July 26, 2019

Senate committee advances big, controversial plan to lower Rx costs

Daily Briefing

    The Senate Finance Committee on Thursday voted 19-9 to advance a bipartisan bill aimed at lowering prescription drug costs, but the bill might face opposition in the full Senate unless it undergoes substantial revisions.

    During the markup, both Democrats and Republicans on the committee expressed concerns about the bill, HealthLeaders Media reports. But committee members ultimately voted to approve the measure, with all Democratic lawmakers on the committee voting in favor of the measure and nine of the committee's 15 Republican lawmakers voting against the bill, according to The Hill.

    Bill details

    The bill, called the Prescription Drug Pricing Reduction Act, calls for various changes to Medicare and Medicaid policies to bring down drug costs.

    Medicare Part D changes

    The bill would significantly restructure the Medicare Part D benefit, eliminating Medicare Part D's so-called "doughnut hole," and making 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.  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 bill, in the 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 (PBMs) 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.

    The bill also includes a proposal backed by President Trump that would bring provider reimbursements for drugs covered under Medicare Part B in line with the lower prices paid in other countries.

    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 ASP 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.

    The bill also would require drugmakers to pay 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 rebate 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 increases in Medicaid. For instance, the bill would increase Medicaid drug rebate caps and would potentially allow drugmakers to sell treatments at a loss.

    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."

    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; and
    • 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.

    Lawmakers file 110 amendments to the bill

    Lawmakers on the Senate Finance Committee filed 110 amendments to the original bill.

    For example, lawmakers voted to approve an amendment that would allow Medicare to directly negotiate prices with drugmakers, HealthLeaders Media reports.

    However, lawmakers on the committee failed to approve an amendment to eliminate the bill's proposal that brand-name drug and biologics makers reimburse Medicare when the prices of their drugs and biologics increase at a rate faster than inflation. According Axios' "Vitals," the amendment failed on a 14-14 vote.

    Lawmakers also rejected an amendment that would have eliminated a proposal to implement an international price index for drugs covered under Medicare Part B.

    Bill likely to see more changes

    After the markup, senators indicated they likely will make additional changes to the bill before it is finalized.

    For example, Senate Finance Committee Chair Chuck Grassley (R-Iowa) indicated his support for adding an amendment to the bill that would ban drugmakers from paying rebates to PBMs under federal health programs—a measure the Trump administration had proposed under a now-withdrawn rule.

    Senate Majority Whip John Cornyn (R-Texas) said, "This bill is not anywhere near action on the floor."


    White House spokesperson Judd Deere in a tweet posted Thursday applauded the bill's passage.

    Lauren Aronson, executive director of the Campaign for Sustainable Rx Pricing, in a statement said, "The committee’s bipartisan actions are a good first step. We are reviewing the details of this package and look forward to working with committee members to advance measures to hold Big Pharma accountable."

    But Stephen Ubl, CEO of Pharmaceutical Research and Manufacturers of America (PhRMA), in a statement issued Thursday said the bill "would siphon more than $150 billion from researching and developing new medicines and give those savings to the government, insurers, and PBMs, instead of using those savings to lower costs for seniors at the pharmacy counter." Ubl said the bill "also fails to ensure the deep discounts negotiated in the Medicare prescription drug program are passed along to patients in the form of lower out-of-pocket costs. And it replaces the successful, market-based structure of Medicare Part D with Medicaid-style price controls that result in money going to the federal treasury instead of seniors."

    According to Reuters, Ubl met with Trump, HHS Secretary Alex Azar, House Minority Leader Kevin McCarthy (R-Calif.), and White House officials on Wednesday to discuss PhRMA's opposition to the bill.

    Tom DiLenge—president of the Biotechnology Innovation Organization's advocacy, law, and public policy division—said the bill "punishes" drugmakers. DiLenge said he believes lawmakers could improve the bill by including language to reinstate the administration's proposed drug rebate rule. "The proposal does almost nothing to hold insurance companies and middlemen accountable for shifting more of the cost burden onto patients. Instead of eliminating distortions within the drug pricing system, this proposal could create and exacerbate perverse incentives that disadvantage patients and taxpayers," he said.

    David Henka, CEO of ActiveRADAR, said the bill does not take into account how the proposed Medicare changes could affect the health insurance market. "These types of economic environments are like a scale; any time you push the prices down on the Medicare or government side of the business, you're going to see a corresponding, inverse change in the commercial side. The federal government may pay less for pharmaceuticals, but the commercial employers and plan sponsors will end up paying more. Pharma will continue to meet its margins one way or the other, even if they are forced to lower their prices on the government side" (Sullivan, The Hill, 7/25; Baker, "Vitals," Axios, 7/26; O'Brien, HealthLeaders Media, 7/25; Lovelace, CNBC, 7/25; Erman, Reuters, 7/25).

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