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

Overview
  1. 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

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Proposed Changes and Recent Changes
  1. See also “Health Care,” Joe Biden for President. Accessed July 19, 2019. https://joebiden.com/healthcare/

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  2. An example of this approach introduced in the 116th Congress is S.99/H.R.448, “Medicare Drug Price Negotiation Act,” available at https://www.congress.gov/116/bills/s99/BILLS-116s99is.pdf and https://www.congress.gov/116/bills/hr448/BILLS-116hr448ih.pdf

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  3. Some examples of these approaches introduced in the 116th Congress are S.3, “Keeping Health Insurance Affordable Act of 2019,” available at https://www.congress.gov/116/bills/s3/BILLS-116s3is.pdf; S.99/H.R.448, “Medicare Drug Price Negotiation Act,” available at https://www.congress.gov/116/bills/s99/BILLS-116s99is.pdf; and https://www.congress.gov/116/bills/hr448/BILLS-116hr448ih.pdf; S.1129, “Medicare for All Act of 2019,’’ available at: https://www.congress.gov/116/bills/s1129/BILLS-116s1129is.pdf

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  4. Some examples of this approach introduced in the 116th Congress are S.377/H.R.1046, “Medicare Negotiation and Competitive Licensing Act of 2019,” available at https://www.congress.gov/116/bills/s377/BILLS-116s377is.pdf and https://www.congress.gov/116/bills/hr1046/BILLS-116hr1046ih.pdf; H.R.1384, “Medicare for All Act of 2019,” available at https://www.congress.gov/116/bills/hr1384/BILLS-116hr1384ih.pdf

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  5. Some examples of this approach introduced in the 116th Congress are S.99/H.R.448, “Medicare Drug Price Negotiation Act,” available at https://www.congress.gov/116/bills/s99/BILLS-116s99is.pdf and https://www.congress.gov/116/bills/hr448/BILLS-116hr448ih.pdf; S.3, “Keeping Health Insurance Affordable Act of 2019,” available at https://www.congress.gov/116/bills/s3/BILLS-116s3is.pdf; S.801, “Affordable Medications Act,” available at https://www.congress.gov/116/bills/s1801/BILLS-116s1801is.pdf

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  6. An example of this approach introduced in the 116th Congress is S.99/H.R.448, “Medicare Drug Price Negotiation Act,” available at https://www.congress.gov/116/bills/s99/BILLS-116s99is.pdf and https://www.congress.gov/116/bills/hr448/BILLS-116hr448ih.pdf

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  7. Binding arbitration is not included in any of the Congressional proposals. A variation of this approach as proposed by Richard Frank and Joseph Newhouse would establish a system of binding arbitration between the federal government and pharmaceutical companies to determine a set of temporary administered prices for unique drugs, until such time when competitor products became available; see Richard Frank and Joe Newhouse, "Should Drug Prices Be Negotiated Under Part D of Medicare?" Health Affairs 2008; Richard Frank, "Prescription Drug Procurement and the Federal Budget," Kaiser Family Foundation, May 2012, available at https://www.kff.org/health-costs/issue-brief/prescription-drug-procurement-and-the-federal-budget/. The Medicare Payment Advisory Commission (MedPAC) has also suggested the use of binding arbitration but their recommendations specifically relate to negotiation for Part B drugs, not Part D.

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  8. See also cost estimate of H.R. 4, “Medicare Prescription Drug Price Negotiation Act of 2007” available at https://www.cbo.gov/sites/default/files/110th-congress-2007-2008/costestimate/hr410.pdf

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  9. 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

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  10. 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

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  11. 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.

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  12. The Medicare Payment Advisory Commission (MedPAC) also recently proposed a restructured standard benefit design similar in nature to the Senate Finance Committee proposal, 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/

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  13. Kaiser Family Foundation analysis of a five percent sample of 2016 Medicare prescription drug event claims from the CMS Chronic Conditions Data Warehouse; unpublished estimates.

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  14. 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

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  15. 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

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  16. Another proposal is to impose a windfall profits tax on drug companies that charge list prices higher than an assessed price based on value; see Topher Spiro, “The Simple Solution to Lower Drug Prices for All Americans,” Center for American Progress, June 2019, available at https://www.americanprogress.org/issues/healthcare/news/2019/06/21/471344/simple-solution-lower-drug-prices-americans/. Similar Congressional proposals that apply to a wider range of drugs than just those under Part B are S.378/H.R.1093, “The Stop Price Gouging Act,” available at https://www.congress.gov/116/bills/s378/BILLS-116s378is.pdf and https://www.congress.gov/116/bills/hr1093/BILLS-116hr1093ih.pdf; S.801, “Affordable Medications Act,” available at https://www.congress.gov/116/bills/s1801/BILLS-116s1801is.pdf

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  17. Certain billings units would be excluded such as those paid under the End Stage Renal Dialysis (ESRD) program, the 340B program, or the Medicaid Drug Rebate Program.

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  18. 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/

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  19. The new proposed rule is projected to come out in August 2019: https://reginfo.gov/public/do/eAgendaViewRule?pubId=201904&RIN=0938-AT91

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  20. 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.

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  21. 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

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  22. 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/

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  23. 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/

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  24. One Congressional proposal introduced by Representative Richard Neal (D-MA1) 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

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  25. 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

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  26. 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.”

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  27. 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.

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  28. 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.

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  29. 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

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  30. 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.

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  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

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  32. 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.

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  33. 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

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  34. 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/

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  35. 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.

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  36. Some examples of this approach introduced in the 116th Congress are S.99/H.R.448, “Medicare Drug Price Negotiation Act,” available at https://www.congress.gov/116/bills/s99/BILLS-116s99is.pdf and https://www.congress.gov/116/bills/hr448/BILLS-116hr448ih.pdf; S.3, “Keeping Health Insurance Affordable Act of 2019,” available at https://www.congress.gov/116/bills/s3/BILLS-116s3is.pdf; S.801, “Affordable Medications Act,” available at https://www.congress.gov/116/bills/s1801/BILLS-116s1801is.pdf

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

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  38. 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/

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  39. 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

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