How Health Policy is Working to Reduce Medicare Drug Spending

August 13, 2019 - As healthcare costs continue to escalate, policymakers have put forth numerous solutions to control Medicare drug spending and, through it, stabilize the healthcare economy, a recent Kaiser Family Foundation (KFF) study explained.

Current drug prices propel the healthcare industry’s rising medical cost trend, projected to rise six percent in 2020. Medicare is not immune, accounting for 30 percent of the nation’s retail prescription drug spending in 2017, according to a separate study conducted by KFF. The costs are projected to rise 4.6 percent per enrollee over the next decade.

To stem this influx, policymakers have proposed bills attacking Medicare drug spending from eight distinct angles.

Eliminating noninterference

There has been bipartisan support to revise the portion of the Medicare Modernization Act of 2003 (MMA) preventing government interference in price negotiations. These proposals range from eliminating the noninterference clause without suggesting an alternative arrangement, to empowering the HHS Secretary to negotiate by establishing a formulary to compete with or be a substitute for private Part D plans.

Revising Part D

Some policymakers have sought to revise the Medicare Part D benefit design to establish an out-of-pocket spending limit for Part D. The Trump Administration’s fiscal year (FY) 2020 budget combined an out-of-pocket spending cap with a 65 percent increase on Part D plans’ catastrophic coverage costs share and a 60 percent decrease of Medicare’s price responsibility.

READ MORE: Medicare Part D Premiums Continue to Decrease, CMS Says

The Trump Administration has also suggested not including the brand-name drugs’ manufacturers’ price discount in the calculation of out-of-pocket costs, in order to eliminate beneficiaries’ incentive to select costlier drugs. By including these discounts, as the current system does, enrollees reach the catastrophic phase faster and, as a result, unnecessarily increase Medicare spending.

Other policymakers have supported combining the out-of-pocket calculation alteration with a lower catastrophic threshold to offset removing the manufacturer discount.

The Senate Finance Committee approved a similar proposal that caps beneficiaries’ out-of-pocket spending to $3,100, after which private plans’ share would be 60 percent and Medicare and drug manufacturers’ shares would be 20 percent each.

Tying Medicare drug prices to inflation rates

Some bills support capping Medicare drug prices according to the rate of inflation.

To accomplish this, the Senate Finance Committee’s drug pricing proposal, The Prescription Drug Pricing Reduction Act (PDPRA) of 2019, requires brand-name and biologic Part D drug manufacturers to pay a rebate to Medicare if the pricing changes exceed inflation rates.

READ MORE: CMS Finalizes Medicare Advantage, Part D Payment Policies

PDPRA included an inflationary rebate proposal under which Part B brand-name drugs or biologics manufacturers would pay Medicare the difference between the drug price and the rate of inflation.

The Trump Administration suggested a similar redesign that caps inflation for Part B drug reimbursement growth, limiting it to the average sales price payment growth rate for Part B drugs to the inflation rate. Neither the Trump Administration nor CBO have produced savings estimates for this strategy.

Using international pricing

Some proposed policies plan to tackle the US’s unusually high drug costs by tying them to international prices.

The Trump Administration’s advanced notice of proposed rulemaking (ANPRM), International Pricing Index Model for Medicare Part B Drugs, suggested testing an international price index (IPI) model. Instead of tying prices to the average sales price, drug pricing would be derived from an international price index.

Congressional proposals have followed a similar route using international referencing. These proposals include the Prescription Drug Price Relief Act of 2019 which ties the prices to the median price in Canada, France, the UK, Germany, and Japan under penalty of drug manufacturers losing their patent and exclusivity rights. Another proposal, the Transparent Drug Pricing Act of 2019, prohibits setting generic and brand-name drug prices higher than prices in the previously listed countries.

Revising Part B drug payments

READ MORE: Finalized CMS Rule Supports Medicare Coverage for Gene Therapy

There have been many other proposed modifications to Part B drug payments, including the Trump Administration’s ANPRM which eliminates physicians’ Part B, average sales price percentage-based add-on payments, changing it to a fixed, six percent reimbursement for physician-administered drugs.

The Senate Finance Committee also proposed Part B drug payment alterations in PDPRA, such as setting add-on payments for drugs, biologics, and biosimilars and changing the average sales price calculation.

Changing Part B rebates

Changing Part B rebates presents another potential cost-saving option for Medicare.

The Trump Administration proposed a rule in February 2019 which it withdrew in July 2019 that would eliminate Part D drug manufacturers’ rebates to PBMs, Medicare Part D plans, and Medicaid managed care organization plans. It allowed drug manufacturers to apply discounts at the point of sale and permitted fixed fee arrangements between drug manufacturers and PBMs.

Other proposals suggested a softer but similar approach, requiring PBMs to pass on rebates to Part D plan sponsors, beneficiaries, or both. The response from manufacturers and payers would control how much these proposals would save beneficiaries.

Under another proposal, drug companies would have to provide Medicaid rebates for recipients of Part D low-income subsidies. These rebates would apply to dual-eligible beneficiaries as well.

Shifting drugs from Part B to Part D

Policymakers have also considered shifting some drugs from Part B to Part D coverage.

The Trump Administration has been the primary force behind this solution. The White House proposed that the HHS Secretary be allowed to shift drugs based on potential savings from negotiating the drug price under Part D and enabling beneficiaries’ access to the drug. The proposal could require a new billing mechanism.

Increasing coverage for low-income beneficiaries

The final category of proposed Medicare changes looks to improve low-income Part D coverage.

Both the Trump Administration and Congress have made proposals that suggest eliminating low-income subsidy enrollee’s Part D cost-sharing.

A congressional proposal, Medicare Extra Rx HELP Act of 2019, would broaden low-income subsidy eligibility requirements, which would increase the number of low-income individuals eligible for premium and cost-sharing assistance. By expanding eligibility, Medicare’s eligibility administrative burden may be reduced. Proponents also argue that increasing eligibility for assistance could drive medication adherence by decreasing overall healthcare costs.

As demonstrated by the number of proposals on the subject, policymakers recognize that decreased drug spending is key to stabilizing healthcare costs. And while the future for each of these proposals is yet to be decided, two recently finalized proposals show that steps are being taken to curb the crisis.

In May 2019, CMS successfully finalized a rule to address drug price transparency in Medicare Part D and Medicare Advantage plans. Plans must incorporate a drug price transparency tool into their EHR system and also must have price transparency and low-cost drug alternative lists in the explanation of benefits letters to their members.

By making members and clinicians aware of these out-of-pocket costs upfront, CMS hopes to drive down costs for members and overall spending.

In April 2019, CMS finalized new policies on Medicare Part D and Medicare Advantage payment that sought to diminish drug costs by increasing competition among health plans. The “2020 Medicare Advantage and Part D Rate Announcement and Final Call Letter” particularly encouraged Part D plans to offer at least one opioid therapy at a lower cost-sharing level.

As the opioid epidemic continues to be a healthcare crisis, improving access to therapies that will help survivors recover from substance abuse would reduce overdose hospitalizations and costs associated with drug misuse.

It remains to be seen whether these finalized policies can slow the nation’s climbing drug and healthcare costs.