Senate Launches Drug Price Inflation Cap Proposal
The U.S. Senate Finance Committee announced a bipartisan proposal to lower drug prices by forcing pharmaceutical companies to pay rebates to Medicare if they raise drug prices more than the rate of inflation. The rebate value would be equal to the difference between the drug price increases and the inflation rate.
Two other components of this bill include a similar inflation cap on physician-administered drugs in Medicare Part B that would include high-cost treatments for diseases like cancer and a cap on Medicare patient out-of-pocket spending.
Currently, Medicare part D enrollees have a catastrophic phase built into their prescription coverage. The catastrophic phase protects enrollees who do not qualify for low-income subsidies. Once they reach a certain spending threshold ($6,350 in 2020), they only pay 5% of their drug costs for the remainder of the plan year. The proposal would lower that threshold to $3,100 by 2022.
The proposal will eliminate patients’ cost share in that phase and instead of the government and taxpayer dollars paying the entire cost of treatments above this threshold, the proposal would require health plans to cover 40 percent of catastrophic phase costs while drug manufacturers would pay 20 percent.
The Senate committee expects this proposal to reduce costs for both Medicare and commercial beneficiaries and the Congressional Budget Office (CBO) has estimated a reduction in government spending by $85 billion over 10 years. CBO also estimates that Medicare beneficiaries will save $27 billion in out-of-pocket costs and $5 billion in premium spending from the two policies.
America's Health Insurance Plans (AHIP) has issued a public statement in support of establishing a maximum out of pocket limit for Medicare beneficiaries and believes this proposal will hold drug manufacturers accountable for their high drug prices while reducing costs for seniors and taxpayers.
HHS Withdraws Proposal to Eliminate Rebates
In January, the Health and Human Services (HHS) secretary Alex Azar announced plans to eliminate drug rebates for government sponsored plans. This proposal intended to end rebates on prescription drugs paid by manufacturers to pharmacy benefit managers (PBMs), Medicare Part D plans, and Medicaid managed care organizations. In a sudden about-face, the Trump administration announced that this proposal will be withdrawn.
While there was certainly intense pushback from PBMs against this proposal, the Congressional Budget Office’s (CBO) report may have been the final nail in the coffin. They estimated that the proposal would increase federal spending by about $177 billion over the 2020–2029 period and Medicare premiums would rise for members. Pharmaceutical Care Management Association (PCMA) also published similar estimates for the detrimental effects this proposal would have. They estimated taxpayer costs would increase $196 billion and Medicare beneficiaries would have a 25% increase in premiums while drug manufacturers would have a $40 billion windfall.
HHS still says they support the concept of eliminating rebates and they believe “rebates’ days are numbered” but for now, rebates will continue to benefit payers and members by offsetting premium increases year-over-year.
Another Drug Pricing Reform Rule Hits a Snag
Two months ago, the Department of Health and Human Services (HHS) finalized its first drug pricing reform rule that would require prescription drug ads to include the drug’s list price. The rule required all direct to consumer advertisements for prescription drugs to list the Wholesale Acquisition Cost (WAC) beginning in July 2019. As expected, drug manufacturers were not going to accept this ruling without a legal battle and earlier this month they won.
Merck, Eli Lilly, Amgen and the Association of National Advertisers sued HHS in June because they believed patients could confuse a drug’s list price for their own out-of-pocket costs. U.S. District Judge Amit Mehta in Washington sided with the manufacturers and determined the entire rule was invalid because HHS lacked authority from the U.S. Congress to compel drug manufacturers to disclose list prices.
We expect this will not be the last we hear about this rule. HHS already announced that they were disappointed in the court’s decision and they will work with the Department of Justice on next steps in the litigation.