Yesterday marked 100 days
since President Trump announced his drug pricing
blueprint, the basic goal of which is to “lower prices” somehow. How
successful has it been?
In thinking about this question, it is useful to remind oneself that drug
production and distribution is largely market-based, and the lesson of the
market framework is that prices fall only if there is an increase in supply, a
decrease in demand, or a reduction in taxes and other overhead-like
costs. Broadly speaking, there is little interest in decreasing the demand
for drugs per se,
so most of the focus is on increasing supply.
Regarding supply, the Department of Health and Human Services (HHS) will
quickly point out that in the past 100 days the Food and Drug Administration
(FDA): approved a record number of generic drugs in July;
approved the first generic drug under a pathway designed to
fight price gouging; launched a working group on how safe, short-term importation
of certain medically necessary drugs could address price spikes; and
announced an FDA Biosimilar Action Plan to spur competition among expensive
biologic drugs. To be honest, the last two of those are merely
announcements — no action yet — and the impact of the second is
limited, but the focus is on increasing supply.
But there have been lots (and lots) of other initiatives as well. Why? Digging
a bit deeper reveals that not all drugs are the same. There are brand-name
drugs protected by patents, and generic drugs that compete with those whose
patent has expired. Among the patented drugs, certainly there are some that are
therapeutically unique. In short, there are lots of situations where little can
be done to increase supply, but there may be room for negotiating a better
price on the few that are on the market and available for
use.
For example, the Center for Medicare and Medicaid Services (CMS) took action to
provide Medicare Advantage (MA) plans greater flexibility in their benefit
design and coverage of certain medicines. MA plans will now be able to impose
step therapy requirements as a way to manage utilization of
physician-administered drugs (that is, not outpatient drugs taken at home)
covered under the Medicare Part B benefit. It is hoped that this expanded
authority will enable insurers to promote the use of higher-value
medicines and better negotiate discounts for drugs. (In a managed care setting,
"step therapy" is an approach to prescription drugs where a
patient begins treatment for a medical condition with the most
cost-effective drug therapy and progresses to other more costly or
risky therapies only if necessary.)
Specifically, CMS rescinded a memo from September 2012 that stated MA plans
were not allowed to impose additional requirements (such as step therapy) that
would hinder access to Part B drugs or services. Additionally, MA
prescription drug plans will have new authority to cross-manage Part B and Part
D drugs by allowing drugs covered under one benefit to be the first step of
a treatment plan before allowing use of a drug covered by the other
benefit. Any step therapy requirement must be coupled with drug-management and
care-coordination services, and at least half of the savings generated
from reduced drug costs must be shared with the beneficiary. These requirements
are intended to encourage patient participation, which is essential
to realizing better health management and medication adherence.
The other way to reduce prices of drugs is to reduce the explicit and implicit
taxes on them. Congress made things a bit worse in this regard recently by
increasing the fraction of Medicare Part D costs that must be paid by
pharmaceutical firms — a tax in disguise. (See the discussion in Tara O’Neill
Hayes’ reform piece.)
Among the most important of the implicit taxes is the 340B Drug
Pricing Program (340B). Under the 340B program, manufacturers
must provide discounts to eligible health care providers for covered outpatient
drugs. There was no guarantee that those providers were passing along any
of the discounts to the low-income patients they were intended to
benefit, and the lost revenue from the discount has to be made up
elsewhere (the implicit tax), so CMS introduced reforms in 2017. In
the past 100 days, CMS extended this policy to 340B drugs provided at
off-campus hospitals sites, while also reforming the calculation of the
average sales price (ASP) for biosimilars.
The final lever that the government could pull is essentially
shifting part of the price onto someone else. That might not make drugs cheaper
for the health care system as a whole, but it could relieve some of the burden
on, for example, consumers. CMS has instituted a wide range of
proposals to reduce the out-of-pocket portion paid by consumers.
Nobody should have expected a 100-day miracle in drug pricing — the economics
are simply too daunting. But by continuing to pursue policies of increased
supply, stronger negotiations, and fewer explicit and implicit taxes, the
administration can make additional progress.
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