Money

1
Money MedicineThe Impact of Cost on FDA
Regulation of Pharmaceuticals

• Bruce N. Kuhlik
• Senior VP General Counsel
• Pharmaceutical Research and Manufacturers of
  America

2
Topics

• Cost in Perspective
• Spending on pharmaceuticals
• Appropriate utilization
• Cost and FDA Regulation
• Drug development
• Cost-effectiveness

3
Prescription Medicines Account for a Small Share
of Overall Health Care Spending

• According to the National Health Accounts,
  pharmaceuticals share of the health care dollar
  remains relatively low at only 10 cents out of
  each dollar.
• This 10 cents includes more than brand ingredient
  costs. It also includes generic ingredient
  costs, and pharmacy and other distribution chain
  fees.

4
Prescription Medicines Only Account for a Small
Share of Overall Health Care Increases from Year
to Year

• From 2000-2001, only about one-sixth of the
  overall spending increase was attributable to
  prescription medicines.
• Other services such as long-term care and
  hospitalizations account for a large share of the
  increases.

5
Keeping the Costs of Prescription Medicines in
Perspective

• Outpatient prescription medicines accounted for
• About 13 percent of HMO premium costs in 2002
  similar to HMO administrative costs.
• Less than one-fifth of the total increase in HMO
  premium costs from 1997 to 2002, before
  accounting for offsetting savings on other
  services.

6
Deconstructing Increases in Spending for
Pharmaceuticals

• According to IMS Health, drug expenditures
  increased 16.9 percent during 2001.
• Approximately 12 percentage points resulted from
  increased use of existing medicines as well as
  the use of newer medicines.
• Only 4.9 percent of that increase was the result
  of price increases.

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Are We Spending Too Much or Too Little on
Medicines?

• Pervasive patterns of underuse.
• According to a recent study that looked at the
  quality of healthcare delivered to American
  adults, nearly half fail to receive recommended
  health care.
• Of the 103 healthcare measures that recommended
  prescription medicines or vaccines as treatment -
  83 were given underuse status.
• Conditions where underuse was found include
  asthma, heart disease, diabetes, hyperlipidemia,
  and hypertension. All these conditions are
  considered high priority by the Agency for
  Healthcare Research and Quality (AHRQ) and
  Institute of Medicine (IOM).
• Appropriate use of medicines are part of the
  solution to health system cost and quality
  problems.

Source E. A. McGlynn, S.M. Asch, J. Adams, J.
Keesey, J. Hicks, A. DeCristofaro and E.A. Kerr.
The Quality of Health Care Delivered to Adults
in the United States, The New England Journal of
Medicine. Vol 348 No. 26 June 23, 2003.
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Cost of Developing a New Drug Has Increased
Dramatically Over the Past Few Decades
9
As Research Costs Grow, Shift to Bigger Trials
with More Patients
10
Only 3 of 10 Marketed Drugs Produce Revenues That
Match or Exceed RD Costs
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FDA Addressing the Challenge

• Goal FDA to determine whether drugs are safe and
  effective at a lower cost to the agency society
• How?
• Efficient risk management
• More efficient drug development process (less
  costly, more rapid, more predictable)
• More efficient product approval process (best
  management practices, peer review programs,
  performance measures)
• More guidance documents to clarify regulatory
  pathways and shorten time cost of product
  development
• Taken from speech by Dr. McClellan (March 2003)
  http//www.fda.gov/oc/speeches/2003/phrma0328.html
  

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Approval of a New Drug

• 505(d) FDA must approve unless
• Insufficient evidence of safety, or evidence of
  lack of safety
• Methods, facilities, controls, not adequate to
  preserve identity, strength, quality, purity
• Lack of substantial evidence that drug will have
  effect it purports to have
• Lack of required patent information
• Labeling is false or misleading
• Cost?

13
Withdrawal of New Drug

• FDA may withdraw approval of a new drug only if
• Unsafe for use under condition of use on which
  application was based
• New clinical evidence that drug not shown to be
  safe under that condition of use
• New information showing lack of substantial
  evidence of effectiveness
• Patent information not filed
• Application contained untrue statement of
  material fact
• Cost?

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Approval of a New DrugOn Its Own Merits

• Drug to be approved on its own merits (is it
  safe, effective, and properly labeled)
• Once drug is approved, approval may be withdrawn
  only on specific finding about that drug.
• There is no relative safety or effectiveness
  standard in the statute. Dr. Woodcock, May 2000.

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And . . . Without Regard to Cost

• The availability of a better or cheaper drug
  is not a criterion.
• Our mandate is to make sure new medical products
  are safe and effective, not to ask ourselves
  whether there are cheaper alternatives, or if a
  drug is worth the cost. Dr. McClellan, March
  2003

16
No Legal Authority

• Q 16. What can the FDA do about the cost of
  drugs?
• A FDA has no legal authority to investigate or
  control the prices charged for marketed drugs.
• Frequently Asked Questions to CDER,
  http//www.fda.gov/cder/about/faq/default.htm16

17
Orphan Drug Rules

• Several comments argued that FDA must recognize
  the effect of price on access to patient care.On
  the other hand, several other comments stated
  that cost should not be a factor.
• FDA agrees with the latter comments. FDA has no
  authority over drug pricing or any authority to
  consider it in drug approval.
• Source 57 Fed. Reg. 62076 (Dec. 29, 1992),
  comment 24.

18
Cost-Effectiveness Analysis

• CEA can be a useful tool
• Recent proposals could encourage misuse of CEA
  research by the government

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Avoiding Misuse of CEA

• Government must take care not to misuse
  cost-effectiveness research (avoid presumption
  that the goal is to cut spending)
• Ensure comparative/ cost-effectiveness decisions
  not imposed on FDA
• Government research must be part of a broad
  quality agenda
• Ensure patients differing medical needs are
  recognized
• Ensure CEA not used in making coverage, payment
  decisions.

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Conclusions

• Prescription drugs make a major contribution to
  patient care and quality of life.
• The FDAs job is to determine safety and
  effectiveness. It should regulate intelligently
  and efficiently.
• Patients should have access to the most
  appropriate treatments chosen by their
  physicians. The government should not interfere
  with the practice of medicine.