Medicare could have saved almost $80 billion, just in 2018, by matching the U.K.’s prices for prescription drugs that don’t have any competition, according to a new study released in Health Affairs yesterday.
Why it matters: Medicare’s drug benefit was designed to keep prices in check through competition. But competition doesn’t always exist, and the U.S. doesn’t have many options to keep prices down in those cases.
Unlike the other three countries examined in the study, the U.S. doesn’t regulate drug prices.
Details: This study focuses on a group of single-source brand-name drugs in Medicare Part D that have been on the market for at least 3 years. Researchers compared U.S. prices for those drugs to prices in the U.K., Japan and Ontario.
On average, after accounting for rebates, Medicare paid 3.6 times more than the U.K., 3.2 times more than Japan, and 4.1 times more than Ontario.
The longer a drug was on the U.S. market, the larger that gap grew.
If Medicare Part D had adopted the average price from those countries, it would have saved an estimated $72.9 billion on sole-source drugs in 2018 alone.
Between the lines: The Trump administration wants to rely on international prices for Medicare Part B, which covers drugs administered in a doctor’s office. But this study shows that there are also a lot of savings to be had in Medicare Part D, which covers drugs you pick up at a pharmacy.
The other side: “An international reference pricing system could result in American seniors losing access to their choice of medicine, and waiting years longer for new breakthrough treatments,” the trade group PhRMA said in a statement.
The bottom line: The political interest in cutting drug prices is real, but we’re still a very long way from President Trump’s stated goal of matching other countries’ prices.
Congressional Democrats have quickly lined up to oppose the Trump Administration’s proposal to eliminate regulations that make it illegal for drug companies to reduce – or eliminate – what Medicare consumers pay for prescriptions under the Part D program.
Instead, they are pushing plans to give health insurers and the pharmacy benefit management (PBM) companies they run and own even more control over what medicine consumers can choose and how much they cost. In doing so, Democrats are backing a government-sanctioned drug pricing cartel that extorts nearly a quarter of trillion dollars a year from prescription drug rebates, discounts, and patients (in the form of out-of-pocket costs), and shares a pittance with the patients who need medicines the most. Eighty percent of drug benefits are managed by the 3 largest PBMs, which in turn are owned by or in part by the 3 largest insurance companies.
Current Medicare regulations makes it illegal for any firm other than PBMs to handle drug prices and distribution. Specifically, PBMs are given free rein to determine what medicines patients can and can’t use. This power allows them to reduce the list price of drugs by obtaining rebates in exchange for encouraging the use of some treatments while discouraging the use of other medicines. PBMs either require patients to try drugs that generate the most rebates first or force people to pay part or all of the list price of medicines that don’t generate much money.
As a result, of $140 billion Medicare Part D spent on medicines, $64 billion was pocketed by PBMs and health plans. And of the $460 billion all Americans spent on drugs in 2018 nearly $166 billion went to discounts and rebates.
Parroting the PBM/insurer talking points, Nancy Pelosi’s health policy advisor, Wendell Primus, said prices – not rebates – are the cause of high drug costs, and savings from rebates negotiated by pharmacy benefit managers go toward reducing insurance premiums.
In fact, PBMs keep Part D premiums artificially low by collecting rebates and other fees at the retail counter. Because Medicare starts paying for 80 percent of drug costs after seniors shell out over $4500 at the pharmacy, plumping up the retail price with rebates means PBMs and insurers reduce premiums by shifting more cost to the government and ultimately by forcing seniors to pay more for medicines.
Moreover, PBMs are using rebates extracted from the medicines the most seriously ill patient uses to subsidize the drug spending and premiums of everyone else. People with cancer, HIV, Parkinson’s, autoimmune diseases are only 2 percent of the population. But in 2017 the drugs they use generated $53 billion, or 32 percent of all rebates and discounts.
In 2017, 2 percent of the most vulnerable consumers paid PBMs and health plans $16 billion in out-of-pocket costs. Soaking the sick to make the rich even richer. The quickest way to cut the cost of medicines to what they are in Europe is to eliminate the PBM protection racket and give drug companies the freedom to dramatically reduce the out-of-pocket cost for the most expensive medicines. To be sure, a growing number of drug firms and insurers are working together to eliminate out-of-pocket costs as part of programs to improve health by reducing barriers to access. Indeed, because PhRMA and BIO have stated that consumers should pay less, the Trump proposal is truly a ‘put up or shut up’ moment for the industry.
Under the current rules, it doesn’t pay for PBMs and insurers to choose a drug with lower out-of-pocket costs, and drug companies have no incentive to tie out-of-pocket costs to better care. Under current rules, patients are unable to afford the medicines that keep them alive. The Trump proposal would change all that. It’s up to Democrats to explain why, instead of cutting drug costs dramatically and directly, they want to line the pockets of big corporations with money from the sickest patients.
As part of the Bipartisan Budget Act of 2018 (BBA), Congress made changes to the Medicare prescription drug benefit program, or Part D, to lower spending for both beneficiaries and the federal government. Specifically, the BBA increased the size of the discount on brand-name drugs that manufacturers are required to offer beneficiaries who are in the Part D coverage gap, or “donut hole,” from 50 percent to 70 percent. (The donut hole, in which Medicare beneficiaries who have spent over a certain amount on prescription drugs must pay all drug costs out of pocket, was designed to help contain federal costs.) By increasing the size of the manufacturer discount, Congress was able to shrink the share of spending in the donut hole covered by Part D plan sponsors and beneficiaries.
Pharmaceutical manufacturers have continued to put pressure on Congress to make two changes: 1) roll back the discount from manufacturers from 70 percent to 63 percent (and increase Part D plan-sponsor liability) and 2) block an increase in the total amount beneficiaries must spend out of pocket on their prescription drugs before catastrophic coverage kicks in.
According to our analysis, these proposals would financially benefit drug manufacturers more than Medicare beneficiaries: while beneficiaries’ spending in the coverage gap would be slightly reduced, manufacturers’ spending would be reduced far more. Moreover, Medicare spending under Part D would increase to cover the savings to beneficiaries and manufacturers.
Key Definitions Under Part D
Donut Hole: The third phase of Medicare Part D coverage in which beneficiaries pay all drug costs out of pocket.
TrOOP (True Out-of-Pocket) Threshold: The total amount beneficiaries need to spend out of pocket before reaching catastrophic coverage.
Part D Plan Sponsors: Typically insurance companies and pharmacy benefit managers
Part D Coverage Gap Discount: A program established by the ACA that requires drug manufacturers and Part D plan sponsors to give beneficiaries price discounts on brand-name drugs when beneficiaries reach the coverage gap. It also reduces the share of spending that Part D plan sponsors cover.
Original Medicare Part D Design
When the Medicare Part D program was created in 2003, Congress required all Part D plan sponsors — typically insurance companies and pharmacy benefit managers — to establish a standard benefit package with four phases of coverage that beneficiaries move through depending on their drug spending. In the first phase, the federal government covers 100 percent of cost-sharing until beneficiaries reach their deductible. In the second phase, the federal government covers 25 percent of cost-sharing. In the third phase, known as the coverage gap or donut hole, beneficiaries pay all drug costs out of pocket. In the final phase, catastrophic coverage is reached and beneficiaries cover just 5 percent of cost-sharing.
The amount beneficiaries need to spend out of pocket before reaching catastrophic coverage is called the TrOOP (“True Out-of-Pocket) threshold; it was $5,000 in 2018. The TrOOP threshold increases each year to account for growth in Medicare per-beneficiary spending under Part D, which includes prescription drug prices.
Filling the Part D “Donut Hole”
As part of the Affordable Care Act (ACA), Congress included two changes to Part D to help fill the donut hole. First, Congress established the Part D Coverage Gap Discount Program that requires participating drug manufacturers and Part D plan sponsors give beneficiaries price discounts on brand-name drugs when beneficiaries reach the coverage gap. Between 2011 and 2020, this program reduces beneficiary cost-sharing in the gap from 100 percent to 25 percent. The discounts were phased in and scheduled to fill the coverage gap by 2020.
Second, Congress slowed the annual update to the TrOOP threshold through 2019 by basing the update on the consumer price index (CPI) plus 2 percentage points rather than drug spending growth. The purpose was to give certainty to the size of the donut hole during the phase-in of the manufacturer discount program. Because the CPI has grown far less rapidly than drug prices under Part D, this change has kept the size of the donut hole smaller, enabling beneficiaries to reach the catastrophic benefit sooner than they would have under the original Part D benefit. This also helps manufacturers, who don’t have to offer as many discounts when people are in the coverage gap for a shorter period of time. And once the federal government is covering more costs under catastrophic coverage, manufacturers no longer have to provide discounts at all.
While Congress slowed growth in the TrOOP threshold through 2019, under the ACA, the threshold amount reverts back to the pre-ACA calculation in 2020. When the threshold is based on drug price spending growth again, the amount a beneficiary must spend in the coverage gap will jump from $5,100 to $6,350. (If manufacturer price growth had been at or close to CPI growth in recent years, there would be no increase in 2020.) But if Congress wants to block the spike in the TrOOP amount, it must take action no later than June 2019, the deadline for Part D plans bidding to offer coverage in 2020.
Effect of the Bipartisan Budget Act of 2018 on the Coverage Gap
In February 2018, the BBA made changes to the Part D Coverage Gap Discount Program to help fill the donut hole in 2019 (a year earlier than the ACA provision) by increasing the manufacturer discount for beneficiaries from 50 percent to 70 percent and reducing the share that Part D plan sponsors cover. This change will require manufacturers to offer a larger discount and reduce beneficiaries’ out-of-pocket drug costs in the donut hole. By reducing the share that insurance companies or pharmacy benefit managers are responsible for, Congress intended to lower premiums, which in turn will save the federal government on premiums subsidies.
The Financial Impact of the New Proposals
While Congress established the Part D Coverage Gap Discount Program at the same time it slowed growth in the TrOOP threshold — and both relate to the donut hole — the two policies function independently and need not be conflated in terms of making changes to them in statute.
Moreover, the financial implications of proposals to change these components differ markedly. Beneficiaries spend an average of $1,321 on cost-sharing in the coverage gap today and would spend $1,156 in 2020 — or $165 less — if Congress amends the BBA and blocks the TrOOP increase as proposed by the pharmaceutical industry.
However, manufacturers would save even more under these proposed policies. Brand-name manufacturer discounts in the donut hole would fall from $3,698 per beneficiary today to roughly $2,998 — a reduction of $785 per beneficiary. Part D plan sponsors would spend $555 per beneficiary in the coverage gap or $291 more if both policies were addressed.
Understanding the implications of these proposals beyond their impact on Medicare spending and the federal budget is important. Even if Congress were only to block the increase in the TrOOP threshold — and not undo the increase in manufacturer discounts — beneficiary spending would be slightly lower (as a lower limit on TrOOP spending would enable beneficiaries to get out of the donut hole and into the most generous level of federal coverage more quickly) but manufacturers would still come out far ahead of both Part D plan sponsors and beneficiaries. Given the financial implications of these two policies, Congress may want to consider broader changes to Part D that would lower drug prices, provide more cost savings to beneficiaries, and avoid higher spending under the Medicare program.
American pharmaceutical spending started taking off in the late 1990s compared with other advanced nations.
Two decades ago, the costs began rising well beyond that of other nations, and in recent years have shot up again. What can explain it?
There was a time when America approximated other wealthy countries in drug spending. But in the late 1990s, U.S. spending took off. It tripled between 1997 and 2007, according to a study in Health Affairs.
Then a slowdown lasted until about 2013, before spending shot up again. What explains these trends?
By 2015, American annual spending on prescription drugs reached about $1,000 per person and 16.7 percent of overall personal health care spending. The Commonwealth Fund compared that level with that of nine other wealthy nations: Australia, Canada, France, Germany, the Netherlands, Norway, Sweden, Switzerland and Britain.
Among those, Switzerland, second to the United States, was only at $783. Sweden was lowest, at $351. (It should be noted that relative to total health spending, American spending on drugs is consistent with that of other countries, reflecting the fact that we spend a lot more on other care, too.)
Eliminating Some Suspects
Several factors could be at play in America’s spending surge. One is the total amount of prescription drugs used. But Americans do not take a lot more drugs than patients in other countries, as studies document.
In fact, when it comes to drugs primary care doctors typically prescribe — including medications for hypertension, high cholesterol, depression, gastrointestinal conditions and pain — a recent study in the journal Health Policy found that Americans use prescription drugs for 12 percent fewer days per year than their counterparts in other wealthy countries.
Another potential explanation is that Americans take more expensive brand-name drugs than cheaper generics relative to their overseas counterparts. This doesn’t hold up either. We use a greater proportion of generic drugs here than most other countries — 84 percent of prescriptions are generic.
Prices are a lot higher for brand-name drugs in the United States because we lack the widespread policies to limit drug prices that many other countries have.
“Other countries decline to pay for a drug when the price is too high,” said Rachel Sachs, who studies drug pricing and regulation as an associate professor of law at Washington University in St. Louis. “The United States has been unwilling to do this.”
For example, except in rare cases, Britain will pay for new drugs only when their effectiveness is high relative to their prices. German regulators may decline to reimburse a new drug at rates higher than those paid for older therapies, if they find that it offers no additional benefit. Some other nations base their prices on those charged in Britain, Germany or other countries, Ms. Sachs added.
That, by and large, explains why we spend so much more on drugs in the United States than elsewhere. But what drove the change in the 1990s? One part of the explanation is that a record number of new drugs emerged in that decade.
Huge sales for new and expensive drugs
In particular, sales of costly new hypertension and cancer drugs took off in the 1990s. The number of drugs with sales that topped $1 billion increased to 52 in 2006 from six in 1997. The combination of few price controls and rapid growth of brand-name drugs increased American per capita pharmaceutical spending.
“The scientific explosion of the 1970s and 1980s that allowed us to isolate the genetic basis of certain diseases opened a lot of therapeutic areas for new drugs,” said Aaron Kesselheim, an associate professor of medicine at Harvard Medical School.
He pointed to other factors promoting the growth of drug spending in the 1990s, including increased advertising to physicians and consumers. Regulations on drug ads on TV were relaxed, which led to more advertising. More rapid F.D.A. approvals, fueled by new fees collected from pharmaceutical manufactures that began in 1992, also helped push new drugs to market.
In addition, in the 1990s and through the mid-2000s, coverage for drugs (as well as for other health care) expanded through public programs. Expansions of Medicaid and the Children’s Health Insurance Program also coincided with increased drug spending. And Medicare adopted a universal prescription drug benefit in 2006. Studies have found that when the potential market for drugs grows, more drugs enter it.
In 2007, U.S. drug spending growth was the slowest since 1974. The slowdown in the mid-2000s can be explained by fewer F.D.A. approvals of blockbuster drugs. Annual F.D.A. approvals of new drugs fell from about 35 in the late 1990s and early 2000s to about 20 per year in 2005-07.
In addition, the patents of many top-selling drugs (like Lipitor) expired, and as American prescription drug use tipped back toward generics, per capita spending leveled off.
The spike starting in 2014 mirrors that of the 1990s. The arrival of expensive specialty drugs for hepatitis C, cystic fibrosis and other conditions fueled spending growth. Many of the new drugs are based on relatively recent advances in science, like the completion of the human genome project.
“Many of the new agents are biologics,” said Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center. “These drugs have no meaningful competition, and therefore command very high prices.”
A U.S. Department of Health and Human Services issue brief estimated that 30 percent of the rise in drug spending between 2000 and 2014 could be attributed to price increases or greater use of higher-priced drugs. Coverage expansions of the Affordable Care Act also contributed to increased drug spending. In addition, “there has been a lowering of approval standards,” Dr. Bach said. “So more of these new, expensive drugs are making it to market faster.”
“As in the earlier run-up in drug spending, we’re largely uncritical of the price-value trade-off for drugs in the U.S.,” said Michelle Mello, a health law scholar at Stanford. “Though we pay high prices for some drugs of high value, we also pay high prices for drugs of little value. The U.S. stands virtually alone in this.”
Outlook for the future
If the principal driver of higher American drug spending is higher pricing on new, blockbuster drugs, what does that bode for the future? “I suspect things will get worse before they get better,” Ms. Sachs said. The push for precision medicine — drugs made for smaller populations, including matching to specific genetic characteristics — may make drugs more effective, therefore harder to live without. That’s a recipe for higher prices.
CVS also recently announced it would devise employer drug plans that don’t include drugs with prices out of line with their effectiveness — something more common in other countries but unheard-of in the United States. Even if these efforts don’t take off rapidly, they are early signs that attitudes might be changing.
At a glance, Medicare’s prescription drug program — also called Medicare Part D — looks like the perfect example of a successful public-private partnership.
Drug benefits are entirely provided by private insurance plans, with generous government subsidies. There are lots of plans to choose from. It’s a wildly popular voluntary program, with 73 percent of Medicare beneficiaries participating. Premiums have exhibited little to no growth since the program’s inception in 2006.
But the stability in the premiums belies much larger growth in the cost for taxpayers. In 2007, Part D cost taxpayers $46 billion. By 2016, the figure reached $79 billion, a 72 percent increase. It’s a surprising statistic for a program that is often praised for establishing a competitive insurance market that keeps costs low, and that is singled out as an example of the good that can come from strong competition in a private market.
Much of this increase is a result of growing enrollment — it has doubled in the past decade to 43 million — and higher drug prices. But there is also a subtle way in which the program’s structure promotes cost growth.
When enrollees’ drug costs are relatively low, plans pay a large share, typically about 75 percent. But when enrollees’ drug spending surpasses a certain catastrophic threshold — set at $5,000 in out-of-pocket spending in 2018 — 80 percent of drug costs shifts to a government program called reinsurance. This gives people in charge of private insurance plans an incentive to find ways to push enrollees into the catastrophic range, shifting the vast majority of drug costs off their books. For example, they could be less motivated to negotiate for lower drug prices for certain types of drugs if doing so would tend to keep more enrollees out of the catastrophic range.
Reinsurance spending, which is not reflected in premiums, has been rising rapidly.
“This harms the very competition that Part D was supposed to establish,” said Roger Feldman, an economist at the University of Minnesota. Consumers are naturally attracted to lower-premium plans, but choosing them increasingly shifts higher costs onto taxpayers if plans achieve those lower premiums in part by shifting more drug expenses onto the government’s books.
Documenting this is a recent study by Mr. Feldman and Jeah Jung of Penn State University that was published in Health Services Research. The study found that the disconnect between premiums and reinsurance costs has increased over time. Additionally, insurance company plans exhibiting less of an effort to manage the use of high-cost drugs had higher reinsurance costs. This is consistent with incentives to encourage enrollees into the catastrophic range of spending.
The Medicare Payment Advisory Commission has been warning about this problem for several years in its annual reports to Congress.According to MedPAC, between 2010 and 2015, the number of enrollees entering the catastrophic drug cost range grew 50 percent, from 2.4 million to 3.6 million, now accounting for 8 percent of enrollees.
“It’s ironic for a program supposedly built on market principles,” said Mark Miller, a former MedPAC director. “You wouldn’t see this kind of thing in the commercial market.” For commercial market insurance products — such as those offered by employers or in the health insurance marketplaces — only about 1 percent of policyholders reach a catastrophic level of expenditures at which reinsurance kicks in. (Mr. Miller and I are co-authors of an editorial about Ms. Jung’s and Mr. Feldman’s study, which also appears in Health Services Research.)
Reinsurance is the fastest-growing component of Medicare’s drug program, expanding at an 18 percent annual rate between 2007 and 2016. In 2007, it accounted for 17 percent of government spending for Part D. In 2016 it was 44 percent.
The Affordable Care Act hastened this growth. The law requires pharmaceutical manufacturers to pay some of the cost of the drug benefit. (The Bipartisan Budget Act of 2018 further increased how much manufacturers must contribute.) For the purposes of reaching the catastrophic threshold and triggering reinsurance, these industry contributions count as out-of-pocket payments for enrollees, even though they are not.
That means enrollees don’t have to spend as much as they otherwise would to trigger the reinsurance program. Although this is of great benefit to enrollees, it also pushes up taxpayer liability for the program.
Changing the extent to which manufacturer’s contributions count as enrollee out-of-pocket spending is one potential reform of the program. Other solutions include increasing the liability of insurance company plans in the catastrophic range and decreasing the liability of taxpayers.
This would have the effect of bringing premiums more in line with program spending. Doing so would “return Part D to the market-based program it was intended to be,” Ms. Jung said. As it stands, there is a substantial divide between what Part D was billed as and what it actually is.
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.
Customers pay a monthly service fee, which is often covered by insurance companies and Medicare Part D plans.
Amazon announced today it is buying PillPack, giving the online giant the ability to ship prescription drugs around the country.
Walmart was reportedly in talks to buy PillPack, but Amazon stepped in with a $1 billion offer. The deal is expected to close during the second half of 2018.
The deal follows Amazon’s offer of a Prime membership to Medicaid beneficiaries in a move seen as direct competition to Walmart.
Shares of CVS Health, which is going through the regulatory process to merge with Aetna, fell after Thursday’s announcement, as did shares of Walgreens Boots Alliance and Rite Aid, according to CNBC.
PillPack is an online pharmacy that offers pre-sorted doses of medications and home delivery in all states except for Hawaii, according to the company.
It is in-network with all major pharmacy benefit managers, including CVS Caremark, Express Scripts, Optum Rx, Prime Therapeutics, Humana Pharmacy Solutions, Cigna, Aetna, MedImpact, EnvisionRx and CastiaRX.
PillPack is a pharmacy designed for people who take multiple daily prescriptions, delivering them in pre-sorted dose packaging, coordinates refills and renewals.
Originally founded in 2013, the company has raised around $100 million in funding. Customers using the platform pay a monthly service fee, which is often covered by insurance companies including Medicare Part D.
“PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology,” said Jeff Wilke, Amazon Worldwide Consumer CEO. “PillPack is meaningfully improving its customers’ lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier. We’re excited to see what we can do together on behalf of customers over time.”
PillPack’s primary pharmacy is located in Manchester, New Hampshire, with its engineering, design, business operations and marketing teams located in in Somerville, Massachusetts and its advisory center and other corporate functions in Salt Lake City, Utah.
President Trump on Friday delivered a long-awaited speech outlining his administration’s blueprint for lowering prescription drug prices. Calling his plan “the most sweeping action in history to lower the price of prescription drug for the American people,” Trump promised “tougher negotiation, more competition and much lower prices at the pharmacy counter.”
Overall, Trump emphasized how businesses all across the pharmaceutical supply chain, from drugmakers to insurers to the pharmacy benefits manager “middlemen” and the government, are hurting Americans who take prescription drugs. And, in keeping with the blueprint’s title, “American Patients First,” the president called for other developed countries to pay more for medicines.
“When foreign governments extort unreasonably low prices from U.S. drugmakers, Americans have to pay more to subsidize the enormous cost of research and development. In some cases, medicine that costs a few dollars in a foreign country costs hundreds of dollars in America, for the same pill with the same ingredients in the same package made in the same plant, and that is unacceptable,” Trump said. “It’s time to end the global freeloading once and for all.”
The blueprint is centered on four broad strategies:
• Increasing competition in drug markets. The administration says it will look to advance generic drugs and biosimilars to promote price competition and will “take steps to end the gaming of regulatory and patent processes by drug makers to unfairly protect monopolies.”
• Better negotiation, including tools for Medicare Part D plans to negotiate for discounts.
• Creating incentives for drugmakers to lower list prices, including having the Food and Drug Administration evaluate the idea of requiring manufacturers to cite list prices in their advertising. The plan also calls for streamlining and speeding up the approval process for over-the-counter drugs.
• Reducing out-of-pocket costs for patients. The administration would, for one example, stop limiting pharmacists’ ability to tell Medicare Part D patients when they could pay less by not using insurance. And it would require prescription drug plans for Medicare patients to pass on some of the discounts and rebates they receive from pharmaceutical companies. “Health policy experts like this idea because it reduces the burden on patients with serious chronic illnesses and spreads the expense of needed medications across the entire insured population,” The New York Times said.
Why Trump’s Plan Isn’t a Cure
Health care analysts and observers were — well, lets’ just say underwhelmed by Trump’s presentation, with many saying that the details of the blueprint didn’t live up to the president’s tough talk. Notably absent from the plan, for example, was the idea of allowing Medicare to negotiate lower drug prices directly, which Trump had promised during his election campaign. The blueprint also does not call for allowing Americans to import cheaper drugs from foreign countries.
Here’s an overview of the drug-pricing problem and the Trump administration’s proposals:
The Problem: Americans spend more on prescription drugs — more than $1,100 per person, on average, in 2015 — than anyone else in the world. Drug prices here are high and have been rising rapidly, with patients who pay out of pocket for brand name drugs especially vulnerable to crushing costs.
As a Political Issue, This Has Plenty of Potential: The vast majority of Americans say that drug prices are too high and that the pharmaceutical industry has too much sway in Washington. And in a new poll released Thursday by the Kaiser Family Foundation, 66 percent of Republicans, 72 percent of independents and 78 percent of Democrats said they would be more likely to vote for a candidate vowing to lower prescription drug costs.
But This Might Be About Politics More Than Results: “The president’s tough talk on drug prices will no doubt be popular with the public. Will the fact that the specifics of the plan don’t seem to deliver on that tough talk ultimately matter?” Larry Levitt of the Kaiser Family Foundation asked on Twitter.
Trump’s Plan Includes Plenty of Steps He Can Take Without Congress: “It’s framed as a pro-competitive agenda, and touches on a range of government programs that the administration can change through regulation — so that the president can take unilateral action,” Daniel N. Mendelson, the president of research consultancy Avalere Health, told The New York Times.
But It Seems to Have More Questions Than Answers: A number of health care experts noted that the 44-page blueprint includes dozens and dozens of questions. “A lot of good questions in the plan but very little actual action, especially against PBMs,” Walid Gellad, who heads the Center for Pharmaceutical Policy and Prescribing at the University of Pittsburgh, tweeted.
Raising Drug Prices in Other Countries Won’t Help Here: “There’s not a sensible health economist alive, or any economist, that will tell you that higher prices abroad will lead to lower prices here,” Andrea Harris, senior vice president of health care at Height Capital Markets in Washington, told Bloomberg.
Ultimately, the Plan Could Have a Very Limited Effect: “This is not doing anything to fundamentally change the drug supply chain or the drug pricing system,” Gerard Anderson, a health policy professor at Johns Hopkins University, told CNNbefore the blueprint’s release.
And the Pharmaceutical Industry Doesn’t Seem Too Worried: Just check out how pharma stocks — and those of pharmacy benefit managers like Express Scripts — shothigher despite Trump’s harsh rhetoric.
But Big Pharma Should Still Be On Notice: “The industry is among the most profitable of any industry in the U.S. and as such probably has room to give,” Wells Fargo analyst David Maris told Bloomberg. “If it doesn’t reform itself, it will be reformed and this is the beginning of that reform.”
Did We Really Expect Anything Else from Trump? “I’m shocked!” tweeted Michael Linden of the liberal Roosevelt Institute. “You mean the guy who just gave drug companies a massive tax cut and then appointed a drug CEO as HHS secretary and has spent his entire time as president favoring the rich and powerful, that guy wasn’t genuine about lowering drug prices? Shocked.”
President Donald Trump took to the Rose Garden Friday, unveiling the “American Patients First” blueprint that senior administration officials touted as “the most comprehensive plan to tackle prescription drug affordability.”
Despite the rhetoric, Wall Street analysts, lobbyists and academics say the plan, which heavily targets the role pharmacy benefit managers play in the healthcare system, will do little to put downward pressure on healthcare spending.
Drugmaker stocks jumped immediately following the President’s speech.
“There are no major surprises, it spares the pharmaceutical industry of the reform that they most vehemently oppose,” a pharmaceutical lobbyist told BioPharma Dive in an interview following the Trump speech.
“Real reforms that advocates say will move the needle, none of them are included. There’s a lot of tinkering around the edges,” the lobbyist said. “By and large, the amount of money that this health system, that government and private payers are going to be spending on prescription drugs is probably not going to change significantly.”
Notably, however, the blueprint only states that “HHS may” take many of proposed actions in response to Trump’s call to lower drug prices.
Pricing in drug ads?
Since Trump took office, most of the action on drug pricing has come from the Food and Drug Administration, which has gone about as far as it legally can on the issue by pushing for greater competition in drug markets.
The blueprint echoes some of those initiatives and says curbing abuse of FDA’s Risk Evaluation and Mitigation Strategy (REMS) programs will be a priority to help generic drugs come to market faster. It also seeks to promote uptake of biosimilars.
“We are getting tough on drugmakers that exploit our patent laws to choke out competition. Our patent system will reward innovation, but it will not be used as a shield to protect unfair monopolies,” Trump said.
The generic drug lobby immediately praised Trump’s speech.
“President Trump’s embrace of generic and biosimilar competition as a key to lowering brand-name drug prices is an important step forward for patients coping with skyrocketing health care costs,” Association for Accessible Medicines CEO Chip Davis said in a statement.
Perhaps the only notable deviation from ideas already hinted at in prior speeches by officials was a call for the FDA to evaluate whether direct-to-consumer drug advertising should include list prices.
”Think about all the time everybody spends watching drug company ads, and how much information companies are required to put in them. If we want to have a real market for drugs, why not have them disclose their prices in the ads, too?” said Department of Health and Human Services Secretary Alex Azar, who spoke at the Rose Garden after Trump. “We’re immediately going to look into having the FDA require this.”
Medicare Part D changes
Proposed Part D reforms would allow greater benefit design flexibility; provide free generic drugs to low-income seniors; require such plans to pass on a minimum percentage of drug rebates with patients; disincentivize plans to accelerate beneficiaries into catastrophic coverage through branded drugs by establishing a new out-of-pocket maximum.
Requiring Part D plans to pass on rebates to consumers is one idea PBMs have rallied against. But the President’s blueprint hinted at further action the government could take, mentioning reexamination of how drug rebates are currently treated under safe harbor laws as a future “opportunity.”
Yet investors in PBMs didn’t appear to take that threat all that seriously. Shares in Express Scripts, one of the largest PBMs, traded up Friday afternoon, as did shares in UnitedHealth Group, which owns Optum.
“Getting rid of rebates and other price concessions would leave patients and payers, including Medicaid and Medicare, at the mercy of drug manufacturer pricing strategies,” said the Pharmaceutical Care Management Association, a lobby for PBMs, in a statement following Trump’s speech. “Simply put, the easiest way to lower costs would be for drug companies to lower their prices.”
CVS, which runs a large PBM, said policies that lowered drug prices would be aligned with its business model and are unlikely to have a negative impact on profitability.
The blueprint also proposes changing Part D plan formulary standards to require a minimum of one drug per category or class instead of two.
PhRMA immediately cautioned that any changes to the system could potentially limit access to new drugs. “The proposed changes to Medicare Part D could undermine the existing structure of the program that has successfully held down costs and provided seniors with access to comprehensive prescription drug coverage,” the drug lobby said in a statement.
The plan also will target Medicare Part B by limiting price increases that exceed the inflation rate within the program and restricting incentives for providers to prescribe high-cost drugs. Specifically, the blueprint calls for HHS to leverage the Competitive Acquisition Program for Part B.
Some more substantive changes are contemplated by the blueprint, although the document didn’t lay out any concrete steps for how to achieve them.
One question raised by the plan, for instance, asks whether PBMs should have a fiduciary duty to act solely in the interest of whoever they are managing benefits for, soliciting input on how this might impact PBMs’ ability to negotiate drug prices.
“Depending on how that is done, it could have a substantial effect,” Allan Coukell, a drug pricing expert at Pew Charitable Trusts, told BioPharma Dive in an interview.
Democrats and advocacy groups blast plan
One big idea not included in the blueprint is a call for the federal government to have Medicare negotiate drug prices. “We’re not calling for Medicare negotiation in the way that Democrats have called for,” one of the senior officials told reporters Thursday night.
Democrats blasted the speech, saying that Trump is turning his back on his campaign promise to stop the pharmaceutical industry from “getting away with murder.”
“The President spent last year pressing Congress to pass a massive tax cut — which gives away billions of dollars to drug companies and their executives who are already rich — but this year the President is apparently abandoning his campaign promise to authorize Medicare to negotiate directly with drug companies to lower prices,” House Committee on Oversight and Government Reform Ranking Member Elijah Cummings said in a statement Friday.
The pharmaceutical industry has spent heavily this year on lobbying the federal government, perhaps with Trump’s twice-delayed drug pricing plan in mind. According to a database maintained by the Center for Responsive Politics, spending by industry on lobbying this year totaled $84.8 million through April 24.
This week, I answered a grab bag of questions about drug copay coupons and primary care coverage on the health insurance marketplace.
Q: My doctor wants me to take Repatha for my high cholesterol, but my Medicare drug plan copayment for it is $618 a month. Why can’t I use a $5 drug copay coupon from the manufacturer? If I had commercial insurance, I could. I’m on a fixed income. How is this fair?
The explanation may offer you little comfort. Under the federal anti-kickback law, it’s illegal for drug manufacturers to offer people any type of payment that might persuade them to purchase something that federal health care programs like Medicare and Medicaid might pay for. The coupons can lead to unnecessary Medicare spending by inducing beneficiaries to choose drugs that are expensive.
“The law was intended to prevent fraud, but in this case it also has the effect of prohibiting Part D enrollees from using manufacturer copay coupons … because using the coupon would be steering Medicare’s business toward a particular entity,” said Juliette Cubanski, associate director of the Program on Medicare Policy at the Kaiser Family Foundation. (Kaiser Health News is an editorially independent program of the foundation.)
The coupons typically offer patients with commercial insurance a break on their copayment for brand-name drugs, often reducing their out-of-pocket costs to what they would pay for inexpensive generic drugs. The coupons help make expensive specialty drugs more affordable for patients. They can also increase demand for the drugmaker’s products. If patients choose to use the coupons to buy a higher-cost drug over a generic, the insurer’s cost is likely to be more than what it would otherwise pay.
In addition, consumers should note that the copay cards often have annual maximums that leave patients on the hook for the entire copayment after a certain number of months, said Dr. Joseph Ross, associate professor of medicine and public health at Yale University who has studied copay coupons.
The coupons may discourage patients from considering appropriate lower-cost alternatives, including generics, said Leslie Fried, a senior director at the National Council on Aging.
According to a 2013 analysis co-authored by Ross and published in the New England Journal of Medicine, 62 percent of 374 drug coupons were for brand-name drugs for which there were lower-cost alternatives available.
Q: Last year, my marketplace plan covered five primary care visits at no charge before I paid down my $2,200 deductible. This year, it doesn’t cover any appointments before the deductible, and I had to pay $80 out-of-pocket when I went to the doctor. Is that typical now? It makes me think twice about going.
Under the Affordable Care Act, marketplace plans are required to cover many preventive services, including an annual checkup, without charging consumers anything out-of-pocket. Beyond that, many marketplace plans cover services such as some primary care visits or generic drugs before you reach your deductible.
The likelihood of having a plan that offers some cost sharing for primary care before you reach your deductible (rather than requiring you to pay 100 percent of the cost until you hit that amount) varies significantly depending on whether you’re in a bronze, silver or gold plan, according to a recent analysis by the Robert Wood Johnson Foundation.
In 2018, 77 percent of silver-level plans offered some cost sharing for primary care visits before enrollees had paid off their typical deductible of $3,800, the analysis found. In most cases, that means people owe a copayment or coinsurance charge for each visit until they reach their deductible. A small number of plans offered a limited number of no-cost or low-cost visits first, and then people using more services either had to pay the full charge for each visit or owed cost sharing until the deductible was met.
Bronze plans were much stingier in what they offered for primary care before people reached their deductible, which was $6,400 or higher in half of plans. Only 38 percent of bronze plans offered any primary care coverage before the deductible, and generally patients still had to pay a copayment or coinsurace. A smaller percentage of bronze plans offered limited visits at no cost or low cost before the deductible.
The share of people who chose bronze plans grew from 23 percent in 2017 to 29 percent this year, said Katherine Hempstead, a senior policy adviser at the Robert Wood Johnson Foundation. While premiums are typically significantly lower in bronze plans than other “metal”-level plans, it can be worthwhile to check out how plans handle primary care services before the deductible, she said.