Policy, Politics, Pricing

Trump proposal tapers Medicare protection for certain drugs if drugmakers don’t temper pricing

In its opposition to the industry standard of relentless and often exorbitant drug price hikes, the Trump administration seems to be doing more than huffing and puffing. After threatening to switch to a system that pegs US prices against cheaper rates abroad ahead of the mid-term elections last month, HHS outlined a proposal on Monday that could rule out certain drugs from being included as part of guaranteed Medicare coverage, if their makers continue to hike prices undeterred.

Seema Verma

Medicare part D — a voluntary outpatient prescription drug benefit for Medicare enrollees, provided through private plans approved by the federal government — requires insurers to include drugs from six protected classes (antidepressants, antipsychotics, anticonvulsants, immunosuppressants for treatment of transplant rejection, antiretrovirals and antineoplastics) as part of their formularies. So if a drug falls into any of those categories, the insurer is obliged to carry it, giving the manufacturer significant clout to charge what it likes for the treatment.

Although federal law prohibits the HHS from directly interfering in drug price negotiations between Part D plan sponsors and drugmakers, the new proposal, which is open to the public for comment, offers the insurer the ability to claw some of that negotiating power back.

“This move underscores our view that the administration continues to see insurers (and potentially PBMs) as their partners in their focus to lower drug costs,” Credit Suisse analysts wrote in a note.

The proposal suggests the insurer be given the opportunity to exclude a drug if its maker were to raise the price beyond a certain threshold over a specific period. It also empowers the insurer to kick a treatment off its formulary if the drug represents a new formulation of an existing single-source drug or biological product, regardless of whether the older formulation is on the market. In addition, insurers could lower costs by compelling patients to undergo step therapy, which involves trying a cheaper drug on for size – if that treatment doesn’t confer adequate benefit, only then is a more expensive drug given, similar to the policy allowed for Part B drugs in 2019.

In an interview with Bloomberg, CMS administrator Seema Verma said the proposal could save $692 million over a decade.

“We see this as somewhat expected and priced in (and not worst case scenarios) and good publicity for HHS Secretary Azar and the administration. While we acknowledge drugs that cost CMS the most are likely to be impacted in the long term, many of these changes are likely to undergo revisions and a comment period that may moderate and would not be implemented until 2020+,” noted Jefferies’ Michael Yee.

In 2014, the Obama administration was forced to abandon an attempt to limit the number of protected classes, after the plan provoked a storm of criticism from patient groups and Congress. Trump’s proposal, however, has not attempted to reduce the number of protected categories or eliminate the coveted protected class status, which is “a fear some investors had expressed could impact Gilead $GILD — realizing that HIV drugs aren’t even in the top 20 for Medicare expenditure,” added Yee.

The CMS proposal included a raft of other changes, including providing information that could help enrollees lower their out-of-pocket costs, by necessitating the inclusion of drug price information and lower cost alternatives in the “Explanation of Benefits” that Part D plans send to members. Another provision implements a statutory requirement that prohibits pharmacy gag clauses.

PhRMA, a large lobbying group representing the pharmaceutical industry, said they were still reviewing the CMS proposal in response to questions from Endpoints News.

“But we already have significant concerns about the impact of these proposals on access for the sickest and most vulnerable Medicare Part D beneficiaries,” said Juliet Johnson, deputy vice president of public affairs. “Letting plans restrict access to the medicines that patients rely on, particularly for those with serious and complex health conditions like HIV/AIDS, cancer and mental illness, reduces adherence to those medicines, jeopardizing their health, increasing their need for inpatient care and resulting in poorer health outcomes for seniors and higher costs for taxpayers.”

According to the Kaiser Family Foundation, roughly 43 million of the 60 million with Medicare are enrolled in Part D plans in 2018. Total reimbursement for branded drugs in Part D increased 77% from 2011 to 2015, despite a 17% drop in the number of prescriptions, according to HHS estimates released earlier this year, which also showed that Part D unit costs for branded drugs rose nearly 6 times faster than inflation over the same period.

CMS’ latest proposal, and Trump’s general bravado against the pharma industry, may not necessarily translate to material change. In the first nine months of 2018, there were 96 price hikes for every price cut, according to an analysis by the Associated Press published this September, and more recently Pfizer $PFE said it planned to increase prices on 41 of its drugs in January.

Meanwhile, other lawmakers are also working on ways to quell the scourge of drug price hikes. Last week Senator Bernie Sanders and Representative Ro Khanna revealed their intent to introduce a legislation called the Prescription Drug Price Relief Act. If signed into law, the bill would require the HHS to ensure Americans don’t pay more than the median price in five major countries: Canada, the United Kingdom, France, Germany and Japan for prescription drugs. It also includes a provision that could shatter the current system of patent protection, by allowing the government to approve generic versions of patented branded drugs if their makers were to refuse to curtail their prices below that median level.

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Research Scientist - Immunology
Recursion Pharmaceuticals Salt Lake City, UT
Director of Operations
Atlas Venture Cambridge, MA

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