Soaking the Sick to Make the Rich Even Richer

https://www.realclearhealth.com/articles/2019/02/13/pbms_soaking_the_sick_to_make_the_rich_even_richer_110866.html?utm_source=morning-scan&utm_medium=email&utm_campaign=mailchimp-newsletter&utm_source=RC+Health+Morning+Scan&utm_campaign=db14e4ebca-MAILCHIMP_RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_b4baf6b587-db14e4ebca-84752421

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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.

These rebates could be used to reduce out-of-pocket costs of even the most expensive drugs to 50 dollars or less.  Instead PBMs and plans actually make seniors pay a large percentage of the retail cost of the rebated drugs  In fact, as rebates have increased, plans have made more consumers of these so-called specialty drugs to pay up to 50 percent of the retail price of medicines instead of a small copay.  Nearly 25 percent of all consumers now pay full price for drugs. As an IQVIA report found: “people who use specialty medicines are 10 times more likely to pay full price for the most expensive medicine. On average, they are 10 times more likely to pay over $2500.”

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.

 

 

‘Outrageous giveaway to Big Pharma’: A political ‘bomb’ over drug prices may threaten NAFTA 2.0

https://www.japantimes.co.jp/news/2019/02/13/business/outrageous-giveaway-big-pharma-political-bomb-drug-prices-may-threaten-nafta-2-0/#.XGR6YlVKi1s

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The clash over free trade in North America has long been fought over familiar issues: low-paid Mexican workers. U.S. factories that move jobs south of the border. Canada’s high taxes on imported milk and cheese.

But as Democrats in Congress consider whether to back a revamped regional trade pact being pushed by President Donald Trump, they’re zeroing in on a new point of conflict: drug prices. They contend that the new pact would force Americans to pay more for prescription drugs, and their argument has dimmed the outlook for one of Trump’s signature causes.

The president’s proposed replacement for the 25-year-old North American Free Trade Agreement is meant to win over Democrats by incentivizing factories to hire and expand in the United States. Yet the pact would also give pharmaceutical companies 10 years’ protection from cheaper competition in a category of ultra-expensive drugs called biologics, which are made from living cells.

Shielded from competition, critics warn, the drug companies could charge exorbitant prices for biologics.

“This is an outrageous giveaway to Big Pharma,” Rep. Rosa DeLauro, a Connecticut Democrat, said in an interview. “The government guarantees at least 10 years of market exclusivity for biologic medicine. It’s a monopoly. It’s bad policy.”

The objections of DeLauro and other Democrats suddenly carry greater potency. The need to curb high drug prices has become a rallying cry for voters of all political stripes. Trump himself has joined the outcry. The revamped North America trade deal must be approved by both chambers of Congress, and Democrats have just regained control of the House.

Rep. Earl Blumenauer of Oregon, the new chairman of the House Ways and Means subcommittee on trade, told The Associated Press that “I don’t think candidly that it passes out of my trade subcommittee” with the biologics provision intact.

“The biologics are some of the most expensive drugs on the planet,” Blumenauer said.

Still, the politics of NAFTA 2.0 are tricky for Democrats and not necessarily a sure-fire winner for them.

The original NAFTA, which took effect in 1994, tore down most trade barriers separating the United States, Canada and Mexico. Like Trump, many Democrats blamed NAFTA for encouraging American factories to abandon the United States to capitalize on lower-wage Mexican labor and then to ship goods back into the U.S., duty-free.

Having long vilified NAFTA, Trump demanded a new deal — one far more favorable to the United States and its workers. For more than a year, his top negotiator, Robert Lighthizer, held talks with Canada and Mexico. Lighthizer managed to insert into the new pact provisions designed to appeal to Democrats and their allies in organized labor. For example, 40 percent of cars would eventually have to be made in countries that pay autoworkers at least $16 an hour — that is, in the United States and Canada and not in Mexico — to qualify for duty-free treatment.

The new deal also requires Mexico to encourage independent unions that will bargain for higher wages and better working conditions.

Late last year, the three countries signed their revamped deal, the U.S.-Mexico-Canada Agreement. But it wouldn’t take effect until their three legislatures all approved it. In the meantime, the old NAFTA remains in place.

The question now is: Are Democrats prepared to support a deal that addresses some of their key objections to NAFTA and thereby hand Trump a political victory? Some Democrats have praised the new provisions that address auto wages, though many say they must be strengthened before they’d vote for the USMCA.

Protection for drug companies is another matter. Many Democrats had protested even when the Obama administration negotiated eight years of protection for biologics— from cheap-copycat competitors called “biosimilars” — in a 12-country Pacific Rim trade pact called the Trans-Pacific Partnership, or TPP.

Trump abandoned the TPP in his first week in office. But the pharmaceutical industry is a potent lobby in Washington, and Trump’s negotiators pressed for protection for U.S. biologics in the new North American free trade deal. They ended up granting the drug companies two additional years of protection in the pact.

Top biologics include the anti-inflammatory drug Humira, the cancer fighter Rituxan and Enbrel, which is used to treat rheumatoid arthritis.

The administration and drug companies argue that makers of biologics need time to profit from their creations before biosimilars sweep in, unburdened by the cost of researching and developing the drugs. Otherwise, they contend, the brand-name drug companies would have little incentive to invest in developing new medicines.

They note that a 2015 law authorizing presidents to negotiate trade deals requires American officials to push other countries toward U.S.-level protections for intellectual property such as biologic drugs. (The same law, somewhat contradictorily, directs U.S. negotiators to “promote access to medicines.”)

Supporters also note that existing U.S. law gives makers of biologics 12 years’ protection. So the new pact wouldn’t change the status quo in the United States, though it would force Mexico to expand biologics’ monopoly from five years and Canada from eight years. In fact, supporters of the biologics monopoly argue that the pact might cut prices in the United States because drug companies would no longer face pressure to charge Americans more to compensate for lower prices in Canada and Mexico.

But critics say that expanding biologics’ monopoly in a trade treaty would prevent the United States from ever scaling back the duration to, say, the seven years the Obama administration once proposed.

“By including 10 years in a treaty, we are locking ourselves in to a higher level of monopoly protection for drugs that are already taking in billions of dollars a year,” said Jeffrey Francer, general counsel for the Association for Accessible Medicines, which represents generic drug companies. “The only way for Congress to change it is to back out of the treaty. … Does the United States want to be in violation of its own treaty?”

For Democrats, higher drug prices are shaping up as a powerful political argument against approving the president’s new North American trade deal. In December, Stanley Greenberg, a leading Democratic pollster and strategist, conducted focus groups in Michigan and Wisconsin with Trump voters who weren’t affiliated with the Republican Party. Some had previously voted for Barack Obama. Others called themselves political independents. They’re the kinds of voters Democrats hope to attract in 2020.

Greenberg said he was “shocked” by the intensity of their hostility to drug companies — and to the idea that a trade pact would shield those companies from competition.

“It was like throwing a bomb into the focus group,” said Greenberg, who is married to DeLauro. He said the voters’ consensus view was essentially: “The president was supposed to go and renegotiate (NAFTA) so that it worked for American workers. But it must be that these lobbyists are working behind the scenes” to sneak in special-interest provisions.

That perception gives Democrats reason to reject the new pact as the 2020 election approaches.

“Democrats have no incentive to do this,” said Philip Levy, a senior fellow at the Chicago Council on Global Affairs and a White House economist under President George W. Bush. “Before you know it, the presidential election season is going to be upon us.”

U.S. trade rules are designed to force Congress to give trade agreements an up-or-down vote — no nitpicking allowed. Still, there are ways to bypass those restrictions. Congressional Democrats could, for example, push the administration to negotiate so-called side letters with Canada and Mexico to address their concerns. President Bill Clinton did this with the original NAFTA.

“Lighthizer and his team are very creative,” said Blumenauer, chair of the House trade subcommittee. “This is something that can be handled.”

 

 

 

Kamala Harris’ ‘Medicare for all’ would mean massive disruption for healthcare, and the industry is prepared to fight it

https://www.washingtonexaminer.com/policy/healthcare/kamala-harris-medicare-for-all-would-mean-massive-disruption-for-healthcare-and-the-industry-is-prepared-to-fight-it

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Democratic presidential contender Sen. Kamala Harris wants to “move on” from the current healthcare system in favor of a plan that would roll everyone in the U.S. onto a government plan known as “Medicare for all,” doing away with private health insurance.

As the California Democrat and others in her party make their case, however, they will face considerable opposition not only in the insurance industry, but across the healthcare sector, which would see massive upheaval from the plan. And polling suggests that the public, roughly half of which relies on private insurance, isn’t quite on board.

Drug companies, insurers, doctors, and hospitals have united in recent months to fight national government healthcare. One healthcare industry group, called the Partnership for America’s Health Care Future, has launched a five-figure digital ad campaign arguing that “Medicare for all” would cause massive disruption, higher taxes, lower quality care, and less choice for patients. It plans to spend six figures bashing “Medicare for all” over the course of 2019.

“Whether it’s called Medicare for all, single payer, or a public option, one-size-fits-all healthcare will mean all Americans have less choice and control over the doctors, treatments, and coverage,” said Lauren Crawford Shaver, the group’s executive director.

Other candidates for the Democratic nomination, such as Sens. Elizabeth Warren of Massachusetts and Kirsten Gillibrand of New York, are, like Harris, co-sponsors of the Medicare for All Act, legislation led by Sen. Bernie Sanders, I-Vt. Although it has “Medicare” in the name, the bill would go much further than current Medicare, which covers adults 65 and older and people with disabilities. It would pay for emergency surgery, prescription drugs, mental healthcare, and eye care without a copay.

Children would be enrolled in the government plan soon after the the bill’s passage, and the rest would be gradually phased in after four years. This would mean that roughly half of the U.S. population, the 177 million people in the U.S. covered by private health insurance mostly through work, would be moved onto a government plan. Employers would pay higher taxes rather than pay for private plans.

In defending the need for a government system, Sanders has blasted insurance companies, saying upon unveiling the bill that they “make billions of dollars in profits and make industry CEOs extremely wealthy.”

But healthcare providers, not just insurers, benefit from the current fragmented system, in which insurance is purchased by employers, the government, and individuals. They charge private insurers more to make up for the gap left by patients who are uninsured or are on government programs, which pay less for their services.

If all privately insured individuals were to have Medicare instead, and if it were to pay the same rates it does now, then doctors and hospitals would see big losses caring for patients who moved from private coverage to the government plan. Healthcare providers have said that if taxes don’t go up to pay for the difference, then doctors and hospitals will face pay cuts and layoffs, leading to facility closures and long lines for care.

Hospitals serve as the main employer in many communities. For patients, that would mean losing not only a healthcare plan they might be satisfied with, but also doctors they worked with for years or hospitals they relied on in their communities.

The Medicare for All Act has not been scored by the Congressional Budget Office, but analyses from the Mercatus Center at George Mason University and the left-leaning Urban Institute found it would raise government spending over a decade by $32.6 trillion.

Overall healthcare spending, though, would actually fall by $2 trillion, as private spending on healthcare would collapse. The cut would be achieved, however, through paying 40 percent less to providers than what they were getting from private insurance.

Another obstacle to “Medicare for all” is the fact that the public isn’t fully convinced by the idea of nixing private insurance, a recent poll from the Kaiser Family Foundation shows. Initially, 56 percent of those polled favored the Medicare for All Act, but then when they learned it would do away with private health insurance, the support fell to 37 percent.

Candidates are going to face pushback within their party. House Speaker Nancy Pelosi and other Democratic leaders have not embraced government healthcare, instead pushing for adding funding to Obamacare.

But proponents of allowing the government to have a more extensive role in healthcare point out that waste is prevalent in the current system. Patients receive unnecessary medical care, such as repeated tests or surgeries that either don’t make them healthier or even make them worse.

These proponents agree with Harris that health insurance companies are unnecessary. Wendell Potter, an advocate of a government-financed healthcare system and president of the Business Initiative for Health Policy, said in a statement that polling results show the healthcare industry’s misinformation campaign to spread “fear, uncertainty, and doubt” was effective. He said that commercial health insurance companies don’t have an incentive to lower healthcare costs and make sure patients can access care.

Potter, a former health insurance executive, described how the information campaign worked, saying the goal was to “make people believe that private health insurance companies were a necessary part of the healthcare system, and to scare them into thinking that a ‘Medicare for all’ system was expensive and impractical, and that it would cause a significant drop off in the quality of care.”

 

 

 

 

Big Pharma Lobby Group Spent Record Amount as Reform Push Grows

https://www.bloomberg.com/news/articles/2019-01-22/big-pharma-lobby-group-spent-record-amount-as-reform-push-grows

The pharmaceutical industry’s 2 leading trade groups both set records for lobbying spending in 2018 — a sign of just how much the industry believes is on the line in the political battle over drug prices.

By the numbers:

  • PhRMA, the industry’s largest trade organization, spent $27.5 million on lobbying last year, per Bloomberg. That’s the most it has ever spent in 1 year.
  • A full $10 million of that came in the first quarter — the most PhRMA has ever spent in a single quarter.
  • The Biotechnology Innovation Organization, meanwhile, spent just shy of $10 million, according to STAT — also a record.
  • Those totals don’t include the millions individual drug companies spent on their own lobbyists. They also don’t include the industry’s campaign contributions, which topped $17 million in the 2018 cycle, according to the Center for Responsive Politics.

Between the lines: PhRMA set its previous lobbying record during the debate over the Affordable Care Act, trying to stop a fully Democratic government from taking a bite out of its bottom line.

  • It’s remarkable that PhRMA would break that record in a year where Republicans — the industry’s allies — controlled the House, Senate and White House.

 

 

 

 

HOW SEN. ORRIN HATCH CHANGED AMERICA’S HEALTH CARE

https://www.healthleadersmedia.com/strategy/how-sen-orrin-hatch-changed-americas-health-care?utm_source=silverpop&utm_medium=email&utm_campaign=ENL_190103_LDR_BRIEFING_resend%20(1)&spMailingID=14894079&spUserID=MTY3ODg4NTg1MzQ4S0&spJobID=1560203883&spReportId=MTU2MDIwMzg4MwS2

How Sen. Orrin Hatch Changed America's Health Care

Utah’s Orrin Hatch is leaving the Senate, after 42 years. The Republican led bipartisan efforts to provide health care to more kids and AIDS patients. He also thrived on donations from the drug industry.

https://www.npr.org/player/embed/673851375/681125070

Sen. Orrin Hatch, the Utah Republican retiring from 42 years in the Senate as a new generation is sworn in, leaves a long list of achievements in health care. Some were more controversial than others.

Hatch played key roles in shepherding the 1983 Orphan Drug Act to promote drug development for rare diseases, and the 1984 National Organ Transplant Act, which helped create a national transplant registry. And in 1995, when many people with AIDS were still feeling marginalized by society and elected leaders, he testified before the Senate about reauthorizing funding for his Ryan White CARE Act to treat uninsured people who have HIV.

“AIDS does not play favorites,” Hatch told other senators. “It affects rich and poor, adults and children, men and women, rural communities and the inner cities. We know much, but the fear remains.”

Hatch, now 84, co-sponsored a number of bills with Democrats over the years, often with Sen. Ted Kennedy of Massachusetts. The two men were sometimes called “the odd couple,” for their politically mismatched friendship.

In 1997, the two proposed a broad new health safety net for kids —the Children’s Health Insurance Program.

“This is an area the country has made enormous progress on, and it’s something we should all feel proud of — and Senator Hatch should too,” said Joan Alker, executive director of Georgetown University’s Center for Children and Families.

Before CHIP was enacted, the number of uninsured children in America was around 10 million. Today, it’s under half that.

Hatch’s influence on American health care partly came from the sheer number of bills he sponsored — more than any other living lawmaker — and because he was chairman of several powerful Senate committees.

“History was on his side because the Republicans were in charge,” said Dr. David Sundwall, an emeritus professor in public health at the University of Utah and Hatch’s health director in the 1980s.

When Ronald Reagan was elected president in 1981, the Senate became Republican-controlled for the first time in decades. Hatch was appointed chairman of what is now known as the Health, Education, Labor and Pensions Committee. The powerful legislative group has oversight of the Food and Drug Administration, Centers for Disease Control and Prevention and the National Institutes of Health.

“He was virtually catapulted into this chairmanship role,” Sundwall said. “This is astonishing that he had chairmanship of an umbrella committee in his first term in the Senate.”

In 2011, Hatch was appointed to the influential Senate Finance Committee, where he later became chairman. There he helped oversee the national health programs Medicare, Medicaid and CHIP.

Hatch’s growing influence in Congress did not go unnoticed by health care lobbyists. According to the watchdog organization Center for Responsive Politics, in the past 25 years of political campaign funding, Hatch ranks third of all members of Congress for contributions from the pharmaceutical and health sector. (That’s behind Democratic senators who ran for higher office — President Barack Obama and presidential nominee Hillary Clinton).

“Clearly, he was PhRMA’s man on the Hill,” said Dr. Jeremy Greene, referring to the trade group that represents pharmaceutical companies. Green is a professor of the history of medicine at Johns Hopkins University School of Medicine. Though Hatch did work to lower drug prices, Greene said, the senator’s record was mixed on the regulation of drug companies.

For example, an important piece of Hatch’s legislative legacy is the 1984 Hatch-Waxman Act, drafted with then-Rep. Henry Waxman, an influential Democrat from California. While the law promoted the development of cheaper, generic drugs, it also rewarded brand-name drug companies by extending their patents on valuable medicines.

The law did spur sales of cheaper generics, Greene said. But drugmakers soon learned how to exploit the law’s weaknesses.

“The makers of brand-name drugs began to craft larger and larger webs of multiple patents around their drugs,” aiming to preserve their monopolies after the initial patent expired, Greene said.

Other brand-name drugmakers preserved their monopolies by paying makers of generics not to compete.

“These pay-for-delay deals effectively hinged on a part of the Hatch-Waxman Act,” Greene said.

Hatch also worked closely with the dietary supplement industry. The multibillion-dollar industry specializing in vitamins, minerals, herbs and other “natural” health products, is concentrated in his home state of Utah.

“There was really no place for these natural health products,” said Loren Israelsen, president of the United Natural Products Alliance and a Hatch staffer in the late 1970s.

As the industry grew, there was a debate over how to regulate it: Should it be more like food or like drugs? In 1994, Hatch sponsored the Dietary Supplement Health and Education Act, known as DSHEA, which treats supplements more like food.

“It was necessary to have someone who was a champion who would say, ‘All right, if we need to change the law, what does it look like,’ and ‘Let’s go,'” Israelsen said.

Some legislators and consumer advocacy groups wanted vitamins and other supplements to go through a tight approval process, akin to the testing the Food and Drug Administration requires of drugs. But DSHEA reined in the FDA, determining that supplements do not have to meet the same safety and efficacy standards as prescription drugs.

That legislative clamp on regulation has led to ongoing questions about whether dietary supplements actually work and concerns about how they interact with other medications patients may be taking.

DSHEA was co-sponsored by Democrat Tom Harkin, then a senator from Iowa.

While that kind of bipartisanship defined much of Hatch’s career, it has been less evident in recent years. He was strongly opposed to the Affordable Care Act, and in 2018 called supporters of the heath law among the “stupidest, dumb-ass people” he had ever met. (Hatch later characterized the remark as “a poorly worded joke.”)

In his farewell speech on the Senate floor in December, Hatch lamented the polarization that has overtaken Congress.

“Gridlock is the new norm,” he said. “Like the humidity here, partisanship permeates everything we do.”

 

 

Proposed Changes to Medicare Part D Would Benefit Drug Manufacturers More Than Beneficiaries

https://www.commonwealthfund.org/blog/2019/proposed-changes-medicare-part-d-would-benefit-drug-manufacturers-more-beneficiaries?omnicid=EALERT1538445&mid=henrykotula@yahoo.com

senior opens medications

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.