Pharmaceutical pricing and reimbursement usa
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This document provides an overview of pharmaceutical pricing and reimbursement in the United States. It discusses key demographics and economic factors, the major public and private healthcare programs, and how drug pricing and reimbursement works. The US healthcare system is complex, with prescription drugs constituting 12% of total spending. Major public programs include Medicare, Medicaid, and CHIP, while private sources include employer and individual insurance plans. Pharmaceutical companies set prices freely, while payers determine reimbursement levels and use formularies, tiers, and cost-sharing to manage drug costs.
![Bibliography
1. Pricing and Reimbursement in U.S. Pharmaceutical Markets Faculty Research
Working Paper Series, Ernst R. Berndt, Joseph P. Newhouse, September 2010
RWP10-039
2. ISPOR global health care system maps, US pharmaceutical
3. Reinhardt U. E. The Money Flow from Household to Health Care Providers
(2011) [5]
4. CMS, National Health Expenditures 2012 Highlights.
5. IMS Institute for Healthcare Informatics, The Use of Medicines in the United
States: Review of 2011, 2012
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Pharmaceutical pricing and reimbursement usa
- 1. Pharmaceutical Pricing and Reimbursement: USA NEHA KALAL 1ST SEMESTER, DOPM NIPER, MOHALI 2015-16 1
- 2. FLOW OF PRESENTATION Why? Demographics Economics Background: Legislation and Historical Developments Flow of funds in US healthcare Healthcare in US Healthcare financing Pricing Reimbursement Bibliography 2
- 3. Why? First, from the perspective of US consumers, prescription drugs constitute 12 % of total U.S. health care spending (2008) or roughly 2 % of GDP Second, from the perspective of all consumers, the U.S. constitutes about 40 % of the world pharmaceutical market. 3
- 4. Demographics Population 318.9 million Median age 37.8 years Life expectancy at birth 79.68 years 4 Sources include: United States Census Bureau, World Bank, CIA
- 5. Economics GDP 16.77 trillion USD GDP per capita 46405.26 USD GDP growth rate 2.10% Inflation Rate 0.2% 5 Sources include: Trading economics, US inflation calculator
- 6. Background: Legislation and Historical Developments Congressional hearings conducted by Senator Estes Kefauver’s Anti-Trust and Monopoly subcommittee between 1959 and 1962 Kefauver’s hearings led to enactment of the Kefauver- Harris Drug Act in 1962 Provisions that stopped inexpensive to manufacture generic drugs from being marketed as expensive drugs under new trade names as new breakthrough medications 6
- 7. Background: Legislation and Historical Developments Important development of the 1960s was the 1965 passage of Congressional legislation adding Titles XVIII (Medicare) and XIX (Medicaid) as Amendments to the Social Security Act, which took effect in July 1966 At that time, Medicare covered only prescription drugs taken by hospital inpatients under Part A and physician administered drugs (typically injections) under Part B Part D of Medicare which covered outpatient drugs, was enacted later in 2006 7
- 8. Flow of fund in US healthcare 8 PRIVATEHOUSEHOLDS PRIVATE HOUSEHOLDS PROVIDERSOF HEALTHCARE Other private spending Out of pocket at point of service Individually purchased health insurance or additional premiums to top off employment based insurance PRIVATE HEALTH INSURERS PRIVATE EMPLOYERS Cuts in Pay cheque s FEDERAL GOVT STATE GOVT State and local taxes Medicaid Premium paid private insurers for state employees Federal Taxes Premium contributions for federal employees Medicare Medicaid
- 9. Healthcare in US US population, 318.9 million, complex healthcare system intertwining relationships between providers, payers, and patients receiving care US is the third most populous country in the world, spending $2.8 trillion on health care or 17.9% of the (GDP) in 2012 9
- 10. Healthcare in US Department of Health and Human Services (HHS), at the federal level, is the primary agency responsible for regulating the health care system in the US Each state, has its own Department of Health (DoH) to implement state-level health policies 10
- 11. Health Care Financing Public health insurance schemes operated by the Centers for Medicare & Medicaid Services (CMS), are financed primarily by government taxes. 1. Medicare 2. Medicaid 3. Children’s Health Insurance Program (CHIP) 11
- 12. Medicare Largest single payer in the US (federal) To qualify, enrollees must have paid the required social security contributions during their working lives Providing health care coverage for those age 65 years and older 1. regardless of income or medical history 2. and those under the age of 65, with permanent disabilities or end-stage renal disease 12
- 13. Medicare Medicare Coverage is sub-divided into four parts (Part A to D). People who are eligible for Medicare are all entitled to Part A. Those covered by Part A can enroll in Part B voluntarily. Around 95% of Part A participants also enroll in Part B benefits. Those covered by Part B can enroll in Part C voluntarily, so on and so forth. Operates on Free-for-service basis Part A Covers inpatient hospital services including inpatient and hospital prescriptions. Required to pay income based premium Part B Covers payment for physician, outpatient, home health, and preventive services Part C Medicare Advantage Prescription Drug Plans (MA-PD) are offered by private plans, HMOs, and PPOs with lower copayment than the “standard” plans that are approved by Medicare Part D Covers outpatient prescriptions 13
- 14. Medicaid Medicaid is jointly funded by both the federal government and individual state with each state setting its own guidelines regarding eligibility, services, and reimbursement Eligibility requirements are based on income status (BPL), age, pregnancy status, disability, and citizenship status Covers hospital stays, doctor visits, emergency room visits, prenatal care, prescription drugs, and other treatments 14
- 15. Medicaid Enrollment States that chosen to expand medical coverage in line with reforms Enroll if income does not exceed 133% of FDL States that have not opted to expand medical coverage Enrollment limited to, if income less than100% of FDL States that run “medically-needy” programs Enable higher income patients with significant medical costs to enroll in state Medicaid program 15
- 16. Children’s Health Insurance Program (CHIP) CHIP (Children’s Health Insurance Program) is a national health insurance program for children under 18 years of age who are not eligible for other insurance plans (including private insurance coverage) Benefits are very similar to that of Medicare Part A 16
- 17. Private financing sources Private financing sources consist of private health insurance plans and out-of-pocket payments by individuals who are not insured via a public or private plan Self-insured plans (organized by large companies) Employers contribute to private insurance premiums either in whole or part for their employees 17
- 18. 18 PRICING
- 19. PRICING Prices are not regulated Prices tend to be higher than in more regulated market Actual market prices are established by range of factors i. Discounts and rebates ii. Drugs patent status iii. Market status iv. Prompt payment 19
- 21. Existing benchmarks Wholesale acquisition cost (WAC) : Manufacturers sell drugs to wholesalers at a list price, called WAC Average wholesale price (AWP): an estimate of the average price at which wholesalers sold to pharmacies was published by pricing agencies as a list price called AWP For example, a payer may set pharmacy reimbursement at AWP-18%, where the discount off AWP is negotiated between the payer and the pharmacy chain WAC+ 20%= AWP 21
- 22. Existing benchmarks Average manufacturer price (AMP): Average price a manufacturer receives from a medicine sold, for distribution to retail pharmacies. AMP is used to calculate the rebate, manufacturer pay on drugs dispensed to medicaid patient Best price: Lowest ex-factory price to any PBM, HMO or other private wholesaler or distribution network 22
- 23. Existing benchmarks Average sales price (ASP): Average ex-factory price net of any rebates and discounts, to all purchases in the US, including wholesalers, retailers, HMO, hospitals and government entities and Medicare part D but excluding state and federal agencies such as Tricare Average acquisition cost (AAC): Calculated based on survey of actual average prices paid by retail pharmacies in the state for prescription drugs 23
- 24. New benchmarks National average drug acquisition cost (NADAC): Established via voluntary monthly survey of pharmacy purchase prices Off-invoice rebates and discounts are not taken into account NADAC never equals or exceed AWP National average retail price (NARP) To reflect the actual prices that retail pharmacies are paid for prescription drugs [ ingredient cost + any applicable patient copayment + pharmacy dispensing fees 24
- 25. Pricing of Generic Drugs The traditional microeconomic theory toolkit is mostly sufficient for analyzing generic drug pricing Reiffen and Ward also report that generic price continues to fall as the number of generic entrants increases up to five or so, but thereafter levels off The number of generic entrants increases with the size of the branded molecule market (measured in dollars) prior to the loss of patent protection 25
- 26. Payers & Providers PROVIDER S retail and mail order pharmacies hospitals Wholesalers PAYERS health care plans PBMs GPO 26
- 27. Distribution Channel Logistics and Pricing Manufacturers Wholesalers and chain warehouses Retail and mail order pharmacies 27
- 28. Pharmaceutical benefit managers (“PBMs”) PBMs services include benefit design and contracting with manufacturers for third party payers (insurers, employers, governments) Pharmacy network formation Real time prescription benefit eligibility certification and claims processing Formulary management and rebate negotiations with manufacturers Payers and pharmacies; drug utilization screening and review Operation of mail order pharmacies (eg Express Scripts and Caremark) 28
- 29. 29 REIMBURSEMENT
- 30. REIMBURSEMENT Payers in the US do not regulate the price of a pharmaceutical product, allowing the manufacturers to set prices freely However, payers are allowed to set the reimbursement price/rate 30
- 31. Drug benefit cost-sharing provisions • For a generic drug prescription, the customer pays, small amount like $10 for a month 1st Tier • for a branded drug, customer faces a larger copayment, say $25 for a month 2nd Tier • Brands for which PBM was unable to negotiate, copayment are higher, say, $50 for a month 3rd Tier 31
- 32. DRG PAYMENT Hospitals (public and private hospitals) are typically paid based on “Diagnostic Related Group,” or DRG payment. The DRG-based payments cover accommodation costs in a hospital (i.e., room and board, facility costs, etc.) procedure costs support staff (nurses, technicians, etc.) drug/medical device costs this system does not include physician fees Most drugs are reimbursed by CMS by the inpatient DRG, though some (especially some expensive and innovative drugs) are paid separately in the outpatient DRG, called an Ambulatory Payment Classification (APC) 32
- 33. Payment to self employed physician Physicians who are self-employed are paid through fee-for-service Patients covered by public health insurance schemes, the price of the health care service is defined by CMS and based on either the Physician Fee Schedule (PFS) or by the Medicaid PFS The prices of the procedures conducted by physicians are calculated based on national uniform relative value units (RVUs, points given to a procedure) regional costs per unit. 33
- 34. Bibliography 1. Pricing and Reimbursement in U.S. Pharmaceutical Markets Faculty Research Working Paper Series, Ernst R. Berndt, Joseph P. Newhouse, September 2010 RWP10-039 2. ISPOR global health care system maps, US pharmaceutical 3. Reinhardt U. E. The Money Flow from Household to Health Care Providers (2011) [5] 4. CMS, National Health Expenditures 2012 Highlights. 5. IMS Institute for Healthcare Informatics, The Use of Medicines in the United States: Review of 2011, 2012 34
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