Synagis' Special Status Under Health Care Reform

The new Medicaid rebate rules don't bite as deeply for drugs approved exclusively for pediatric use. It turns out that AstraZeneca/MedImmune's Synagis is the only therapy to qualify.

It is every marketer's dream to have a product that is in a class by itself.

AstraZeneca/MedImmune's respiratory syncytial therapy Synagis (pavilizumab) can claim that distinction in an entirely new way as the Centers for Medicare and Medicaid Services implement new rebate provisions for the Medicaid prescription drug program under the Affordable Care Act: Synagis is the only drug that will benefit from a new, lower mandatory rebate on drugs that are "approved by the Food & Drug Administration exclusively for pediatric indications."

The health care reform law raised the minimum Medicaid rebate percentage from 15.1 percent to 23.1 percent for most brand name drugs. But the law sets a lower rebate amount - 17.1 percent - for two classes of drugs : clotting factors and pediatric-only drugs (for a complete analysis of the Medicaid rebate changes, see (Also see "Taking Lumps From Health Care Reform" - Pink Sheet, 1 Jun, 2010.)).

If that isn't complicated enough, the new rebate amounts were effective retroactively to Jan. 1 (the law was signed at the end of March), but CMS didn't provide any guidance on which products were covered until Aug. 16.

For clotting factors, the list of covered products was pretty simple to predict, since the new rebate provision specifically cites products that already receive a separate furnishing payment from Medicaid. So that list of affected drugs is no surprise. (Manufacturers that benefit include Bayer, Aventis Behring, CSL Behring, Novo Nordisk, Baxter, Talecris, Grifols and Pfizer/Wyeth).

But it was by no means clear what products were covered by the "pediatric-only" exemption. Now we know: Synagis. (The official "list" is here.)

It turns out that Synagis is the only product approved by FDA all of whose indications are explicitly limited to pediatric use (from birth to age 16). That, at least, is what CMS determined. (The agency does invite anyone who is "aware of other drugs that meet the pediatric definition specified" by CMS to e-mail: [email protected].)

We note that CMS' explanation of how it came up with the "list" runs a full page. The section of the law that CMS is interpreting is longer than the list of covered drugs. And for that matter, so is the section number [Sec. 1927(c)(1)(B)(iii)(II)(bb)]. Wouldn't it have been easier just to say "the minimum rebate on Synagis is 17.1 percent?"

Obviously, that's not how legislation works. And AstraZeneca might be just as happy that the provision flew beneath the radar screen a bit; there is enough controversy about the pharmaceutical industry's "deal" on health care reform - a deal negotiated by the Pharmaceutical Research and Manufacturers of America when it was chaired by David Brennan, CEO of AstraZeneca.

AZ referred questions on this topic to MedImmune; the company notes that it discusses many issues with lawmakers, with key topics including follow-on biologics, patent reform, health care disparity and access, and vaccine/prevention initiatives. "It would be inaccurate to portray MedImmune's efforts on this particular point as being greater than any of the other issues mentioned." [Editor's note: See below for an e-mail Q&A with MedImmune.]

A little perspective is certainly in order: the minimum rebate on Synagis is lower than for most brands, but it is not like AZ will reap some kind of windfall as a result.

First, the new minimum rebate is still two percentage points higher than the old 15.1 percent minimum rebate. According to MedImmune's 2006 10K filing (the last filed by the firm before it was acquired by AZ), every percentage point increase in Medicaid rebate liability translates into roughly an $11 million hit to sales for the brand.

Then there is the separate provision of the health care reform law extending Medicaid rebates to managed care plans. While that affects a relatively small segment of the overall Medicaid prescription drug market, the impact per unit sold is large. In other words, for units covered by Medicaid managed care plans, the minimum rebate exposure for Synagis goes from zero to 17.1 percent.

Last but not least, there is a provision in the new rebate rules that attempts to recoup rebates on new formulations of drugs covered by Medicaid. The idea is that, if a sponsor changes a formulation and sets a new price point, it should still pay the same amount in rebates (or more) as it did under the old formulation.

That provision is likely to affect Synagis as well, since (as MedImmune disclosed in the 2006 10K filing), "during the fourth quarter of 2005, we successfully transitioned to the liquid formulation of Synagis in the U.S. from the lyophilized formulation, which has resulted in a reduction in allowances for government rebates and an increase in net realized price during 2006."

The line-extension provision, however, is even less clearly defined in statute than the pediatric-only rebate, and CMS hasn't issued guidance on interpreting it yet.

The bottom line is that AZ is paying much higher rebates on Synagis than it would have without health care reform. But, thanks to its special treatment under the law, they aren't quite as high as they might have been.

Here is our e-mail Q&A with MedImmune's spokesperson:

Q: Does the lower minimum rebate amount matter for Synagis? We assume it does, but if MedImmune already pays a "best price" rebate, the fact that the minimum is low wouldn't matter much.

A: Specifics regarding MedImmune's government pricing and rebate calculations are proprietary. MedImmune complies with federal law and regulations for making its products available for Medicaid patients and that includes its rebate calculations.

Q: We assume you expected Synagis to benefit from this provision in the Affordable Care Act. But did you realize it would be the only drug to benefit?

A: It's impossible to accurately predict the final outcomes generated from the legislative process, however MedImmune did not play a role in choosing which or how many drugs would be subject to the 17.1 percent rebate.

The Patient Protection and Affordable Care Act includes several significant changes to the Medicaid prescription drug program, including section 2501, which provides for a minimum rebate of 17.1 percent of Average Manufacturer's Price for blood clotting factors and drugs indicated exclusively for pediatric indications.

While Congress has a history of handling pediatric drugs differently than other therapies, it's the Centers for Medicare & Medicaid Services that's ultimately tasked with interpreting the provisions and identifying the prescription drugs that qualify.

Q: How much (or little) work did MedImmune and AZ do on lobbying this issue during crafting of the bill?

A: As one of the few biotech companies investing millions in pediatric research and development annually, MedImmune engages and educates lawmakers on a wide range of issues including: follow-on-biologics; patent reform; health care disparity and access; as well as vaccine and prevention initiatives.

As MedImmune's Medicaid rebate rate increased along with every other biotech/pharma organization, it would be inaccurate to portray MedImmune's efforts on this particular point as being greater than any of the other issues mentioned.

- Michael McCaughan