Tara
O'Neill Hayes August 6, 2019
Executive Summary
·
The Senate Finance
Committee’s drug-pricing bill, which the full Senate is expected to consider
soon, is the latest effort from Congress to bring down the cost of prescription
drugs.
·
This bill does myriad
things, including encouraging the use of biosimilars, penalizing drug
manufacturers for price growth faster than inflation, and capping out-of-pocket
expenses for Medicare Part D beneficiaries.
·
While the ultimate
impact of these changes is impossible to know, it is likely that some
provisions would encourage higher launch prices for new drugs, while others
could encourage greater use of less expensive medicines and eliminate the
incentive for hospitals to take over independent doctors’ offices.
Introduction
The Senate Finance Committee recently marked up
a package of legislative reforms to
Medicare and Medicaid drug reimbursement. The package—designed to reduce
government and beneficiary spending on drugs as well as reduce drug prices
themselves—eventually garnered bipartisan support after a lengthy debate.
Senators filed more than 100 amendments, and the committee adopted 21 of them,
although Chairman Grassley and Ranking Member Wyden both expressed interest in
including additional amendments in the final package before it reaches the
Senate floor. The package includes such provisions as offering providers
financial incentives for the use of biosimilar products (rather than the
brand-name reference product), imposing significant penalties on drug makers if
the price of their drug rises faster than inflation, and capping the
out-of-pocket (OOP) expenses for Medicare Part D beneficiaries on their retail
prescription drug costs.
Medicare Part D
The government spends significantly more on
prescription drugs under the Medicare Part D program than under other
programs—roughly $100 billion in 2018, covering more than 43 million
beneficiaries. Reforms here therefore promise to have a large impact on overall
drug spending.
Benefit redesign
The most significant change in the Finance
Committee bill is the restructuring of the Part D benefit design, as outlined
in Section 121. The reforms include three key components: imposing an OOP cap
on beneficiary spending; eliminating the existing manufacturer Coverage Gap
Discount Program and replacing it with a mandatory manufacturer discount in the
catastrophic phase; and changing the liability of insurers and the government
in the catastrophic phase. This design is similar to one previously proposed
by the American Action Forum (AAF), though the
proportions of the various parts have shifted, which will alter the impact relative to AAF’s proposal. The
intent of the redesign is to increase the incentives of drug manufacturers and
insurers to control drug spending by making them liable for more of the costs.
Under the Finance Committee proposal,
beneficiaries would continue to have a deductible period, during which they
would be responsible for 100 percent of the costs. Then, in the initial coverage
phase, beneficiaries would be responsible for 25 percent of costs; insurers
would pay the remaining 75 percent until the beneficiary reaches the OOP cap.
The cap would be set at $3,100, beginning in 2022, and then indexed to the rate
of growth in Part D spending. Once beneficiaries have reached that cap, they
would move into the catastrophic phase and no longer be liable for any costs
incurred. If beneficiaries then take a brand-name or biosimilar drug, the
manufacturer would be required to pay a 20 percent rebate for any cost in the
catastrophic phase (if beneficiaries take a generic, however, their percentage
drops to zero). Insurers would be responsible for 60 percent of all costs
incurred in the catastrophic coverage phase, up from the 15 percent they
currently pay. The federal government—which currently pays 80 percent of all
costs in the catastrophic phase—would pay 20 percent of the costs when a
beneficiary takes a brand-name or biosimilar drug and would pay 40 percent when
a generic drug is taken.
Price inflation penalty
Drug manufacturers would also be subject to an
inflation rebate penalty for Part D drugs under Section 128 (similar to the
penalty Section 107 imposes on Part B drugs; see below). Unlike the Part B
provision, however, which uses the drug’s price net of rebates, in Part D the
applicable drug price will be the drug’s wholesale acquisition cost (WAC),
which is the list price. Using WAC to determine inflation penalties is
therefore likely to result in fewer rebates (which were valued at 25.3 percent
of Part D drug costs in 2018) and thus increased net prices for existing drugs.
Launch prices for new drugs may be higher, also, as a result of this policy.
Knowing that there will be a penalty for price increases but
not high prices creates an economic incentive to set the
initial price higher than what otherwise would have been expected to lessen the
need to raise prices in the future and potentially trigger the inflation
penalty.
Public disclosure and information provided to
MedPAC and MACPAC for research
Sections 122, 123, and 124 would increase the
disclosure of drug pricing information—currently required to be shared with the
Department of Health and Human Services (HHS)–both to the public and to
congressional advisory committees, specifically the Medicare Payment Advisory
Commission (MedPAC) and the Medicaid and CHIP Payment Advisory Commission
(MACPAC). Various drug pricing and pharmacy benefit manager (PBM) information,
including aggregate rebate and discount values, PBM’s pharmacy reimbursement
rates relative to insurer costs for PBM services, and prescription dispensing
rates would be required to be publicly disclosed, but on a 2-year lag. More
detailed pricing and rebate information would be required to be shared with
MedPAC and MACPAC. Part D plans would also be required to have third-party
audits of their PBM contracts every 2 years to ensure, among other things,
appropriate accounting of net price for drugs. Part D plans would also be
required to report to pharmacies any post-point-of-sale price adjustments.
Finally, in order to ensure that projected direct and indirect remuneration
(DIR) for the upcoming year is based on actual DIR in the prior year, plan
sponsors would be required to report actual and projected DIR amounts annually,
beginning in 2022.
Real-time benefit tools
In order to allow doctors and patients to make
more informed decisions regarding potential treatment options, Section 125
would require that Part D plan sponsors enable providers to access a real-time
benefit tool (RTBT) through their electronic health record (EHR) system that
details an enrollee’s prescription drug coverage. The RTBT should provide the
enrollee’s formulary and benefit information, including cost-sharing
information for a particular drug and a list of clinically appropriate
alternatives; pharmacy information; and any prior authorization or other
utilization management requirements. Providers would be required to ensure
their EHR system supports RTBT functionality. This may reduce the number
of prescriptions abandoned at the pharmacy
counter, which is when a patient typically learns the price they are expected
to pay OOP.
Provision of Parts A and B claims data to drug
plans
Section 126 would modify a policy included in
the Bipartisan Budget Act (BBA) of 2018, which allowed for Part D plan sponsors
to access an enrollee’s Medicare Parts A and B claims data. The BBA allows plan
sponsors to use the claims data to improve medication use, to improve care
coordination, and for other purposes; plan sponsors, however, were prohibited
from using the data to inform coverage determinations. This section would
provide an exception that allows insurers to use the data for certain coverage
determinations if it will improve therapeutic outcomes, effective January 2021.
Encouraging biosimilar use
Section 132, added via an amendment by Senators
Cassidy and Menendez, would add a new quality measure to the Part D Star Rating
system assessing how a plan’s benefit and formulary design encourages patient
access to biosimilars—generic-like versions of biological products. Given the
importance of the Star Ratings, this could provide a strong
incentive for plans to change their formularies and encourage biosimilar
utilization. Increasing market share is critical for continued investment in
the biosimilar industry.
Medicare Part B
Just under a quarter of all Medicare drug spending is for
physician-administered drugs covered under Medicare Part B. These are drugs
provided in a doctor’s office or other outpatient setting, as opposed to retail
prescription drugs that are picked up at a pharmacy and self-administered. Some
of the most common types of physician-administered
drugs include chemotherapies, immunotherapies, and treatments for rheumatoid
arthritis, Crohn’s disease, and other inflammatory diseases.
Reducing the payment rate for the initial 6
months that a drug is on the market
Physicians administering drugs in their
office—those covered under Part B—must first purchase the drugs themselves.
They are then reimbursed for the drug, generally, at the average sales price (ASP) of the drug in
the private sector plus 6 percent.[1] The
ASP reimbursement system operates on a two-quarter lag, though, because it
takes time for the pricing information (which must account for all discounts
and rebates provided in the private sector) to be reported. Thus, during the
first two quarters that a drug is available, there is no ASP data. Instead,
drugs are initially covered based on WAC, which MedPAC has found to be
significantly higher than ASP for most drugs.[2] Until
January 2019, the payment rate for new drugs was WAC plus 6 percent; through
rulemaking, the Centers for Medicare & Medicaid Services (CMS) changed the
payment rate to WAC plus 3 percent, as MedPAC recommended, at the start of this
year. Section 103 of the Finance Committee bill would essentially codify this
change, establishing a maximum add-on payment of no more than 3 percent of WAC
when ASP data is unavailable.
Increasing the payment rate for biosimilars for
the first 5 years they are on the market (after the ASP has been established)
Payment for biosimilars under Part B
similarly uses the ASP system, but with an important distinction. Originally,
all biosimilars of a given reference product were reimbursed equally, with the
base payment amount based on the ASP of all the biosimilars, but the 6 percent
add-on payment equal to the add-on payment for the reference product. As
explained here, this formula provided a reimbursement
amount that was less than that provided for the innovator drug (saving money
for Medicare) while not disincentivizing providers from using the lower-cost
drug (because the add-on payment was the same as that for the higher-priced
drug). Critics complained, however, that biosimilars should
not be reimbursed this way since one biosimilar may treat different or fewer
indications than another biosimilar of the same reference product. In response
to this criticism, CMS issued a new regulation in November 2017 that provides
a separate billing code and reimbursement amount for each biosimilar, using
each individual drug’s own ASP for the base payment amount and maintaining the
use of the reference biologic’s ASP for the add-on payment. During the initial
two quarters of a biosimilar’s availability, such products are paid just like
other new drugs to market: 103 percent of WAC.
Section 104 of the bill would establish a new
initial payment rate for biosimilars, effective July 2020: the lesser of either
the biosimilar’s WAC plus 3 percent or ASP plus 6 percent of the reference
biologic. Section 105 would then alter a biosimilar’s payment rate after that
initial period for the next 5 years, effective January 2020. Once ASP for a
biosimilar has been established, the reimbursement rate will be 100 percent of
the biosimilar’s ASP plus 8 percent of the reference product’s ASP (as opposed
to the current 6 percent add-on rate) for a 5-year period, although the
Menendez-Carper amendment, which was adopted, would limit the add-on payment to
no more than the total payment amount for the reference
biologic.
This temporary increased payment rate would offer
providers a financial incentive to use the biosimilar, which is intended to
help biosimilar products gain market share. The hope is that when the payment
rate returns to what it otherwise would have been, providers and patients will
be used to the biosimilar and will maintain treatment with the biosimilar. It
is possible, though, that this change could increase beneficiary spending
slightly: Beneficiaries pay their co-insurance (20 percent) based on the
Medicare reimbursement rate; if the reimbursement rate increases from a 6
percent add-on to 8 percent, beneficiary co-insurance liability will increase
by 0.4 percent.
Inclusion of the value of coupons provided to
privately insured patients in the calculation of ASP
As previously mentioned, the ASP must account
for all discounts and rebates offered to private insurers. One caveat is that
these discounts do not include the value of any coupons that drug manufacturers
may provide directly to patients to reduce their OOP costs for a drug. Section
102 would require that a drug’s ASP be reduced by the value of any coupons
provided by manufacturers to privately insured patients (such coupons are
prohibited from being provided to Medicare beneficiaries). While this change is
expected to reduce Medicare reimbursement rates (and beneficiary co-insurance),
such an outcome will only be achieved if manufacturers continue to offer such
coupons; it is possible that this policy change could discourage their
continued use.
Maximum add-on payment for
physician-administered drugs
Section 110 would limit a drug’s add-on payment
amount to $1,000, beginning in January 2021 through December 2028. In 2029 and
each year thereafter, the maximum amount would be indexed to the consumer price
index for urban consumers (CPI-U).
Price inflation penalty
Section 107 would add a new price control
measure requiring any brand-name drug manufacturer to pay a rebate for each
drug provided under Part B if the ASP (net price) of the drug increases faster
than inflation. The price of a drug would be assessed quarterly, relative to
the “payment amount benchmark,” which would be the price of existing drugs on
July 1, 2019; for new drugs, the benchmark would be the first day the drug is
marketed. The rebate required would be equal to the amount by which the ASP in
a given quarter exceeds the “inflation-adjusted payment amount” for each drug
provided during the quarter (unless the drug was provided for end-stage renal
disease or the manufacturer already paid a 340B discount or Medicaid drug rebate).
While this measure is likely to be effective in
stopping net price increases for existing drugs beyond the rate of inflation,
it may allow for continued growth in list prices and exacerbate the
“gross-to-net bubble.” It is also very likely to encourage higher launch prices
for new drugs, just as is expected with Part D drugs. Ultimately, it is
possible that the short-term gains from this policy may be more than offset by
the long-term costs.
Refunds for unused drugs
Section 108 would attempt to decrease some of
the waste in the health care system by requiring certain manufacturers to
provide a refund for unused drugs. Many Part B drugs are provided via
single-use vials; oftentimes, a patient will not need all of the drug provided
in a vial, but any unused amount is unable to be saved and used on the next
patient. Accordingly, Medicare typically reimburses providers for each vial
used, but as a result, Medicare is wasting money paying for substantial amounts
of drugs that are unused. This bill would require drug manufacturers to provide
a refund to Medicare for unused portions of drugs provided in single-dose vials
if the unused amount exceeds a minimum threshold of 10 percent. The refund
amount would be equal to the portion of the cost attributable to any unused
amount in excess of the 10 percent allowance. This provision would apply to all
drugs, biologics, and biosimilars, except radiopharmaceuticals and imaging
agents, beginning in July 2021. Presumably, manufacturers will choose, as a
result of this change, to produce vials which more closely match a common usage
amount, while still allowing for variance depending on a what is best for each
patient.
Site-of-service transparency and site-neutral
payments
In addition to the reimbursement for the drug
itself, providers are also reimbursed an administrative fee for the cost and
labor of administering the drug. Historically the site of service and the
corresponding payment system for that site determined the fee. Recent laws
worked to impose a uniform service fee across sites of service to eliminate pay
disparities and decrease the incentive for hospitals to acquire physician
offices and build off-campus hospital outpatient departments (HOPDs). These
recent laws grandfathered in existing HOPDs, however, and they continue to be
paid the higher outpatient prospective payment rates. Section 111 would end the
grandfathered status, such that all physicians are reimbursed equally under the
physician fee schedule for the administration of a drug.
Medicaid
The federal government also pays roughly $30
billion for prescription drugs provided to Medicaid beneficiaries, and it has
implemented rules to help ensure Medicaid pays the least for prescription drugs
of any provider in the country.
The Medicaid Drug Rebate Program (MDRP)
requires drug manufacturers, as a condition of having Medicaid cover their
drugs, to pay a rebate for all of their outpatient prescription drugs,
including biologics, taken by Medicaid beneficiaries. The amount of the
required rebate is set by law such that the net price of the drug is either
equal to the best price available to anyone in the private market or equal to a
certain percentage of the drug’s average manufacturer price (AMP)—whichever
gives Medicaid the lowest price. The percentage for this rebate varies by type
of drug, with brand-name drugs requiring the greatest rebate. An additional
rebate must also be paid if a drug’s list price increases at a rate greater
than inflation; this additional rebate is equal to the amount by which the
price increase exceeds the rate of inflation, measured by the CPI-U.
Ensuring accuracy of price and rebate
information
Section 204 would provide the Secretary of HHS
with new oversight authority and impose new reporting requirements on drug
manufacturers in order to improve the accuracy of price and product information
under the MDRP. The Secretary would be required to audit price and product
information and would be empowered to survey various entities in the supply
chain to verify the accuracy of pricing information. Civil monetary penalties
could be issued for noncompliance, and the Secretary would be required to
submit to Congress a report detailing any additional authority needed. The
federal government currently has limited authority to enforce compliance
with the MDRP. Manufacturers are responsible for reporting all necessary
pricing, sales, and product information to CMS. If information provided is not
accurate or not provided in a timely fashion, manufacturers may face civil
monetary penalties.[3] If
manufacturers violate the terms of the agreement, they may also be terminated
from the program.[4] The
federal government is unlikely to use this penalty, however, since doing so
would result in beneficiaries (including Part B beneficiaries) losing access to
all drugs produced by that manufacturer. Regarding potential misclassifications
of a drug (whether listed as a brand-name drug or a generic), CMS currently has
no authority to require correct classification or to penalize manufacturers who
fail to do so.[5] An
investigation by the HHS Inspector General found that the misclassification of
products has resulted in more than $1.3 billion in lost rebates between 2012
and 2016.[6]
Excluding authorized generics from calculation
of AMP
Section 205 would exclude authorized generics from being included
in the calculation of AMP. Under current law, any existing “authorized generic”
must be taken into account when determining the rebate amount for a brand-name
drug under the MDRP.[7] An
authorized generic drug is an exact copy of a brand-name drug (having both the
same active and inactive ingredients) but sold at a lower
price and with a different name than the brand-name drug.[8] A
manufacturer of a brand-name drug may choose to sell (or authorize the sale of)
an authorized generic version to maintain market share once the market
exclusivity period for its brand-name drug expires. When the price of an
authorized generic is included in the AMP of the brand-name drug and that price
is lower than the price of the brand-name drug, its inclusion will have the
effect of lowering the AMP, which in turn will reduce the amount of the rebate
and increase Medicaid’s net price for the drug.
Increasing the maximum rebate amount to 125
percent
Section 209 would increase the maximum rebate
amount under the MDRP to 125 percent of a drug’s average manufacturer price.
Under current law, the maximum rebate amount that a drug manufacturer would
have to provide to the Medicaid program (inclusive of the inflationary rebate)
is limited to 100 percent of the drug’s AMP. Some have claimed that by limiting
the total rebate that must be paid, drug manufacturers are able to increase the
cost of their drug with limited repercussions beyond providing product at no
cost to Medicaid. Removing this cap, however, would result in drug
manufacturers possibly having to pay—rather than be paid—for the use of their
drugs in Medicaid. As explained here, this change could worsen, rather than
mitigate, the problem it is intended to fix by creating incentives for higher
launch prices and less negotiation (to increase a product’s “best price”) in
other markets. Any policy to increase the mandatory rebate amount will exacerbate the existing problems with
this program.
Expanding the MDRP to drugs provided in
outpatient hospital services
Under Section 210, states would have the option
of extending the requirements of the MDRP to any drug, biologic, or insulin
product included as part of a bundled payment if it is provided in an outpatient
setting. Under current law, such drugs are only subject to the MDRP if they are
paid for separately from any other services; in other words, products covered
under a single bundled payment for a given service are excluded from the rebate
requirements right now, but this reform would allow states to include them.
Banning spread pricing
Section 206 would ban what is known as “spread
pricing” in PBM contracts with pharmacies when
dispensing drugs to Medicaid beneficiaries. This provision would require that
the full payment amount that a PBM receives from a Medicaid Managed Care
Organization for a drug provided to an enrolled beneficiary be fully passed on
to the pharmacy that dispenses the drug. Any payments to PBMs for pharmacy
management services must be limited to the ingredient cost of the drug and a
professional dispensing fee at least equal to what the state would pay for a fee-for-service
beneficiary. PBM administrative fees would be limited to a “reasonable” amount
(with “reasonable” left undefined). The HHS Secretary would also be required to
conduct a survey of retail community pharmacy prescription drug prices and make
their findings publicly available.
Risk-sharing value-based agreements for covered
outpatient drugs
Section 208 would allow states to enter into
risk-sharing value-based agreements with manufacturers of certain drugs
beginning in January 2022. The types of drugs that would qualify for this
allowance are gene therapies that are expected to need no more than three
administrations. Under this type of agreement, the state would be able to make
payment installments over the course of up to 5 years. Payments may be reduced
if relevant clinical outcomes are not achieved. The state would be required to
continue making the obligated payment installments, even if the beneficiary is
no longer enrolled in the state’s Medicaid program, although there would be an
exception if the patient dies. Importantly, the payment amount under these
agreements would not affect the drug’s “best price” for purposes of determining the
required Medicaid rebate. If the CMS Office of the Actuary finds that the
spending for a drug is more than under such an agreement than it otherwise
would have been, the contract may be cancelled and the manufacturer would be
obligated to repay the difference to the state and federal government.
Miscellaneous
Manufacturer price transparency and
justification
Under Section 141, beginning in July 2022 drug
manufacturers would be required to report information and supporting
documentation needed to justify certain list price increases for certain
prescription drugs. Drugs costing at least $10 per dose would trigger this
requirement if the list price doubles in a single year, increases by at least
150 percent in 2 years, 200 percent in 3 years, 250 percent in 4 years, or 300
percent in 5 years. For existing drugs in the top 50 percent of net spending
per dose in either Medicare or Medicaid in at least one of the preceding 5
years, this requirement would be triggered if, beginning in 2020, the list price
increases at least: 15 percent in a single year, 20 percent in the prior 2
years, 30 percent in the prior 3 years, 40 percent in 4 years, or 50 percent in
5 years. Finally, for new drugs coming to market, the trigger would be any drug
for which the list price for a year supply or course of treatment exceeds the
gross spending amount necessary to meet the catastrophic coverage threshold for
Part D (which is roughly $9,300 in 2020, based on current law).
Information that may be required includes the
individual factors contributing to the price increase and the role that each
factor plays, as well as manufacturer spending for materials, production,
patents, licenses, and acquiring a drug from another company, if applicable.
Manufacturers may also choose to provide information pertaining to research and
development costs and the percentage of such costs derived from federal funds;
total revenue and net profit from the drug; costs for marketing and
advertising; and information relating to spending on drugs that ultimately
failed to receive approval from the Food and Drug Administration. Failure to
comply with these requirements would result in significant financial penalties.
Conclusion
This legislative package from the Senate Finance
Committee is the last piece of a tri-committee effort in the Senate to produce
a comprehensive legislative package on drug pricing. The Senate HELP and
Judiciary Committees—as well as the House Energy and Commerce and Ways and
Means Committees—have also passed legislation that, if it becomes law, will
affect drug prices, the supply chain, and government and patient spending. It
is expected that the proposals from all three Senate committees will be
packaged together for a single vote on the Senate floor this fall. What will
ultimately come of all this work is unknown, but the potential impact for
beneficiaries, insurers, manufacturers, and the government is quite
significant.
[1] Since 2011, as a result of the Budget
Control Act of 2011 and sequestration, the 6 percent add-on payment has been
reduced to 4.3 percent.
[8] https://www.fda.gov/drugs/developmentapprovalprocess/howdrugsaredevelopedandapproved/approvalapplications/abbreviatednewdrugapplicationandagenerics/ucm126389.htm
https://www.americanactionforum.org/insight/senate-finance-proposes-reforms-to-medicare-and-medicaid-drug-policy/#ixzz5vxlFJdRq
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