Since the beginning of President Trump’s campaign, Medicare has worn the proverbial bullseye as the primary target for government action on drug pricing. Initially that target hovered over giving the government the ability to negotiate drug prices (or rebates) on behalf of Medicare. Now, the aim has shifted back to the private payer, starting February 12 with the Department of Health and Human Services (HHS) FY2019 budget proposal.1 This white paper fired an opening salvo toward increasing payer negotiation leverage by proposing a consolidation of certain Medicare Part B drugs into Part D. However, it wasn’t until the American Patients First2 blueprint, published on May 11, that the true arrow volley took place. This document explicitly states that “seniors and government programs are overpaying for drugs due to lack of the latest negotiation tools,” and 1 of its 4 primary strategies for reform is centered upon “better negotiation.”
Fast forward to August when two legislative actions were announced by the Centers of Medicare and Medicaid Services (CMS). In the first, CMS announced that Medicare Advantage payers would be allowed to implement step therapy protocols for Part B drugs.3 Payers also were given the ability to require Part D drugs before Part B drugs (and vice versa), if applicable. The rationale behind this endeavor was 2-fold. First, less expensive drugs could be required before more expensive drugs in the Part B space; second, payers could engage in rebate negotiations with drug manufacturers to jockey for that lowest net cost (preferred) position. A second CMS action later in the month allowed Part D payers to utilize indication-based formulary designs for the 2020 benefit year.4 Again, negotiation leverage was at the center of the initiative, providing part D plan sponsors new tools for reducing drug costs. In this case, the leverage stems from the ability to cover (or exclude) drugs for select indications. In other words, payers can negotiate steeper discounts for a drug to be covered across all indications or drug manufacturers can compete at an indication level to provide the best rates. In either scenario, the payer can select the drug mix that provides the best cost profile for one or all indications.
These actions are not without challenges or controversy. There are complexities in operationalizing actions within the Medicare structure—payers must be sure to maintain compliance with Medicare benefit and formulary policy. For example, to implement the indication-based approach, a plan must ensure appropriate therapeutic alternatives when it opts to exclude a drug for a given indication; it must also provide coverage for any indication falling into 1 of the 6 classes of clinical concern (antineoplastic, antiretroviral, antipsychotic, antidepressant, anticonvulsant, and immunosuppressant). A key controversy with these legislative actions is magnitude of impact. Drug costs and affordability affect all Americans. These actions, however, are targeted at Medicare beneficiaries who represent only 16.7% of the insured population5 and is further minimized by the less than 5% of insured members who are likely to utilize the high-cost specialty drugs most likely impacted by these initiatives.
Other actions, such as the 2018 Bipartisan Budget Act’s acceleration of the donut hole closing,6 have targeted Medicare as it relates to drug costs and patient affordability. President Trump’s announcement on October 25 continues to take aim at drug costs by reforming the Medicare Part B program through changes in physician payment for drug administration and drug pricing benchmarks. While multiple hurdles to implementation exist, this policy along with subsequent announcements by the administration will need to be closely watched by all stakeholders. In particular, sitting next to Medicare in the middle of its bullseye is the drug manufacturer, arguably the primary target of these actions. A key stakeholder in these proceedings, the manufacturer will need to maintain a keen eye toward the regulatory environment while increasing the tools at its disposal to compete in this dynamic space. However, with any new challenge there is new opportunity. Knowing that payers are dually challenged to navigate this nuanced and highly regulated battlefield accentuates the need for allied partnerships. Both payers and drug manufacturers are operating in a world with increased complexities. As a result, flexible solutions are required to accommodate variable challenges—no matter whom the arrow is pointed at.
- US Department of Health and Human Services. FY 2019 budget & performance. https://www.hhs.gov/about/budget/index.html. Accessed October 24, 2018.
- US Department of Health and Human Services. American Patients First. https://www.hhs.gov/sites/default/files/AmericanPatientsFirst.pdf. Accessed October 24, 2018.
- Verma S. Prior authorization and step therapy for Part B drugs in Medicare Advantage [memorandum]. US Department of Health and Human Services. https://www.cms.gov/Medicare/Health-Plans/HealthPlansGenInfo/Downloads/MA_Step_Therapy_HPMS_Memo_8_7_2018.pdf. Published August 7, 2018.
- Verma S. Indication-based formulary design beginning in contract year (CY) 2020. [memorandum]. US Department of Health and Human Services. https://www.cms.gov/Research-Statistics-Data-and-Systems/Computer-Data-and-Systems/HPMS/Downloads/HPMS-Memos/Weekly/SysHPMS-Memo-2018-Aug-29th.pdf. Published August 29, 2018.
- Barnett JC, Berchick ER. Health Insurance Coverage in the United States: 2016. US Census Bureau. https://www.census.gov/content/dam/Census/library/publications/2017/demo/p60-260.pdf. Published September 2017.
- Bipartisan Budget Act (BBA) of 2018 (Public Law 115-123). https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AmbulanceFeeSchedule/Downloads/BBA-of-2018-Website-Summary.pdf. Accessed October 24, 2018.