Premier Executive Discusses Latest Drug Inflation Report, Value-Based Contracts

Premier, Inc. recently released updated inflation estimates for contracted and non-contracted pharmaceutical pricing for fiscal year 2020 and said most of the overall pharmaceutical inflation comes from new drugs (2.8%), including cellular and gene therapies.

The company is projecting a 4.2% increase in total pharmaceutical costs for non-disproportionate share (DSH) hospitals and 3.8% for DSH-eligible facilities.

The new estimate is approximately 0.4% higher than projections from earlier this year. The new fiscal year began in July and ends at the end of June 2020.

“Pharmaceuticals are responsible for a large and growing share of the total hospital budget,” Michael J. Alkire, the president of Premier, said in a statement. “New drugs, while offering tremendous potential to cure or curb the spread of disease, are often introduced at price points that can have an adverse effect on health system margins. As one of the nation’s leading group purchasing organizations, our contracting team has been relentless in working to hold these costs down, putting manufacturers in head-to-head competition with one another to win our business, using technology and 100 billion data points to assure value and smart decisions. We have also been actively pursuing value-based contracts with manufacturers, which would hold drug makers accountable for delivering the outcomes promised in their marketing.”

In an email with The Center for Biosimilars^®, Sonia T. Oskouei, PharmD, BCMAS, DPLA, Premier’s vice president of innovation and solution development, elaborated on the report as well as the company’s pursuit of value-based contracts.

The 2.8% for new drugs is the same as 6 months ago, she said, while price inflation rose from 2% to 2.4% from earlier this year.

Premier’s members are coping with higher costs by managing “drug therapy through a formulary system in which their pharmacists work with physicians to manage patient treatment strategies, and they use lower-cost alternatives, such as generics and biosimilars, when possible,” Oskouei said.

A year ago, a Premier survey showed that 73% of healthcare providers rank value-based contracting with suppliers as a priority for improving return on investments, she said.

Premier works with its members to develop and deploy value-based contracts across a range of suppliers and product lines. “To date we have two pharmaceutical value-based contracts that have been executed,” Oskouei said. “Premier continues to negotiate a range of value-based contracts with suppliers.”

“Value-based contracts hold a lot of potential, but there are regulatory barriers that stand in the way of making them pervasive in the acute care setting,” she added. She noted that value-based contracts are more common for devices and for pharmaceutical arrangements with payers, which don’t face the same regulatory burdens as providers.

“However, we are actively working to level the playing field such that these contracts can become more commonplace in the acute care setting, and our hope is that they ultimately will be a valuable tool in managing total costs.”

There are several challenges to enacting value-based arrangements. Providers are currently constrained by the Stark Law, which was enacted to prevent financial incentives from influencing how providers refer patients for services in a fee-for-service system. CMS has been looking to speed the transition to value-based care by giving providers more flexibility to make referrals. Anti-kickback statutes and the Medicaid best price rule are some others.

In its statement, Premier cited a number of actions that would assist with creating a more competitive pharmaceutical market, including the following:

• Lowering the barriers to market entry for biosimilars and generics
• Eradicating drug shortages to prevent price spikes
• Prohibiting pay-for-delay practices that compensate generic and biosimilar manufacturers to delay the entry of a lower-cost alternative
• Preventing “evergreening” or “patent hopping,” whereby manufacturers make slight changes to file a new patent and extend market exclusivity;
• Altering the Orphan Drug Act to ensure that it is meeting its original intent of fostering the development of innovative drugs for rare conditions