A Look at Recent Proposals to Control Drug Spending by Medicare and its Beneficiaries

Overview
  1. Nearly all Democratic presidential candidates have put forth plans to lower drug prices. See https://www.politico.com/2020-election/candidates-views-on-the-issues/health-care/drug-costs/; https://www.washingtonpost.com/graphics/politics/policy-2020/medicare-for-all/

    ← Return to text

  2. Some examples of these proposals introduced in the 116th Congress are: H.R.987, “The Strengthening Health Care and Lowering Prescription Drug Costs Act,”, available at: https://www.congress.gov/116/bills/hr987/BILLS-116hr987rfs.pdf; S.1895, “The Lower Health Care Costs Act,” available at: https://www.congress.gov/116/bills/s1895/BILLS-116s1895rs.pdf; H.R. 2296, “The FAIR Pricing Act,” available at: https://www.congress.gov/116/bills/hr2296/BILLS-116hr2296ih.pdf

    ← Return to text

Issue Brief
  1. Senator Klobuchar is also a co-sponsor of S. 377, “Medicare Negotiation and Competitive Licensing Act”.

    ← Return to text

  2. Ron Wyden (D-OR) has introduced a proposal that would eliminate cost sharing above the catastrophic threshold, but would fully implement this change in 2020 instead of a phased-in approach. See S.475, “The RxCap Act of 2019,” available at https://www.congress.gov/116/bills/s475/BILLS-116s475is.pdf

    ← Return to text

  3. Members of the Ways and Means Committee have recommended a proposal that pairs an out-of-pocket limit with higher plan liability (and lower Medicare reinsurance) in the catastrophic phase. See https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/ptD-drug-reinsur_01_xml.pdf

    ← Return to text

  4. The Administration’s Center for Medicare & Medicaid Innovation (CMMI) is also moving forward with a model that would modify reinsurance under Part D to create stronger incentives for plans to reduce costs. The model keeps the current catastrophic phase coverage allocation in the Medicare Part D benefit design (which cannot be modified without a change in law) with the same liability (5 percent for enrollees, 15 percent for plans, 80 percent for Medicare), but tests an approach where plans that choose to participate take on two-sided risk. Based on a plan’s federal reinsurance expenditures, CMS will make performance-based payments to plans that experience savings, but plans will also be subject to a penalty for any reinsurance spending above its target benchmark. The model is scheduled to begin January 2020.

    ← Return to text

  5. The Medicare Payment Advisory Commission (MedPAC) also recently proposed a restructured standard benefit design similar in nature to the Senate Finance Committee and House proposals, but without specifying threshold amounts or what share of liability each payer would bear for catastrophic costs.

    Under the current structure of the Part D benefit, brand manufacturers provide discounts in the coverage gap benefit phase of 70 percent, while beneficiaries’ out-of-pocket costs in the coverage gap benefit phase are 25 percent, and plans’ share is 5 percent. The MedPAC approach proposes eliminating the coverage gap benefit phase altogether and applying the manufacturer discount to the catastrophic phase, also called a “cap discount”.

    The American Action Forum also has a proposal that would change plan liability in the catastrophic phase, including increasing liability for plans and manufacturers during this phase: https://www.americanactionforum.org/print/?url=https://www.americanactionforum.org/research/redesigning-medicare-part-d-realign-incentives-1/

    ← Return to text

  6. Congressmen Horsford and Horn have introduced a stand-alone version of the Medicare Part D redesign and out-of-pocket cap that are described in H.R.3. See H.R. 4649, “Capping Drug Costs for Seniors Act of 2019,” available at https://www.congress.gov/116/bills/hr4649/BILLS-116hr4649ih.pdf

    ← Return to text

  7. Inmaculada Hernandez, Chester B. Good, David M. Cutler, et al., “The Contribution Of New Product Entry Versus Existing Product Inflation In The Rising Costs Of Drugs,” Health Affairs, January 2019. https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2018.05147; Nathan E. Wineinger, Yunyue Zhang, and Eric J. Topol, “Trends in Prices of Popular Brand-Name Prescription Drugs in the United States,” JAMA, May 31, 2019. https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2734804?resultClick=3; Jared S. Hopkins, “Drugmakers Raise Prices on Hundreds of Medicines,” WSJ, January 1, 2019. https://www.wsj.com/articles/drugmakers-raise-prices-on-hundreds-of-medicines-11546389293

    ← Return to text

  8. MedPAC has offered a similar proposal where a manufacturer of a Part B drug would be required to pay Medicare a rebate if its drug’s ASP exceeded an inflation limit. http://medpac.gov/docs/default-source/reports/jun17_ch2.pdf

    ← Return to text

  9. Ways and Means Committee Staff, “A Painful Pill to Swallow: U.S. vs. International Prescription Drug Prices,” September 2019. https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents
    /U.S.%20vs.%20International%20Prescription%20Drug%20Prices_0.pdf
    . Rabah Kamal, Cynthia Cox and Daniel McDermott, “What are the recent and forecasted trends in prescription drug spending?” Peterson-Kaiser Health Tracker, February 2019. https://www.healthsystemtracker.org/chart-collection/recent-forecasted-trends-prescription-drug-spending/#item-average-price-harvoni-u-s-42-higher-united-kingdom_2017; So-Yeon Kang, Michael J. DiStefano, Mariana P. Socal, and Gerard F. Anderson, “Using External Reference Pricing In Medicare Part D To Reduce Drug Price Differentials With Other Countries,” Health Affairs, May 2019. https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2018.05207; Robert Langreth, Blacki Migliozzi, and Ketaki Gokhale,“ The U.S. Pays a Lot More for Top Drugs Than Other Countries,” Bloomberg, December 18, 2015. https://www.bloomberg.com/graphics/2015-drug-prices/

    ← Return to text

  10. The new proposed rule was projected to come out in August 2019: https://reginfo.gov/public/do/eAgendaViewRule?pubId=201904&RIN=0938-AT91 However, there are reports that the proposal is being reworked. See https://www.axios.com/alex-azar-trump-drug-pricing-plan-5a45c5c2-037d-4212-9ccc-9f4c682daf40.html; https://thehill.com/policy/healthcare/470230-trump-officials-making-changes-to-signature-drug-pricing-proposal-azar-says

    ← Return to text

  11. The Obama Administration also proposed a Part B payment model that would modify the ASP payments to physicians, but faced opposition from many physician and patient groups, and ultimately withdrew the model.

    ← Return to text

  12. The Administration has also indicated it may issue an executive order related to international reference pricing. The executive order reportedly may include a “favored nations” policy, which would require that the U.S. pay the lowest price on pharmaceuticals available to other developed nations. It is unclear how this proposal differs or overlaps with the international price index model. See https://www.nytimes.com/2019/07/05/upshot/trump-drug-prices-executive-order.html. Additionally, it has been reported that there will be an executive order that will use the method laid out in the IPI, but apply it even more broadly, to Part D drugs. This approach may be delayed depending on the outcome of Senate Finance Committee legislation. See https://www.nytimes.com/reuters/2019/07/24/world/europe/24reuters-usa-drugpricing-exclusive.html?wpisrc=nl_health202&wpmm=1

    ← Return to text

  13. Many proposals under discussion would apply some type of enforcement mechanism to ensure pharmaceutical manufacturers comply with new drug pricing rules. For example. if manufacturers continue to sell drugs above the average price in comparable OECD countries, these companies would be significantly taxed; these taxes would then be provided as rebates to consumers. For an example of this approach, see https://kamalaharris.org/drug-costs/

    ← Return to text

  14. Rachel Sachs, “Administration Outlines Plan To Lower Pharmaceutical Prices In Medicare Part B,” Health Affairs, October 26, 2018, available at https://www.healthaffairs.org/do/10.1377/hblog20181026.360332/full/

    ← Return to text

  15. One Congressional proposal introduced by Representative Richard Neal (D-MA) aims to lower Part B drug spending by requiring drug manufacturers to report prices used to calculate certain payment rates for Part B drugs. The proposal would effectively lower the reimbursement for some Part B drugs from a WAC-based payment rate to an ASP-based payment rate. Under current law, when certain ASP information is unavailable, such as when a new drug comes to market, Medicare payments are based on the wholesale acquisition cost (WAC), which is generally higher than the ASP. CBO estimates that this would produce $1.7 billion in savings for the Medicare program over 10 years (2020-2029). See H.R.2113, “The Prescription Drug STAR Act,” available at https://www.congress.gov/116/bills/hr2113/BILLS-116hr2113ih.pdf

    ← Return to text

  16. For more information on Part B and budget sequestration, please see http://www.medpac.gov/docs/default-source/reports/chapter-5-medicare-part-b-drug-and-oncology-payment-policy-issues-june-2016-report-.pdf?sfvrsn=0

    ← Return to text

  17. The Administration has also proposed establishing a competitive acquisition program (CAP)-like approach for procuring drugs as an alternative to the current system under which physicians “buy and bill” for drugs. Under this new approach, physicians could contract directly with private sector vendors who would procure medications directly and supply them to providers.

    The original competitive acquisition program (CAP) was established as part of the MMA and operated from July 1, 2006 to December 31, 2008, but had limited success due to low vendor participation. In its rationale for including a new CAP proposal, the Administration has stated that, “a CAP-like approach with improvements, particularly in regards to onsite availability of drugs, could potentially address concerns about the financial burdens associated with furnishing Part B drugs and their rising costs, and address challenges experienced in the CAP.”

    ← Return to text

  18. Since 2006, rebates from drug companies to Part D plan sponsors have more than doubled, and now account for 21.8 percent of Part D costs. This is an overall average across all brand and generic drugs, including drugs for which rebates are not negotiated. CMS does not make drug-specific rebate data publicly available, because this information is considered proprietary.

    ← Return to text

  19. CBO and OACT also estimated the impact on Medicare Part B, the Medicaid program, and the private health insurance market. CBO projects this proposal would not have a significant effect on Part B spending. OACT examined Part B drugs that are also covered under Medicare Part D that receive significant rebates and estimates this plan will generate about $0.5 billion in savings in Part B. For Medicaid, CBO estimates it would cost the federal government $7 billion, while OACT estimates the proposal is expected to cost the federal government $1.7 billion and states $0.2 billion. CBO expects there would be little impact on this on the private health insurance market, while OACT estimates the proposal would save about $1 billion in this market over 10 years.

    ← Return to text

  20. In addition to the OACT estimate, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) commissioned two studies on the impacts of ending rebate payments in their current form under the Part D program: Milliman, Inc., “Impact of Potential Changes to the Treatment of Manufacturer Rebates,” January 31, 2019, available at https://aspe.hhs.gov/system/files/pdf/260591/MillimanReportImpactPartDRebateReform.pdf and Wakely Consulting Group, “Estimates of the Impact on Beneficiaries, CMS, and Drug Manufacturers in CY2020 of Eliminating Rebates for Reduced List Prices at Point-of-Sale For the Part D Program,” August 30, 2018, available at https://aspe.hhs.gov/system/files/pdf/260591/WakelyImpactAllPartiesManufacturerRebatesPointSale.pdf

    ← Return to text

  21. Leah L. Zullig, Bradi B. Granger, Helene Vilme, Megan M. Oakes, and Hayden B. Bosworth, “Potential Impact of Pharmaceutical Industry Rebates on Medication Adherence,” Am J Manag Care, May 2019.

    ← Return to text

  22. Milliman, Inc. “Prescription Drug Rebates and Part D Drug Costs: Analysis of historical Medicare Part D drug prices and manufacturer rebates,” July 16, 2018, available at https://www.ahip.org/wp-content/uploads/2018/07/AHIP-Part-D-Rebates-20180716.pdf

    ← Return to text

  23. As an example of this coverage dynamic, the drug Repatha, used to treat high cholesterol, was highlighted at a recent Senate Finance Committee hearing. Repatha has a high list price with a correspondingly high rebate. The manufacturer has since produced an equivalent version of the drug at lower price, but one major PBM requires prior authorization for this less expensive version because the manufacturer offers a much higher rebate for the more expensive one.

    ← Return to text

  24. Holly Campbell, “The Catalyst: PhRMA comments on OIG proposed rule to reform the rebate system,” PhRMA, April 8, 2019, available at https://catalyst.phrma.org/phrma-comments-on-oig-proposed-rule-to-reform-the-rebate-system; Sarah Owermohle, “Prescription Pulse: Uncertainties remain in Trump rebate plan,” Politico, available at https://www.politico.com/newsletters/prescription-pulse/2019/02/04/uncertainties-remain-in-trump-rebate-plan-501560

    ← Return to text

  25. Rachel Sachs, “Trump Administration Releases Long-Awaited Drug Rebate Proposal,” Health Affairs, February 1, 2019 available at https://www.healthaffairs.org/do/10.1377/hblog20190201.545950/full/; Joseph Antos and James Capretta, Assessing The Effects Of A Rebate Rollback On Drug Prices And Spending,” Health Affairs, March 11, 2019, available at https://www.healthaffairs.org/do/10.1377/hblog20190308.594251/full/; Pharmaceutical Care Management Association (PCMA) “PCMA Statement on The Administration’s Prescription Drug Rebate Proposed Rule,” January 31, 2019, https://www.pcmanet.org/pcma-statement-on-the-administrations-prescription-drug-rebate-proposed-rule/

    ← Return to text

  26. In a recent proposed rule, the Administration sought information on redefining the “negotiated price” of drugs patients pay at the point of sale. Currently, these “negotiated prices” do not include pharmacy price concessions or manufacturer rebates. The Administration was considering including pharmacy price concessions in the definition of “negotiated price” to lower patients’ out-of-pocket costs, but it has not moved forward with any changes at this time.

    ← Return to text

  27. Assets include $1,500 for burial expenses. For more information, please see https://secure.ssa.gov/poms.nsf/lnx/0603030025

    ← Return to text

  28. Jack Hoadley, Juliette Cubanski and Tricia Neuman, “Medicare Part D at Ten Years: The 2015 Marketplace and Key Trends, 2006-2015,” October, 2015. https://www.kff.org/report-section/medicare-part-d-at-ten-years-section-4-the-low-income-subsidy-program/

    ← Return to text

  29. H.R. 3 includes other provisions that affect the LIS, including a provision that would not count certain retirement accounts as income for the purposes of determining eligibility under the Medicare Part D low-income subsidy (LIS) program.

    ← Return to text

  30. Representative Brad Schneider also introduced a House companion version on October 1, 2019: H.R.4583, “Medicare Extra Rx HELP Act of 2019,” available at https://www.congress.gov/bill/116th-congress/house-bill/4583/text.

    ← Return to text

  31. Milliman, Inc. “Prescription Drug Rebates and Part D Drug Costs: Analysis of historical Medicare Part D drug prices and manufacturer rebates,” July 16, 2018, available at https://www.ahip.org/wp-content/uploads/2018/07/AHIP-Part-D-Rebates-20180716.pdf

    ← Return to text