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Drug Price Reform Takes Off in 2019

MHE PublicationManaged Healthcare Executive August 2019 Issue
Volume 29
Issue 8

Opportunities to lower drug prices, as promised by President Trump’s American Patients First Blueprint, are picking up steam, some progressing more quickly than others.

Money in a pill bottle

President Trump jump-started some proposals for reducing the cost of prescription drugs when he created his American Patients First Blueprint in May 2018.

Unfortunately, drug costs are continuing to affect adults taking prescription medications-especially those who are uninsured. The CDC reports that 19.5% of uninsured adults in 2017 asked their doctors for a lower-cost medication, 11.4% didn’t take their medications as prescribed, and 5.4% used alternative therapies.

Most people taking drugs say they can afford their treatment, but about 25% have a difficult time paying for their medications, according to a poll by the Kaiser Family Foundation.

Here are four areas of reform touted as solutions to the problem:

Lowering OOP payments for Part D beneficiaries

This year saw changes to the Medicare Part D standard benefit in an effort to lower OOP payments paid by Part D beneficiaries.

Under the Bipartisan Budget Act of 2018 (BBA), Part D enrollees’ OOP costs for brand-name drugs in the “donut hole,” declined from 35% of total costs in 2018 to 25% in 2019, while the manufacturer discount increases from 50% to 70%. The Congressional Budget Office (CBO) estimates that these changes will reduce Medicare spending by $11.8 billion over a 10-year period (2018-2027).

Plans’ share of costs for brands decreased to 5% in the donut hole; however, insurers are responsible for 63% of the cost of generics while enrollees pay 37% for them in the gap.

Beneficiary OOP costs before moving into the catastrophic phase jumped from $5,000 in 2018 to $5,100 in 2019 and are expected to rise again in 2020 to $6,350.

The bulk of insurer responsibility is in the initial coverage period-75%-while Medicare is on the hook for 80% of total costs under catastrophic coverage after beneficiaries reach a threshold of $8,140.

Related article: Four Ways Hospitals Can Deal with Rising Drug Costs

“While this does create a perverse incentive, payers are still careful about the number and types of drugs they make available on their Part D formularies primarily due to concerns about adverse selection and its impact on overall drug spend,” says Brian Duffant, vice president, BluePath Solutions, a health economics outcomes research consulting firm in Los Angeles.

He acknowledges that insurers have limited ability to move beneficiaries into the donut hole and Medicare to keep them out of the catastrophic phase, based on the standard Part D benefit design (see graphic) that allows a patient to move through the phases of coverage based on total drug and patient OOP costs.  

Legislation has not yet been introduced to modify the BBA coverage gap provisions; however, efforts are underway.

Pharmaceutical manufacturers are pressuring Congress to roll back the manufacturer discount from 70% to 63%, increase Part D plan-sponsor liability, and block an increase in the total amount beneficiaries must spend OOP on their prescription drugs before catastrophic coverage kicks in.

According to the Commonwealth Fund, these proposals would financially benefit drug manufacturers more than Medicare beneficiaries. Beneficiary spending in the coverage gap would be slightly reduced (far more for manufacturers), and Medicare spending under Part D would increase to cover the savings to beneficiaries and manufacturers.

A report by the Kaiser Family Foundation states that increasing plans’ shares of costs in the coverage gap, reducing the manufacturer discount to something less than 70% for 2019 and beyond, and modifying the scheduled increase in the OOP spending threshold would result in higher Medicare spending, resulting in a substantial increase in beneficiary OOP cost and fewer Part D enrollees qualifying for catastrophic coverage.

Bipartisan efforts are indicating support for capping OOP spending and shifting more responsibility to insurers by increasing their share of costs in the catastrophic phase, and to manufacturers to lower drug prices.

Medicare Part B changes

At the beginning of 2019, CMS green lighted permission for Medicare Advantage plans to use step therapy for Part B drugs covered under Part C to reduce costs and provide more coordinated care.

“The ‘step therapy’ proposal, which was previously not allowed, enables negotiation by manufacturers for discounts related to step therapy for Part B covered under Part C,” says Andy Parece, vice president, life sciences practice, Charles River Associates in Boston. “Approved in 2018 and renewed in 2019, there was limited participation last year, but we expect more in 2019 for 2020 formularies.”

In addition, HHS will test a new payment model to substantially lower the cost of prescription drugs and biologics covered under Medicare Part B. The new model would, for the first time, base Medicare payment for Part B drugs on the typically lower prices paid in 14 other industrialized countries, known at the International Pricing Index.

Medicare’s current payment to physicians for Part B drugs, which is based on the average U.S. sales price for these drugs and biologics, is 47% higher on average than prices paid by these countries for the same products, according to the Administration.

Testing value-based benefit design

The administration is experimenting with value-based programs for drugs, including indication-based pricing and long-term financing. The Center for Medicare & Medicaid Innovation will test a value-based insurance design model for 2020, including a reduction in cost sharing or additional supplemental benefits for enrollees based on condition, socioeconomic status, or both; awards and incentives; use of telehealth services; and coordinated approaches to wellness and healthcare planning.

Related article: Value-Based Model Engages Provider Specialists

Under new guidelines, an indication-based formulary will be available in 2020, allowing Part D plans to choose a different drug for an indication by using step therapy and prior authorization to promote the most cost-effective option. CMS policy currently requires Part D plans to cover a drug for every one of its indications approved by the FDA even if a plan would otherwise have covered a different drug for a particular indication.

Joe Paduda, principal, Health Strategy Associates, a consulting firm in Skaneateles, New York, supports patient-specific formularies as the norm because patients might respond differently to the same therapy. He is concerned, however, that PBMs will use financial measures as a key component of formulary decision making. “Given the need for therapies to reflect each patient’s needs and genetics, patients and prescribers must have access to the right drugs without financial penalty,” he says.

Drug importation

In a Mercer survey of employer-sponsored health plans, 60% of employers surveyed believe that permitting importation of less-expensive drugs from abroad is one of the most effective ways to reduce drug prices.

A PEW study agrees that importation has the potential to lower healthcare costs for two primary reasons: 1) Patients could access some medicines at lower prices because brand name drugs are generally more expensive in the United States than in other high-income countries; and 2) increased competition from imported drugs could put pressure on drug companies to reduce the price of their products in this country.

The Affordable and Safe Prescription Drug Importation Act, introduced in 2017, would allow pharmacies, wholesalers and patients to purchase drugs and biologics from sellers in Canada who are certified by the HHS secretary.

On a state level, Florida Gov. Ron DeSantis recently signed a bill that would allow his state to import drugs. The bill cites a 2003 federal law that allows federal agencies to authorize states to import drugs. DeSantis says that state officials are working with HHS at high levels, and says he has the support of President Trump.

Related article: Lower Drug Prices Aren’t Worth Higher Health Risks

Ed Schoonveld, managing principal, ZS Associates, a Chicago-based biosciences consulting firm, supports differential pricing (up to the level that variable cost allows), but notes it has some hurdles. “The critical factor in enabling differential pricing is the willingness of high income countries to accept it. Recent initiatives in the United States and Canadian pricing reform (the Canadian government is changing its basket of reference countries by removing the United States and Switzerland and adding lower priced countries such as Australia and those in Eastern Europe) are part of the challenge,” he says.

While some worry about the loss of R&D funds for pharmaceutical manufacturers, Schoonveld sees new opportunities to recoup potential losses. “There is a lot of pressure to make drugs available at affordability levels in low- and middle-income countries. In most cases, it would likely be in the interest of all patients worldwide (and the industry) if prices could be adjusted to affordability levels as higher volumes of patients, now enabled to use the drug, would add at least some marginal contributions to the global cost of R&D,” he says.

Two more Trump administration proposals to decrease drug costs-mandating that drug manufacturers disclose list drug prices in TV ads and an overhaul of the drug rebate program-are off the table as of July 2019.

Mari Edlin, a frequent contributor to Managed Healthcare Executive, is based in Sonoma, California.

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