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Lowering the Boom on High Drug Prices
The Trump administration is moving forward with drug pricing reforms, taking the next steps beyond its efforts first announced in the White House’s American Patients First blueprint, then last May in the Department of Health and Human Services’ (HHS) Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, and finally in President Trump’s 2019 budget submission to Congress. All of them contained bits and pieces of emerging proposals related to a panoply of drug programs funded by Medicare and Medicaid.
Now the winnowing and sculpting has begun. The proposals issued in late 2018, whose comments are now being combed through by the HHS, include two proposed rules and one advanced notice of proposed rulemaking. All three include initiatives focused on formulary requirements and utilization policies. For example, Medicare Part D drug plans would have to provide real-time formulary information to physicians starting on January 1, 2020. Another proposal would allow Medicare Part D plans to implement a broader use of prior authorization (PA) and step therapy (ST) for protected class drugs, six drug categories of which plans must provide “all or substantially all” of the drugs available in a category.
Even the controversial proposal to force pharmaceutical manufacturers to note their drug list prices in direct-to-consumer (DTC) ads has formulary implications. The concern here is that TV ads featuring particularly expensive drugs (often biologics) send patients streaming to their physicians requesting that drug, which may or may not be on their health plan’s formulary. If it is not, patients are charged the “list price” for the drug, which is higher than the price they would have paid had the drug been on the formulary. The price a patient pays may or may not count toward the deductible, and the patient may have to pay the full list price to access the medication. Consumers without insurance get financially clobbered without exception.
These are the three latest rulemaking steps, although proposals could change based on public comments:
The three proposals represent the continuing effort of the Trump administration to hammer down high U.S. drug prices to reduce federal expenditures for Medicare and Medicaid and ease the financial burden, particularly on people without health insurance or those in high-deductible plans. Even hospitals, PBMs, group purchasing organizations (GPOs), drug manufacturers, patient groups, and others who laud the concept behind one or another of these proposals quickly go on to poke numerous holes in them. None of the proposals appears to have strong, unqualified support outside the Trump administration.
Sergio Santiviago, Director of Government Affairs at Express Scripts, had this to say about the prospective use of foreign drug prices in a new International Pricing Index (IPI) as the basis for Part B payments: “As a threshold matter, ESI shares CMS’ [Centers for Medicare and Medicaid Services] explicit goal for the Medicare Part B program ‘. . . to drive better quality for Medicare beneficiaries and reduce Medicare drug spending.’ Speaking conceptually about the IPI Model, ESI urges CMS to consider two basic shortcomings inherent to this proposal that, if not addressed, may doom it to the same fate as the original Competitive Acquisition Program (CAP).” CAP was an unsuccessful, decade-old program that allowed third parties to negotiate Part B prices.
On the proposal to require posting of list prices in DTC ads, Ben Wakana, Executive Director at Patients for Affordable Drugs, says, “Affordable Drugs supports the administration’s efforts to require disclosure of drug list prices in DTC ads, but we do not think it will lower prices. Instead, we support the recommendation. of the National Academies of Sciences, Engineering, and Medicine to eliminate the tax deduction drug companies take on DTC ads.”
Elements in each of the three proposals are sometimes expected to work together. A good example is the publication of drug list prices, the subject of the proposed price-transparency rule. This makes the most sense if patients, prompted by ads, request a particular drug from their physicians and can find out how much of the high list price they will pay based on their drug plan’s formulary. The requirement that Medicare plans send real-time formulary and benefit data to their prescribers is meant to accomplish that.
Disclosing Drug List Prices in DTC Advertisements
The pharmaceutical industry is already promising to take HHS to court over the proposed list prices in TV ads. TV and digital ads would have to contain the following: “The list price for a [30-day supply of] [typical course of treatment with] [name of prescription drug or biological product] is [insert list price]. If you have health insurance that covers drugs, your cost may be different.” The list price would be the wholesale acquisition cost. The CMS also prescribes how that disclosure must be made: in a legible textual statement at the end of the ad, placed appropriately and presented against a contrasting background for sufficient duration, in a size and style of font that allows the information to be read easily.
The Pharmaceutical Research and Manufacturers of American (PhRMA), the drug manufacturers’ lobbying group, argues that CMS does not have the authority to force manufacturers to disclose list prices, or any prices for that matter. Rather, the FDA has that authority. Moreover, even if the FDA proposed the exact same rule, PhRMA says it would run afoul of the First Amendment.
Legal questions aside, CMS doesn’t make an airtight case for the relationship between ads and high drug prices. It states that “DTC advertising appears to directly affect drug utilization,” then cites three old studies from 2012, 2006, and 2002 that apparently reach that conclusion. The only statistics presented cite a 2015 Kaiser survey indicating that one in eight adults (12%) said they were prescribed a specific drug after asking a doctor about it as a result of seeing or hearing an advertisement. That seems like weak evidence of a link.
On the other hand, there is no question that high drug prices plague patients, insured and otherwise. The CMS states that in the commercial market, over 40% of beneficiaries are in high-deductible plans. Under such plans, beneficiaries pay the product’s full list price until they meet their deductible, which can be thousands of dollars. Also, coinsurance has become a standard payor mechanism applicable to high-cost drugs, requiring patients to pay a percentage of the list price. All of the top 10 Part D prescription drug plans (PDPs) use coinsurance rather than fixed-dollar copayments for medications on non-preferred drug tiers, charging 30–50% of each prescription’s full price in 2017.
Given that financial burden on many consumers, it is surprising that a number of patient advocacy groups are unhappy with the proposal, even though CMS would require ads to contain cautionary language related to actual, individual costs based on health insurance. The National Alliance on Mental Illness and the National Coalition for Cancer Survivorship both oppose the proposal, saying it would cause confusion.
The proposal does have one potential element of interest for pharmacists: the establishment of a new Medicare/Medicaid payment code for drug-price counseling. This would ostensibly be used only by physicians, but one could see that if it were to become part of any final rule, it might give some leverageto pharmacists, who have argued for years that they ought to be compensated for counseling customers at the pharmacy counter.
Real-Time Formulary and Benefit Data to Physicians
Of course, the potential counseling element makes more sense if physicians receive from Medicare drug plans specific information about a patient’s formulary and coinsurance obligations related to tiers, plus insight into the deductible. This is not currently available. However, the information would become available if the CMS moves forward with the portion of the second proposed rule relating to e-prescribing. Beginning in 2020, Part D sponsors would be required to implement a real-time benefit tool (RTBT) capable of integrating with prescribers’ electronic prescribing (ERX) and electronic medical record (EMR) systems to provide complete, accurate, timely, clinically appropriate, and patient-specific real-time formulary and benefit information to the prescriber.
Medicare already requires Part D plans and physicians working with those patients to use the National Council for Prescription Drug Programs (NCPDP) script standard, both for exchanging prescription and formulary information. However, some prescribers do not rely on the formulary and benefit (F&B) information available from the Part D plan. CMS points out that vendors of EMR systems have stated that some of their clients find F&B data useful, but approximately half of their clients choose not to access the data at all, as it does not present real-time information. That would change in calendar year 2020. However, there is no RTBT industry standard. CMS worries that “…multiple technologies…may overwhelm and create a burden for EMR vendors. We also recognize that without a standard, the RTBT tool provided may not be integrated with a prescribers’ EMR, thus limiting its utility.”
John Klimek, RPh, NCPDP’s Senior Vice President, Standards and Information Technology, says that some health plans are using a type of internal RTBT tool provided by their software vendor. The NCPDP has a task group working on establishing an RTBT standard. “Our hope was to have it done by the end of the year, but I can’t commit to that,” said Klimek. A reasonable guess is that in a final rule, CMS will extend the implementation deadline beyond January 1, 2020.
As well as having to communicate more information about their formularies, Part D plans would get new leverage to manage their formularies from this second proposed rule, which mostly would allow them to restrict drug availability via constricted drug offerings in the six “protected classes.” Part C managed-care plans would be allowed to use ST for Part B drugs.
The protected classes were a target of failed Obama administration efforts to modify their reach in an attempt to cut Medicare costs. The six categories are: (1) antidepressants; (2) antipsychotics; (3) anticonvulsants; (4) immunosuppressants for treatment of transplant rejection; (5) antiretrovirals; and (6) antineoplastics. The Trump administration is now trying its hand at reform, which would allow plans to exclude a protected-class drug from a formulary if the drug represents only a new formulation of an existing single-source drug or biological product (regardless of whether the older formulation remains on the market) and exclude a protected-class drug from a formulary if the drug’s price increased beyond a certain threshold over a specified look-back period.
As part and parcel of this proposal, Medicare is underlining and putting into formal statute, with regard to the protected classes, a policy it initiated last summer when it stated that Part D plans could use indication-based formularies (see P&T 43:12). This would also allow Part D sponsors to exclude the protected-class drug from the formulary for non-protected class indications. These formulary design and utilization management edits would be subject to CMS review and approval as part of CMS’s annual formulary review and approval process.
With regard to the price increase element, Part D sponsors could exclude from the formulary any protected-class drug whose price increases, relative to the price in a baseline month and year, are beyond the rate of inflation. The rate of inflation would be calculated based on the consumer price index for all urban consumers (CPI-U).
Next Step on Rebates
The fourth item in the second proposed rule is probably the most controversial, as it involves the rebates that drug plans and PBMs receive from drug manufacturers. Those rebates come in various forms, and are based on different factors involving where drugs are placed on a formulary, pharmacy actions, and other things. The criticism of this arrangement, made loudly by consumer groups and drug manufacturers, is that the drug plans and PBMs take the discounts for themselves, leaving consumers at the pharmacy counter paying higher prices than would be the case if the PBMs passed along those rebates. Pharmacies have railed against this practice. Health plans have argued that they use the rebates to lower drug costs for all plan members.
The CMS proposal would change the definition of “negotiated price,” which dictates what pharmacies pays to consumer health plans. Currently, that definition includes all pharmacy payment adjustments except those contingent amounts that cannot “reasonably be determined” at the point-of-sale (POS). As a result of this exception, negotiated prices typically do not reflect any performance-based pharmacy price concessions that lower the price of a particular drug that a health plan ultimately pays the pharmacy. This is based on the rationale that these amounts are contingent upon pharmacy performance measured over a period that extends beyond POS and thus cannot reasonably be determined at POS.
Pharmacies have complained about the current system. “We wholeheartedly support moving pharmacy price concessions to POS to benefit patients in the form of lower cost shares,” says B. Douglas Hoey, MBA, Chief Executive Officer of the National Community Pharmacists Association. “Such a move would also eliminate retroactive claw-backs charged by PBMs and allow pharmacies a more accurate accounting of drug costs and reimbursements.”
The Pharmaceutical Care Management Association (PCMA), which represents PBMs, supports the current rebate system. While it has not publicly opposed the change to the “negotiated price” definition, PCMA appears to oppose it. President and CEO JC Scott defends the current system, saying, “These competitive negotiations generate significant savings for the federal government and beneficiaries, while also encouraging pharmacies to meet contractual ‘pay-for-performance’ standards based on quality measures such as generic dispensing rates.”
Basing Part B Reimbursement on Foreign Drug Prices
While rebates and their role in higher pharmacy counter prices have been a key political flashpoint in congressional hearings, the Part B drugs that are infused and injected in a physician’s office or hospital outpatient setting are generally much more expensive than Part D drugs. The Part B drugs are the oncology, hepatitis C, and rheumatoid arthritis drugs, typically biologics, which are driving Medicare costs because there are no generic or, for the most part, biosimilar alternatives (and even the cost savings for biosimilars are not that impressive).
A decade ago, CMS tried to alter cost drivers for Part B drugs—where physicians and outpatient clinics buy product from wholesalers and store it on their premises prior to administering—by starting a competitive acquisition program (CAP), which only lasted from 2006 to 2008. Under CAP, specialty pharmacies were the only entities that met CAP vendor criteria, and only one such vendor participated in the program. Since then, the cost to Medicare of Part B drugs has continued to grow significantly: From 2011 to 2016, Medicare fee-for-service (FFS) drug spending increased from $17.6 billion to $28 billion under Medicare Part B, representing a compound annual growth rate of 9.8%.
Now CMS wants to go back to the CAP model, but with some notable changes: specifically, the use of an IPI, which would allow CMS to pay vendors a “target price” based on the price of a drug on the international market, one considerably less than the “average sales price” (ASP), which is what Medicare Part B reimbursement is based on now. This CAP/IPI program would begin in certain regions in 2020 and extend across the entire country in five years. CMS envisions that the model would initially focus on single-source drugs and biologics, as those encompass a high percentage of Part B drug spending and are frequently used by physicians who bill under Medicare Part B. CMS estimates that relying on an IPI, and setting a target price rather than using an ASP, would result in roughly a 30% savings in total spending for the selected Part B drugs in the model. However, during the five years, CMS would phase in the target price by using 80% ASP and 20% target price in year one, then going to 100% target price in year five.
Vendors could be GPOs, wholesalers, distributors, specialty pharmacies, individual or groups of physicians and hospitals, manufacturers, or Part D sponsors. The vendors would bill Medicare for the price of each drug, which would be set by CMS, again based on international prices. Physicians and hospital outpatient clinics would get a set fee for infusing, injecting, and storing the drug. That would be a big change from the current Part B payment system, where the physician bills Medicare the ASP and an add-on fee of 6% (reduced lately to 4.3% because of congressional budget actions). Under this system, it pays for the physician or hospital to buy the most expensive drug available. In terms of implications for P&T committees run by vendors in the program, they would not be able to use the formularies of policies related to ST or utilization review, something that perturbs the Academy of Managed Care Pharmacy, Express Scripts, and many others.
Others have more adamant objections. “Vizient believes that, as presently described, the policies do not directly alter drug pricing, would make a complicated pharmaceutical supply chain more difficult to manage, and would create additional financial and workload hardship for providers, which ultimately could limit beneficiaries’ access to care,” writes Shoshana Krilow, Vice President of Public Policy and Government Relations at Vizient, Inc., the largest GPO in the U.S.
The Trump administration’s multipronged effort to use regulatory tools to lower drug prices includes old and new initiatives. But opposition from some players in the drug distribution system is evident in each instance. Some of that opposition may be based on sound reasoning, some of it may be based on pure self-interest. The challenge will be sorting out those differences and proceeding with sound, targeted policies that will have a positive impact.