July 24, 2019

Here's the Senate's big, controversial plan to lower Rx costs

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    Senate Finance Committee Chair Chuck Grassley (R-Iowa) and Sen. Ron Wyden (D-Ore.), the ranking member on the committee, on Tuesday introduced a bill aimed at lowering prescription drug costs by changing various Medicare and Medicaid policies.

     The Congressional Budget Office (CBO) estimated the bill would save taxpayers $85 billion in Medicare and $15 billion in Medicaid from 2019 to 2029. CBO also projected the bill would save beneficiaries $27 billion in out-of-pocket costs and $5 billion in premium costs, and predicted that consumers in the private market would reap savings from inflationary rebates.

    But the bill includes several controversial changes, such as requiring drugmakers to pay rebates to Medicare if drug prices rise above inflation, that are drawing stark opposition from congressional Republicans and the pharmaceutical industry.

    Bill details

    Medicare Part D changes

    The bill would significantly restructure the Medicare Part D benefit, eliminating Medicare Part D's so-called "doughnut hole." and make drugmakers responsible for costs once beneficiaries' catastrophic coverage kicks in.

    Under the bill, beneficiaries would be responsible for paying all costs for drugs covered under Medicare Part D up to a $415 deductible—which would increase over time based on Part D spending growth, Inside Health Policy reports. Once beneficiaries meet the deducible requirements under their initial coverage phase, they would be responsible for paying 25% of their drug costs, while their health plans would cover the remaining 75%. The bill would cap beneficiaries' out-of-pocket spending at $3,100, at which point they would enter the catastrophic coverage phase, which shifts the cost of drugs to health plans and drugmakers.

    Currently, Part D's current catastrophic phase requires:

    • Beneficiaries to pay 5% of their drugs' costs;
    • Medicare to pay 80% of the drugs' costs; and
    • Health plans to pay 15% of the drugs' costs.

    But under the new catastrophic coverage phase:

    • Drugmakers would be required to cover 20% of the cost of brand-name drugs and 0% of the cost for generic drugs;
    • Health plans would be required to cover 60% of the cost of both brand-name and generic drugs; and
    • Medicare would be required to cover 20% of the cost for brand-name drugs and 40% of the cost for generic drugs.

    If signed into law, the new Medicare Part D structure would be phased in beginning in 2022 and would take full effect in 2024.

    The bill also includes a controversial proposal backed by Wyden that would require brand-name drug and biologics makers to reimburse Medicare when the prices of their drugs and biologics increase at a rate faster than inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U).

    The bill also would require HHS to publicly share more information around pharmacy benefit manager practices and manufacturer drug pricing.

    Medicare Part B changes

    The bill also seeks to address a number of Medicare Part B billing loopholes that stakeholders have said increase payment rates for prescription drugs. For example, the bill would implement stricter requirements on how average sales prices (ASPs) are calculated by excluding patient coupons from the formula.

    In addition, the bill would:

    • Cap at $1,000 the add-on payments that providers can be paid for drugs, biologics, and biosimilars under Medicare Part B beginning Jan. 1, 2021;
    • Increase payments for biosimilars to ASP plus 8% to promote their use over brand-name biologics;
    • Require that manufacturers of treatments that do not have Medicare rebate agreements report average sale price information each quarter to the HHS secretary; and
    • Require HHS to publish information on Medicare beneficiaries' cost-sharing requirements for drugs provided in physician offices.

    In addition, the bill would require drugmakers to pay the rebates each quarter the ASP for affected products exceeds the amount of the inflation-adjusted ASP payment. HHS would establish a benchmark payment rate for new drugs on the first day the drug is marketed, and would adjust the benchmark by the CPI-U percentage change every subsequent quarter to reach the inflation-adjusted ASP payment. The HHS secretary under the bill could waive or reduce the rebate requirement for treatments included on FDA's drug shortage list. Drugmakers that do not pay the required rebates could be subject to a civil monetary penalty that is equivalent to 125% of the required rebate.

    The requirement would not apply to biosimilars or vaccines covered under Medicare Part B. However, the bill would require drugmakers to pay rebates when single-dose vials of drugs covered under Part B are unused. In particular, the bill would require drugmakers to refund payments to providers for certain unused amounts of single-use vials that exceed a specific threshold. The requirement would apply to all drugs, biologics, and biosimilars that are packaged as single-dose vials and covered under Medicare Part B—with the exception of radiopharmaceuticals and imaging agents.

    Medicaid changes

    The bill also would seek to address drug price increase in Medicaid. For instance, the bill would increase Medicaid drug rebate caps and would potentially allow drugmakers to sell treatments at a loss, according to Inside Health Policy.

    Specifically, the bill would cap manufacturer rebates in Medicaid at 125% of a drug's average manufacturer price, and drugmakers would be responsible for rebates above the 125% cap if they increase the list prices of their drugs above the "drug's original list price trended forward by CPI-U," according to Inside Health Policy.

    In addition, the bill would:

    • Authorize an increase in the oversight of drugmakers' price reporting to Medicaid;
    • Ban spread pricing by PBMs in Medicaid manage care;
    • Exclude authorized generics from the average manufacturer price calculations in Medicaid;
    • Permit state Medicaid programs to use value-based agreements to pay for gene therapies, though states would have to seek CMS' approval for such agreements.

    Next steps

    The Senate Finance Committee currently is scheduled to mark up the bill on Thursday. However, it is unclear whether the measure will advance, according to Inside Health Policy.

    For the bill to advance, Grassley would have to gain the support of Republicans who consider inflationary rebates a form of government price controls, and Wyden would have to gain support from Democrats who want the bill to allow HHS to directly negotiate Medicare drug prices with pharmaceutical companies, Inside Health Policy reports.

    GOP leaders have said they plan to combine the bill with proposals to lower health care costs from other Senate committees, and then bring the measure up for a floor vote, according to Inside Health Policy.


    Judd Deere, a White House spokesperson, said the White House supports the bill and would promote the measure. Deere in a tweet posted Tuesday wrote, "We will work with senators to ensure this proposal moves forward and advances [President Trump's] priority of lowering drug prices even further and increasing transparency in health care for the benefit of all Americans."

    The Association for Accessible Medicines, the generic drug lobby, AARP, the Campaign for Sustainable Rx Pricing, Patients For Affordable Drugs Now, and Public Citizen also have expressed their support for the measure.

    Peter Maybarduk, director of Public Citizen's Access to Medicines Program, said, "This is a serious effort, and certainly the most impactful legislation that's being taken up by a committee in this Congress so by far, and would be quite meaningful. However, this is not a substitute for other measures."

    However, the pharmaceutical industry and the chamber of commerce have come out against the bill. Stephen Ubl, CEO of the Pharmaceutical Research and Manufacturers of America, said the bill "would siphon more than $150 billion from researching and developing new medicines while giving those savings to the government, insurers and PBMs—not seniors."

    U.S. Chamber of Commerce Chief Policy Officer Neil Bradley said, "We urge members of the Senate Finance Committee to focus on a patient-centered approach and reject Washington-knows-best, command-and-control price controls" (Cohrs/Haseley, Inside Health Policy, 7/23 [subscription required]; Cohrs, Inside Health Policy, 7/23 [subscription required]; Cohrs/Cohen, Inside Health Policy, 7/23 [subscription required]; Facher/Florko, STAT News, 7/23; Abutaleb, Washington Post, 7/23; Siddons, Roll Call, 7/23; Bill summary, accessed 7/24).

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