Reducing Drug Prices and Medicare’s Role: ‘It’s Complicated’

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Reducing Drug Prices and Medicare’s Role: ‘It’s Complicated

The White House Rose Garden was in full bloom when President Trump took the podium to announce that his administration was “launching the most sweeping action in history to lower the price of prescription drugs for the American people.”

He said: “It’s been a complicated process, but not too complicated.”

Thing is, it is pretty complicated and made more so by the admittedly tangled web of lobbyists knocking with dogged determination on lawmakers’ doors in pursuit of one thing: higher drug prices.

Their efforts appear to be working. In 2017, they spent almost $280 million in pursuit of their employers’ objectives. Another estimate puts the cost of drug lobbying at $2.3 billion from 2006 to 2016, and it’s clear that the industry also pays substantially to support candidates for both houses of Congress.

The President talked about his announcement being “the most sweeping action in history to lower the price of prescription drugs.” If you remember the presidential campaign, he promised to utilize Medicare’s gorilla purchasing power to negotiate directly to reduce prices. That all sounded very promising.

What Medicare Can and Can’t-Do

Medicare buys more drugs than anyone else, because it has a base of approximately 60 million people over age 65 or younger with certain disabilities, and is the largest single healthcare payer. However, the law actually prevents Medicare from carrying on direct negotiations with pharmaceutical companies. Specifically, it bars the Secretary of the Department of Health and Human Services (HHS) from managing the negotiations. Right now that’s Alex M. Azar II, a former executive with behemoth pharmaceutical company Lilly USA LLC, of Eli Lilly and Co.

Many were chagrined that the “American Patients First” does not, in fact, have any mandate for Medicare to negotiate directly with drug manufacturers. Some have described the situation in general as a gift, with a big bow around it, to America’s drug companies.

To understand why this happened, it helps to understand some of the history. Hearken to 2006, when Congress was in the throes of arguing the federal law around Medicare’s Part D law, the Medicare Modernization Act that became enforced in 2003. It was the most extensive rejuvenation of the program in 38 years.

Lobbyists persuaded lawmakers that if Medicare gained the ability to negotiate, that it would be akin to price control and an affront to the free market. Insurance companies in charge of subsidizing the new coverage were charged with managing drug costs.

Drugs Do Come Cheaper

In contrast, AARP invites us to consider how the Veterans Health Administration (VHA) deftly negotiates drug prices. The proof is in the pricing, as VHA pays 80 percent less for brand names than Medicare Part D. The VHA’s formulary list, that magic roster of medications it covers is a powerful negotiating tool. The relationship between Medicare and Medicaid that exists within the Food and Drug Administration (FDA) means the former two agencies must cover all FDA-approved drugs. That’s in spite of the fact that less expensive and equally effective medications can be bought on the open market.

Maybe you wonder how your fellow Americans feel about all of this. Big surprise: Democrats, Republicans, and independents are all pretty much on the same page. That’s according to a report from the National Academies of Sciences, Engineering, and Medicine. The analysis states emphatically that “finding a way to make prescription medicines — and healthcare at large — more affordable for everyone has become a socioeconomic imperative.”

According to the Henry J. Kaiser Family Foundation, a majority of Democrats (96 percent), Republicans (92 percent), and Independents (92 percent) think that yes, our government should have to negotiate power here.

Maybe Yes, Maybe No

Kaiser’s analysis of this conundrum over the “noninterference clause” is this. Those in favor of having Azar negotiate think this would result in leverage to reduce drug costs, especially around medications with sky-high prices but with no competition. They say private plans just don’t pack enough punch that way.

As expected, those who proclaim “no” shrug and opine that the Secretary simply couldn’t get better deals done. Then there’s the argument that haggling over price would inhibit pharma’s research and development, limiting the opportunities for more and better medications to improve quality of life and save lives.

As Kaiser notes, in addition to allowing the HHS Secretary to make better deals on drugs, another option would be to establish a public Part D plan that works in partnership with private Part D. “The Secretary would establish a formulary for the public Part D plan and negotiate prices for drugs on that formulary.”

There’s also a compromise approach of sorts in the mix that would address those expensive drugs and those that don’t have therapeutic alternatives: The Secretary could negotiate those.

At the end of the day, before Medicare can become the drug price negotiator extraordinaire, the law must be changed, and that’s a big lift. Based upon history, even Republicans are not expected to want to do this, and for sure pharma will recoil. That leaves consumers using Part D watching and waiting for change.

Drug Negotiation Side Effects

Increasing negotiating around Medicare could have ramifications if the President transfers expensive medications from Part B — the first Medicare legislation in 1965 —
to Part D, says The New York Times.

AARP says it’s worried about increasing out-of-pocket charges if this happens. Also, 9 million Medicare members in Part B don’t have Part D, leaving a void as to who will pay medication costs.

The publication asked doctors for their opinions and one responded that one misstep could be “a disaster.” Another worried about Part D drugs’ prices increasing more than Part B’s. Still, other notes protected classes of Part D drugs that must be covered by insurance plans, but in this instance may hamper Part D negotiations.



AARP: Congress must prevent ‘sudden cut’ to Medicare in 2018

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The AARP is urging House and Senate leaders to waive congressional rules so the Republican tax bill doesn’t trigger deep cuts to Medicare.

If Republicans pass their tax bill, which would add an estimated $1 trillion to the federal deficit, congressional “pay-as-you-go” rules would require an immediate $150 billion in mandatory spending cuts to offset the impact.

“The sudden cut to Medicare provider funding in 2018 would have an immediate and lasting impact, including fewer providers participating in Medicare and reduced access to care for Medicare beneficiaries,” AARP said in a letter sent to congressional leaders Thursday.

Under the bill, according to the Congressional Budget Office, Medicare would be faced with a $25 billion cut in fiscal 2018.

But Senate Majority Leader Mitch McConnell (R-Ky.) and Speaker Paul Ryan (R-Wis.) have promised the cuts won’t happen.

In a joint statement sent just ahead of the Senate vote on the tax bill last week, Ryan and McConnell said there is “no reason to believe that Congress would not act again to prevent a sequester, and we will work to ensure these spending cuts are prevented.”

Lawmakers have voted numerous times in the past to waive the rule, and even House conservatives have said they’ll likely support a waiver once the tax bill passes.

“I can’t imagine any scenario where there’s not a waiver for PAYGO,” House Freedom Caucus Chairman Mark Meadows (R-N.C.) said Wednesday. “It’s using a hammer when maybe a scalpel would do.”

But in the Senate at least, Republicans will need the support of Democrats to waive the rules. So far, they have been reluctant to offer it.


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The tax bill would trigger an automatic funding cut in the vital program.

AARP Chief Executive Officer Jo Ann Jenkins called on congressional leaders Thursday to keep their promise to America’s seniors and prevent a large cut to Medicare that the tax bill now being debated on Capitol Hill would trigger.

The tax measure would result in a $1.5 trillion increase in the federal deficit over the next decade, according to the nonpartisan Congressional Budget Office (CBO). Such a deficit would prompt an automatic $25 billion cut to Medicare as soon as January because of the “pay-as-you-go” law, commonly referred to as PAYGO.

The law was designed to keep the deficit in check by requiring the administration to reduce spending in many mandatory federal programs if Congress enacts a law that increases the deficit but doesn’t provide offsetting revenue.

In a letter to Senate Majority Leader Mitch McConnell, Minority Leader Charles Schumer, House Speaker Paul Ryan and Minority Leader Nancy Pelosi, Jenkins reminded McConnell and Ryan that they had recently issued a statement promising that “we will work to ensure these spending cuts are prevented.”

In their statement, the Republican leaders pointed out that the PAYGO law has never been enforced since it was passed in 2010 and “we have no reason to believe that Congress would not act again” to forestall the cuts PAYGO would require.

Medicaid, Social Security, food stamps and some other social safety net programs are exempt from the PAYGO law. But Medicare and programs like federal student loans, agricultural subsidies and the operations of U.S. Customs and Border Protection are not exempt.

The law caps how much the government can trim from Medicare at 4 percent. That’s $25 billion the first year, according to CBO. The amount could be higher in subsequent years, depending on the size of the deficit and Medicare’s budget.

The reduction would affect the payments that doctors, hospitals and other health care providers receive for treating Medicare patients. Individual benefits would not be directly cut, but the reduction could have implications for the care beneficiaries receive.

“The sudden cut to Medicare provider funding in 2018 would have an immediate and lasting impact, including fewer providers participating in Medicare and reduced access to care for Medicare beneficiaries,” Jenkins wrote. Health care providers might stop taking Medicare patients, she added, even as 10,000 older adults are enrolling in the health program each day.

In addition, Medicare Advantage plans and Part D prescription drug plans may compensate for the cuts by charging higher premiums or shifting more costs to beneficiaries in future years.

“Our members and other older Americans are counting on you to preserve their access to Medicare services, including their doctors and hospitals,” Jenkins wrote.

Health Care for Millions at Risk as Tax Writers Look for Revenue

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The Republican tax plans are suddenly looking a lot more like health-care bills, with provisions that may affect coverage and increase medical expenses for millions of families.

The House version of the tax bill, which President Donald Trump endorsed on Tuesday, would end a deduction that allows families of disabled children and elderly people to write off large medical expenses. The Senate plan would repeal the Obamacare requirement that most Americans carry insurance, a move that insurers promise would raise premiums in the nationwide individual insurance market.

The provisions would help offset the cost of large tax cuts for corporations and individuals. But the move has sparked a new wave of opposition from the health-care industry and others who are concerned about its impact — the same political headwinds that tanked Republican efforts to repeal the Affordable Care Act earlier this year.

Either proposal, if signed into law, “could be devastating for some families with disabilities,” said Kim Musheno, vice president of public policy at the Autism Society, a Bethesda, Maryland, organization that advocates for people with autism. “Families depend on that deduction. And if they deal with the individual mandate, that’s going to cut 13 million people from their health care,” she said, citing a Congressional Budget Office estimate.

Republicans and some conservative groups, though, argue that removing the penalty for uninsured individuals would represent a tax cut for many low-income people who pay it now. Americans for Tax Reform, the group led by anti-tax crusader Grover Norquist, said that Internal Revenue Service data from tax year 2015 show that 79 percent of households that paid the penalty earned less than $50,000 a year.

Most Americans already think the tax legislation is designed to benefit the rich and oppose the bill by a two-to-one margin, according to a Quinnipiac University poll released on Wednesday. The survey was conducted between Nov. 7 and Nov. 13 — before the repeal of the Obamacare mandate was introduced — and has a margin of error of 3 percentage points. Some of the details in both tax plans have changed since the survey, and the Senate tax-writing committee is still working on its draft.

Republican Concerns

Few Republicans have spoken out about the House bill’s repeal of the medical-expense break. The bill faces a vote on the House floor Thursday. But some criticism has begun to surface as advocacy groups including the AARP and the American Cancer Society have highlighted the harm the House bill could have on families battling diseases and on the elderly. People with tens of thousands of dollars in annual medical expenses often rely on the tax deduction to make ends meet.

Representative Walter Jones, a North Carolina Republican, said Wednesday he’ll vote against the House bill in part because it eliminates the deduction for out-of-pocket medical expenses.

“There are a lot of seniors in my district and this is life and death for them,” he said.

The deduction is allowed under current law if medical expenses exceed 10 percent of a taxpayer’s adjusted gross income. Almost 9 million taxpayers deducted about $87 billion in medical expenses for the 2015 tax year, according to the IRS.

Representative Greg Walden, an Oregon Republican who chairs the Energy and Commerce Committee, said some of his constituents who live in expensive elder-care facilities could be harmed if the deduction is scrapped.

“I think it’s one we have to continue to massage a bit,” he said. “There’s a lot of things out there and there’s maybe going to be an opportunity to adjust some of them.”

He declined to elaborate.

Obamacare Repeal

On the other side of the Capitol, Senate Republican leaders’ sudden decision to add a partial Obamacare repeal to their bill has energized Democratic opposition.

“You don’t fix the health insurance system by throwing it into a tax bill and causing premiums to go up 10 percent,” Senator Sherrod Brown, an Ohio Democrat, told reporters Wednesday.

Were the ACA’s insurance mandate repealed absent a new policy to compel the purchase of coverage, the CBO projects that premiums would rise 10 percent for people who buy insurance on their own and more than 13 million Americans would lose or drop their coverage.

But a reduction in the number of people with insurance also translates to less taxpayer money spent to provide subsidies for premiums under the ACA. Ending the requirement as of 2019 would save the government an estimated $318 billion, helping to offset the cost of lowering the corporate tax rate.

In addition, the Senate’s tax plan could trigger sharp cuts to Medicare and other programs in order to meet budget deficit rules, according to CBO.

Easy Ads

The move to target Obamacare comes after Republicans lost elections in Virginia and other states earlier this month. Health care was a significant factor in those races and Republicans will face punishing campaign ads if they try to chip away at Obamacare or end the medical-expense deduction while cutting taxes, said political analyst David Axelrod, a former top adviser to President Barack Obama.

“The thing that makes it more of a potent issue is that it’s all being done to facilitate what essentially is a massive corporate tax cut and an individual tax cut that’s skewed to wealthy Americans,” he said in an interview. “You don’t have to work very hard to make those ads.”

The White House argues that the ACA’s insurance mandate isn’t popular and disproportionately affects low- and middle-income Americans who are forced to buy insurance that may be more expensive than they can afford.

“The President’s priorities for tax reform have been clear from the beginning: make our businesses globally competitive, and deliver tax cuts to the middle class,” White House spokesman Raj Shah said in a statement. “He is glad to see the Senate is considering including the repeal of the onerous mandates of Obamacare in its tax reform legislation and hopes that those savings will be used to further reduce the burden it has placed on middle-class families.”

‘Cut Top Rate’

Trump, though, has said proceeds from repealing the insurance mandate should be used to cut taxes even further for wealthy people.

“How about ending the unfair & highly unpopular Indiv Mandate in OCare & reducing taxes even further?” Trump said Monday in a tweet. “Cut top rate to 35% w/all of the rest going to middle income cuts?”

Like Republicans’ failed attempts to repeal the ACA, the tax plan is amassing a growing list of opponents from the world of medicine.

Insurers, hospital groups and disability advocates have spoken out forcefully against the health-care proposals in the bill. Hospitals and insurance groups wrote a letter to Congressional leaders on Tuesday warning of dire health-care outcomes if the tax measure becomes law.

“Repealing the individual mandate without a workable alternative will reduce enrollment, further destabilizing an already fragile individual and small group health insurance market on which more than 10 million Americans rely,” said the letter, signed by six health-care groups, including the American Hospital Association and America’s Health Insurance Plans.


Healthcare groups blast skinny repeal, warn premiums will spike

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Healthcare groups are coming out against the Senate GOP’s plan to pass a scaled-down ObamaCare repeal bill, saying it would spike insurance premiums.

The American Medical Association, the Blue Cross Blue Shield Association and the American Cancer Society Cancer Action Network are among the range of healthcare groups blasting the bill.

The scaled-down, “skinny” repeal bill would repeal ObamaCare’s mandate for people to have insurance, which insurers and other groups warn would lead to a sicker group of enrollees and spiking premiums.

The Blue Cross Blue Shield Association warned of “steep premium increases and diminished choices that would make coverage unaffordable and inaccessible.”

“Eliminating the mandate to obtain coverage only exacerbates the affordability problem that critics say they want to address,” said Dr. David Barbe, president of the American Medical Association.

“We again urge the Senate to engage in a bipartisan process — through regular order — to address the shortcomings of the Affordable Care Act and achieve the goal of providing access to quality, affordable health care coverage to more Americans,” Barbe said.

The Congressional Budget Office previously found that repealing the individual mandate would lead to 15 million more uninsured people and cause premiums to increase by about 20 percent.

Republican senators argue the scaled-down repeal bill will never actually become law, and is just a way to set up negotiations with the House on a larger plan. But the House is making no guarantees that it won’t simply vote on the bill and send it to the president.

“The continuing effort by Senate leaders to figure out by trial and error some bill that might gain the needed 50 votes to pass is a threat to millions of Americans including cancer patients and survivors who must have comprehensive coverage in order to access prevention and medical treatment,” the American Cancer Society Cancer Action Network said in a statement.

“The legislation could cause the individual insurance market to collapse putting millions of American families at financial risk,” the cancer group said.

In addition to repealing the individual mandate, the skinny bill would also defund Planned Parenthood, cut the ObamaCare prevention and public health fund, and repeal the employer mandate.

Many healthcare groups have been strongly opposed to the GOP effort to repeal ObamaCare throughout the process, instead urging a bipartisan approach.

Medicaid cuts had been a major focus, though those are not be included in the current bill.

Regardless, America’s Essential Hospitals, which is strongly opposed to Medicaid cuts, said it is still opposed to the “skinny bill.”

“While it doesn’t directly affect Medicaid, it still would badly undermine coverage and access by destabilizing the private marketplace,” Bruce Siegel, the group’s president, said in a statement.

The AARP, a powerful senior group, also warned against it.

“The bill will leave millions uninsured, destabilize the health insurance market and lead to spikes in the cost of premiums,” it wrote in a letter to congressional leaders.

“AARP will inform our members and the public how their Senators voted,” the letter added.

Lobby groups to watch in Senate healthcare fight

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Lobbying groups opposed to the House’s healthcare reform bill are pinning their hopes on the Senate for big changes.

Industry groups felt largely cut out of the House’s drafting and passage of the American Health Care Act and now are clamoring for action to fix what they view as serious defects in the legislation.

Major hospital and doctor associations, for example, want people with health insurance to stay covered and are pushing to ensure adequate funding for the Medicaid program.

Characterizing this wish list, one healthcare lobbyist put it simply: “Coverage, coverage, coverage.”

AARP, meanwhile, is urging the Senate to start from scratch on a new healthcare bill. The powerful lobbying group for senior citizens believes the legislation, in its current form, creates  “an unaffordable age tax” for older Americans.

Here are the industries and groups to watch as senators write their healthcare reform bill.


Just a day after the House released its bill, the American Hospital Association (AHA) sent a letter to lawmakers in opposition — and that position hasn’t changed.

In a statement after the bill’s passage through the House, AHA President and CEO Rick Pollack said he was “disappointed” because the bill “jeopardize[s] coverage for millions of Americans” and “makes deep cuts to Medicaid.”

The association’s voice carries weight, as it represents nearly 5,000 member hospitals and healthcare systems and is the sixth-highest spender on lobbying this year, according to OpenSecrets.

About 24 million people would become uninsured under the House bill, according to the nonpartisan Congressional Budget Office (CBO). An updated score from the CBO is expected next week.

Other hospital organizations have also panned the House’s healthcare bill, including the Federation of American Hospitals and America’s Essential Hospitals.

Hospital associations want a bill that won’t result in millions more without health coverage and are looking to prevent the CBO-estimated $880 billion in Medicaid cuts. They say the proposed reductions will make it more difficult for hospitals to deliver care.

One hospital advocate said its group is having serious conversations on the policy recommendations it can make to the Senate to help protect patients and hospitals from the costs that could fall on their shoulders.

Healthcare providers

The fourth-largest lobbying spender this year, the American Medical Association (AMA), is also a vocal critic of the House bill.

On Monday, the group representing physicians and medical students sent a letter to Senate Majority Leader Mitch McConnell (R-Ky.) and Senate Minority Leader Charles Schumer (D-N.Y.) to “reaffirm the principles” that they say should guide any bill that changes ObamaCare.

Health coverage is a top priority for the group.

“Throughout the current debate we have consistently recommended that any proposals to replace portions of the current law should pay special attention to ensure that individuals currently covered do not lose access to affordable, quality health insurance coverage,” AMA CEO James Madara wrote in the letter.

The group is pushing to retain protections for pre-existing conditions and ensure states that expanded Medicaid under ObamaCare isn’t put at risk.

The AMA also says the new tax credits in the Republican bill for purchasing insurance should factor in income, geography and age. The House-passed bill only factored in age for determining a credit, increasing the size of the subsidy as a person gets older.

The American College of Surgeons, consisting of more than 80,000 members, didn’t formally oppose the House bill. Yet it had concerns about the bill’s access to surgical care and ability to let states opt out of requiring insurers to cover a list of 10 categories of services.

“Making sure that patients have insurance that is needed to making sure that they have timely access to surgical care was important, and I know will continue to be important to the American College of Surgeons as we review a Senate bill,” Christian Shalgian, the director of the group’s division of advocacy and health policy, said.

He added: “I think we’re definitely getting a receptive ear from the Senate. They’re interested in where we’re at with what they’re going to be doing in the coming weeks and months.”


The leading lobbying group for health insurers, America’s Health Insurance Plans (AHIP), didn’t oppose the House bill.

But it did see room for improvement — and was quick to provide recommendations to the Senate.

Just two hours after the House passed its bill, Marilyn Tavenner, AHIP president and CEO, detailed a few proposed changes in a statement. They included bolstering tax credits for lower-income Americans, older adults and those living in areas with high healthcare costs and providing enough time for people to adjust to Medicaid changes, among others.

Insurers also have an immediate request, though: getting certainty from the administration and Congress that crucial ObamaCare payments to insurers, to the tune of about $7 billion, will continue to be made.

The Association for Community Affiliated Plans (ACAP) did come out against the bill. ACAP represents 60 nonprofit safety net plans serving those enrolled in public health programs, such as Medicaid and the children’s health insurance program.

ACAP CEO Margaret Murray said the House’s bill, if enacted, “would cause considerable damage to our health care system.” Areas of concern included Medicaid cuts and phasing out the enhanced federal funding to states that expanded the health program for the poor and disabled.

“[The bill] will severely limit access to services for the more than 70 million people who rely on Medicaid for effective health coverage — and locks states’ funding to what they spent on Medicaid in 2016,” Murray said in a statement an hour before the bill passed.


AARP says the bill has an “age tax.”

The group, which represents nearly 38 million people, opposes a provision in the House bill that would let insurance companies charge older adults five times more than younger people.

This is a change from ObamaCare, which operates under a 3-to-1 ratio — a ratio that AARP would like to keep, said David Certner, AARP’s legislative counsel. “Already at 3-to-1, it’s quite expensive,” he said.

AARP is concerned that the change to the age ratio, coupled with reduced financial assistance, will result in premiums older adults can’t afford. The CBO estimated a 64-year-old making $26,500 a year would have to pay more than half of their income in premiums under the American Health Care Act.

“AARP urges you to ‘start from scratch’ and craft health care legislation that ensures robust insurance market protections, controls costs, improves quality, and provides affordable coverage to all Americans,” AARP Executive Vice President Nancy LeaMond wrote in a letter sent to senators Monday.