picked up. That motivation no longer exists, maybe the Biden Administration and the Democrats in Congress come to a more refined idea. Hopefully, they come to an idea that does not include QALYs or using QALY-based systems in whatever concept they come up with. But it’s hardly settled, at least right now in March 2021, exactly how this is going to play out in the next number of months and over the next few years. So we’ll be back.

Michael Ward:

Yeah. And I think to that point, in the DNC platform, as well as in President Biden’s, then-candidate Biden’s policy positions prior to taking office, he mentioned that he was aware of the issues around QALYs, that it would have a detrimental impact on patients and was opposed and implementation of their use in either of the Medicare, Medicaid programs in the future. So I think it will be interesting certainly to see kind of how Congress and the White House where land on that and kind of how they navigate that field moving forward. And I think along those lines, whether it’s international pricing or another vehicle, certainly drug pricing reform will remain a priority for both the president and Congress during the session.

Michael Ward:

And I guess just as we’re kind of listening to these discussions, there’re often ideas that sound interesting. International reference pricing kind of sounds interesting because it has an emotional appeal to a sense of fairness potentially, but obviously, as you dig a little deeper, there are some real issues that would create problems within the program and for those that are served by the Medicare program. Are there other concepts that you’ve heard about over the last couple of years by Congress or others that have been floating around that could gain traction, but on the flip side could be potentially tricky or troublesome for older adults?

David Farber:

Yeah. There are a whole number of ideas. Some that seemed to have much more traction and would work better, and others that sort of fall on the other side of the calculus a little bit less so or in some instances a lot less so. So on the positive side, there’s been an open discussion in Congress and consensus at least around the macro issues. The details are still being worked out. Related to Part D restructuring, there’s this very complicated system of moving through different layers of the Part D benefit right now, the Medicare prescription drug benefit. There’s long been talk about smoothing them out and restructuring of the incentives and responsibility within the different coverage layers, that deductible layer, the coverage layer and what was called the catastrophic layer. I think those ideas would work for seniors, particularly because everybody seems to agree about capping out of pocket costs at a certain level.

David Farber:

It makes good sense. And there are a number of high priced Part D drugs, where for patients, if they did not have to have a 5% or 10% copay on those drugs, even when they hit the higher catastrophic level, that would be a terrific thing, particularly for seniors. So I think Part D reform is in our future, how soon in our future is very unclear right now. But again, bills will be introduced soon enough and that idea is going to pick up traction and away we’ll go. We’ll see if Congress can get this done in a year or two, probably not before December, maybe a year from December, but I think Part D reform is coming our way. On the Part B side, there’ve been a number of different proposals. Many have been cherry picked out of prior drug pricing bills from the last Congress and some were passed a year ago and some were passed last December.

David Farber:

And there are sort of small tweaks, but fundamental Part B pricing reform and changes to the ASP, the average sales price model, have been hotly debated. It’s not necessarily partisan by the way. There are all sorts of interesting ideas coming from Conservative think tanks and from Republicans, as much as Democratic think tanks and Democrats, I think there’s a recognition that something will change, but the exact parameters of that are to be determined. And you mentioned it, watch the unintended consequences. There is what seems to be the good move to bring down prices, but the impact of that sometimes can be a rather negative for seniors, not only in the context of the QALYs, which we’ve talked about, but sometimes in products not being available in the Part B market anymore.

David Farber:

It has happened in the past, and it’s a cautionary tale. Congress needs to understand not only the first layer effect, but the second and the third and the fourth layer of effects, because sometimes what looks like a great cost savings for seniors in their copays and the Medicare program from a programmatic expense, it turns out to be quite bad for us because products aren’t available. It’s a real risk and we need to take it seriously.

Michael Ward:

Yeah. That’s a great point. I know within the MFN proposal that the Administration said that it would cut access to Part B drugs within Medicare by 19% within three years. So really, beyond price, I think we do have to look at this issue holistically, and I know you mentioned capping and smoothing within Part D. And so, those are two proposals. The cap would, again, place a limit on beneficiaries’ out-of-pocket cost that they would experience in the program for prescription drugs per year. The smoothing mechanism would allow beneficiaries to pay their cost in installments. So if they have $600 in drug costs, they could pay that over a period of monthly installments, rather than just having to face that bill all at once. And so, these are two really important patient-centered reforms, and those are two proposals that had by partisan kind of agreement in the last Congress.

Michael Ward:

It was included both in Republican and Democratic bills for drug pricing legislation. And so, just to advance that work, the Alliance is leading an initiative called Project LOOP that’s actively working with Capitol Hill offices to advance these reforms and the potential drug pricing legislation, and listeners that are interested in more information on that effort can visit loweroutofpocketcosts.org. So on a lighter note, I want to ask you when you were a kid, what did you really imagine that growing older would look like? And how does it compare with lived experience as you’ve gotten older?

David Farber:

What do you mean when I was a kid? I still think of myself as a kid, but it’s a good question. I personally, a child of the 60s and the 70s, never really thought about growing old because it was at a time when our grandparents, including mine, sadly, were really passing away in their 60s and sometimes in their seventies, and sort of that was the expectation. And thank God, my dad, 93 years old playing tennis every day, he has changed my views as to what growing old can be like. And I hope to follow his lead, my tennis game will never be as good, but hopefully, my golf game makes up for it. So I think there are possibilities for all of us now that really we couldn’t have dreamed of when we were growing up, at least those of us were growing up in the 60s and the 70s. It really is a fundamentally different world and so much more for the better.

Michael Ward:

Thank you for joining us. We encourage you to follow the Alliance on Facebook, Twitter, and Instagram. You can visit www.agingresearch.org to learn more about age-related conditions, diseases, and issues that impact the health of older Americans. Please subscribe now and rate us on Apple podcasts, Google podcasts, Spotify, or anywhere else that you listen to this podcast. And we’ll see you next time on This is Growing Old.