Drug pricing is likely to be a top priority for Congress and the White House in 2019

Health Care Current | January 8, 2019

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies, and provides updates and insights on policy, regulatory, and legislative changes.

My Take

Drug pricing is likely to be a top priority for Congress and the White House in 2019

By Sarah Thomas, managing director, Deloitte Center for Health Solutions, Deloitte Services LP

As we head into 2019, I expect that tackling pricing, spending, and costs for prescription drugs will become an even more important issue for the White House and the 116th Congress. About 80 percent of Americans rank drug pricing as the top priority for lawmakers—above reducing the federal budget deficit or increasing the investment in infrastructure—according to a recent survey published in Politico.1

What actions might we see in 2019? It has been eight months since the administration released its Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs (see the June 19, 2018 My Take). Before we get into what might happen in the year ahead, let’s first take a look at the policies that are already in place, the ones that are being drafted, and the issues not yet addressed. Here are three key takeaways to consider:

Takeaway #1: The administration has made progress on many ideas included in the blueprint

By my count, there are 28 separate ideas included in the blueprint—some are fairly specific, others are much more general. The document splits these ideas into four categories: increased competition, better negotiation, incentives for lower list prices, and lower out-of-pocket costs. The ideas are also divided into two timelines—Immediate and Further. Activity is already occurring on at least 13 of these ideas (some were underway before the blueprint was released).

My assessment is that the greatest concentration of implemented (as opposed to proposed) policy has been through guidance and action that the US Food and Drug Administration (FDA) has issued to spur competition. For example, the agency released a Biosimilars Action Plan in July and approved seven new biosimilars—15 biosimilars have now been approved (see the December 18, 2018 Health Care Current).2 Although biosimilars might not generate the same kind of savings that consumers get from generic forms of small-molecule drugs, specialty biologic drugs are among the most expensive therapies for consumers.

Takeaway #2: Existing proposals affect a wide range of stakeholders

The ideas included in the blueprint would affect manufacturers of pharmaceuticals (brand and generic) in one way or another. But some proposals would also affect hospitals, physicians, pharmacies, pharmaceutical benefit manufacturers (PBMs), and Medicare Advantage (MA) plans.

Policies that could affect hospitals include:

  • Proposed rules around site-neutral payments (ensuring that payments for care provided in one setting are equivalent to payments for identical care provided in a different setting)
  • Proposed rules to change the reimbursement formula for Medicare Part B drugs (more on that below)

Policies that could affect MA plans include:

  • Finalized changes to the Medicare Prescription Drug Program in the 2019 Part C and Part D regulation, which allow for faster mid-year substitution of generic drugs onto formularies
  • A proposed rule to give Part D plans more flexibility to limit coverage of drugs in protected classes (see the December 4, 2018 Health Care Current)

Policies that could affect pharmacies and PBMs:

  • In October, the president signed two bills to prevent "gag clauses" in agreements between pharmacies and PBMs. Some pharmacists have complained that gag clauses can keep them from disclosing cheaper drug options to consumers (see the October 16, 2018 Health Care Current).

Takeaway #3: Many of the more debatable proposals have not yet been finalized

In my view, one of the most surprising proposals (in terms of potential debate) would require manufacturers of high-price drugs to cite prices in their television advertisements. Under the proposed rule, manufacturers would publish the price (the Wholesale Acquisition Cost) for a typical course of treatment for an acute medication, or a 30-day supply of medication for a chronic condition. The policy would apply to all drugs with a price of $35 per month or more.

The pharmaceutical industry has pushed back on the proposal, which it contends could confuse consumers who often pay less than the list price. Before the administration released this proposal, the industry developed an initiative that would allow consumers to search drug prices through a website.

Another debatable proposal is similar to a Medicare Part B change suggested by the previous administration in 2016, but with a new twist. This policy—which would be implemented as a Center for Medicare and Medicaid Innovation (CMMI) project—would reduce payments the Medicare program makes to providers by tying payments to a composite amount based on the average amount paid for those drugs in a number of other countries. According to the US Centers for Medicare and Medicaid Services (CMS), this model would include physicians, hospitals, and potentially other providers and suppliers in selected geographic areas. The agency has indicated that it is considering issuing a proposed rule this spring, which could become effective the following year.

A third policy—which was floated in some speeches, but has not yet materialized in proposed regulations—would prohibit (or potentially eliminate) rebates for drugs. Under this practice, PBMs and Part D plans exact rebates from drug manufacturers in exchange for placement of drugs on preferred tiers of a formulary. Although the administration has been supportive of private-sector moves to reduce consumer prices (by passing rebates to consumers) at the point-of-sale, it has not issued a policy that would overhaul rebates.

Some movement to address rebates has already started in the private sector. Two PBMs already are offering employers an option for a new formulary model that would reduce the role of rebates. Others have already established programs to share rebates with consumers at the points-of-sale.

Final thoughts—for now

On the private side, I think we might see more activity around value-based contracting this year. Some state Medicaid programs have been developing innovative payment arrangements with drug manufacturers, adding to the many experiments emerging with commercial health plans, and one with the Medicare program. Per the 21st Century Cures Act, FDA released guidance on how drug and medical device companies can communicate information to health plans and formulary committees that could aid value-based contracting.

It will be interesting to see if the new Congress bands together with the administration on a shared agenda in this space. I expect 2019 to keep us busy on this front!

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1 Americans’ priorities for the new Congress in 2019, Politico, Harvard T.H. Chan School of Public Health, January 2019
2 Biosimilars Action Plan: Balancing Innovation and Competition, FDA, July 2018 (


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In the news enrolled 8.4 million for 2019—down 4 percent from last year

About 8.4 million people selected—or were automatically reenrolled in—2019 health coverage through the federal insurance exchange during the recently concluded open-enrollment period, CMS reported January 3. More than 2 million people are new enrollees, while 6.3 million renewed coverage. This year’s enrollment through is down 4 percent from last year. The decline could be attributed to the elimination of the individual mandate penalty, an improving job market, Medicaid expansion in some states, and increased access to short-term limited duration (STLD) plans. Thirty-nine states use the federal platform, while 11 states operate their own exchanges. Not all states experienced an enrollment decrease.

As in previous years, the biggest week of enrollment for 2019 was the last week—despite a federal judge’s recent ruling that the ACA is unconstitutional (see the December 18, 2018 Health Care Current). CMS will release its final enrollment numbers in March, including enrollment data from state-based exchanges.

(Source: CMS, Final Weekly Enrollment Snapshot for the 2019 Enrollment Period, January 3, 2019)

Medicare Advantage proposal would change the risk-adjustment model

In December, CMS proposed changing the Medicare Advantage (MA) risk-adjustment model—both the source of data used to determine risk scores and the methodology itself. According to the proposal, CMS would give equal weight to diagnoses coming from encounter data and fee-for-service data (the traditional source of information used in the risk-adjustment model) to determine patients’ risk scores. Also, as required by the 21st Century Cures Act, CMS proposed a methodology that counts the number of medical conditions a patient has in the risk model.

If finalized, the changes would go into effect in 2020. CMS plans to propose payment adjustments and methodological changes impacting MA plans for 2020 by January 31.

(Source: CMS, Advance Notice of Methodological Changes for Calendar Year (CY) 2020 for the Medicare Advantage (MA) CMS-HCC Risk Adjustment Model, December 20, 2018)

CMS overhauls Medicare Shared Savings ACO Program

On December 21, CMS released “Pathways to Success,” the agency’s final rule to overhaul the Medicare Shared Savings Program (MSSP) for accountable-care organization (ACO) participation. According to CMS, the program changes are designed to promote the goals of accountability, competition, and quality among participants.

Pathways to Success places a strong emphasis on exposing ACOs to potential losses, known as downside financial risk, as well as potential gains. CMS referred to the success of participants in the Next Generation ACO model—an Innovation Center program for ACOs that take on the largest financial risk—as justification for the move (see the September 11, 2018 Health Care Current). In 2017, the 44 Next Generation ACOs saved Medicare an estimated $163 million.

Some critics of the proposed rule expressed concern that smaller and physician-led organizations might require more time to successfully establish ACOs. Under the final rule, “low-revenue” or physician-led ACOs have three years to transition to two-sided risk, while all other new ACOs will have two years.

Existing upside-only ACOs will have one year to take on risk. Under the updated program rules, the shared savings rate will be 50 percent for risk-bearing ACOs and 40 percent for other ACOs. CMS estimates that the updated MSSP ACO program will save Medicare nearly $3 billion over the next 10 years.

(Source: CMS, CMS Finalizes “Pathways to Success,” an Overhaul of Medicare’s National ACO Program, December 21, 2018)

Federal judge issues injunction on HHS rule reducing 340B payments

On December 28, a federal judge in the District of Columbia ruled that the US Department of Health and Human Services (HHS) overstepped its authority when it cut Medicare payments to hospitals for drugs in the 340B discount program, and the court halted the final rule through an injunction. The court also denied HHS’s request to dismiss ongoing litigation from hospital groups that oppose the payment reductions.

Previously, the 2018 Hospital Outpatient Prospective Payment System (OPPS) final rule reduced payments for covered outpatient drugs under the 340B program from the standard rate of average sales price (ASP) plus 6 percent to ASP minus 22.5 percent for most hospital-affiliated providers, and the 2019 final rule applies this payment methodology to off-campus hospital clinics. In November 2018, HHS issued a regulation to implement the new 340B ceiling price (and penalties) beginning on January 1, 2019 (see the December 4, 2018 Health Care Current).

This ruling marks the second time the American Hospital Association (AHA) and other hospital groups have legally challenged HHS’s 340B payment cuts. In July 2018, the DC Circuit Court of Appeals upheld a ruling allowing HHS to proceed with the reductions (see the July 24, 2018 Health Care Current).

ACA will stand while court ruling is appealed

The Affordable Care Act (ACA) will stand while a recent court judgement on the law is appealed, according to an order filed by a US District Court judge on December 30. The order follows the judge’s December 14 ruling that the ACA is unconstitutional (see the December 18, 2018 Health Care Current).

In response to a lawsuit by 20 Republican state attorneys general challenging the constitutionality of the ACA, the court ruled that the entire law is unconstitutional and must be struck down. The judge argued that the individual mandate penalty, which Congress eliminated, cannot be separated from the ACA’s regulations. Most recently, the court issued a stay and partial final judgement order that would allow the law to stand while under appeal. According to CMS Administrator Seema Verma, the ruling has no impact on coverage for the 2019 plan year. Seventeen state attorneys general have indicated they intend to appeal the decision.

Study shows link between hospital readmissions and mortality rates

Researchers found a correlation between lower hospital readmission rates and higher post-discharge mortality rates among patients who have pneumonia or heart failure, according to a recent study on the Hospital Readmissions Reduction Program (HRRP) and patient mortality. The study analyzed data from about eight million Medicare fee-for-service beneficiaries who were hospitalized between 2005 and 2015 (this includes patient data for hospitalizations that occurred before the HRRP was announced and implemented).

Post-discharge mortality for heart failure had begun to increase prior to the HRRP, but accelerated after the program was established, according to the study. Additionally, the study noted that increased mortality among patients with pneumonia followed a period of stability prior to the HRRP’s implementation. Between 2005 and 2015, readmission rates among pneumonia and heart-failure patients declined.

In contrast to this study, the most recent Medicare Payment Advisory Commission (MedPAC) Report to the Congress, released on June 15, 2018, found that the HRRP helped reduce hospital readmission rates without raising emergency room visits or increasing mortality, which saved the program approximately $2 billion per year (see the June 26, 2018 Health Care Current).

Related: On December 14, The American Journal of Managed Care (AJMC) released a report comparing 2015 hospital grades on Medicare’s Hospital Compare website (for heart failure and acute myocardial infarction readmissions) with specific scores for excess readmissions under HRRP. Researchers did not find that the two measures for readmissions were correlated. According to the study, 92 percent of the 2,956 hospitals that reported heart failure grades on Hospital Compare were deemed “no different” from the national heart-failure readmissions rate. However, 49 percent of those hospitals scored “high” for heart-failure readmissions rates, and 87 percent received readmissions penalties. Of the 120 hospitals graded as “better” than the national rate for heart failure, none were scored as having excessive readmissions for the condition.

Last August, three crowdsourcing sites contrasted 2016 Hospital Compare data with online consumer scores for almost 3,000 hospitals. They found that more than half of the hospitals ranked highest for five key measures—including unexpected 30-day readmission rates—also had the highest patient-experience scores on Hospital Compare (see the September 18, 2018 Health Care Current).

Medicare’s bundled payment trial for joint replacements shows moderate savings

A randomized trial of a new Medicare bundled payment model for hip and knee replacement surgeries led to an average savings of $812 per procedure—a 3.1 percent cost-reduction—when compared to traditional payment methods, according to a January 2 study published in The New England Journal of Medicine.

In 2016, Medicare implemented the Comprehensive Care for Joint Replacement Model. Under this model, all hospitals in randomly selected cities are required to accept bundled payments for hip or knee-joint replacement surgeries. These hospitals receive either bonuses or penalties, depending on how much is spent on follow-up care for 90 days after a joint-replacement patient is discharged. Researchers analyzed data from the first two years of the program and compared costs associated with joint-replacement procedures in participating and non-participating hospitals. According to the study, most cost-savings were tied to a reduction in post-acute skilled-nursing care.

(Source: The New England Journal of Medicine, Two-Year Evaluation of Mandatory Bundled Payments for Joint Replacement, January 2, 2019)

State health care roundup

  • Several new health insurance laws that mandate benefits for certain health conditions, including prediabetes and lymphedema, will take effect in Maryland in 2019. Additional provisions taking effect include coverage of fertility-awareness instruction and fertility-preservation procedures, and compensation for local health departments that provide behavioral health services.
  • In Massachusetts, more people have signed up for health coverage through the state’s Health Connector insurance exchange for 2019. The state, which has an individual mandate for health-insurance coverage, reported a 9 percent increase over last year’s enrollment numbers.
  • Two Colorado lawmakers have proposed a pair of bills that would create a public-insurance option for the state. The first bill would instruct state agencies to create the infrastructure to establish an insurance program, while the second bill would instruct the state to immediately create a pilot public option for counties that have limited insurance choices and high premiums.
  • On December 21, Michigan became the sixth state to approve work requirements for its Medicaid program. CMS has said it will allow Michigan to charge premiums (up to 5 percent of income) for Medicaid enrollees who have incomes above the federal poverty level (FPL).
  • Due to the partial government shutdown, the judge overseeing the legality of Arkansas’ Medicaid work requirements agreed to extend the federal government’s deadline to respond to the challengers’ briefs.

Breaking Boundaries

Will innovative trends in wellness help us stick to our New Year’s resolutions?

Health care stakeholders and technology companies appear to be bullish on wellness heading into 2019. With millions of Americans making New Year’s resolutions, plenty of innovators are offering up new high-tech services and products that could make it easier for consumers to reach their wellness goals.

One major trend is to keep wellness and fitness at home. In the future, more of our health care needs will likely be taken care of at home, rather than in hospitals and doctor’s offices. Companies focused on wellness are banking on our homes becoming personal-wellness centers. For patients who need physical therapy for an injury or following surgery, Reflexion Health has a platform that connects patients to a virtual physical therapist (PT) who can lead prescribed therapy sessions. The company participated in randomized controlled trials that demonstrated how the program reduces costs and improves clinical outcomes. The trial compared adults who had total knee-replacement surgery and used the virtual system to a control group of patients who received traditional in-home or clinic-based PT services.

As the technology improves, and as consumers grow more accustomed to these kinds of services, some wellness-focused companies are exploring virtual platforms that allow consumers to do yoga, strength training, or other exercises in their homes and with the help of virtual or remote trainers. The home-fitness industry, which is valued at $14 billion, has come a long way from simply being based on equipment purchased at a store and used at home. Many new services have digital components that link the home viewer to virtual trainers or actual trainers with whom they can interface from remote locations. Some services stream live fitness classes. Syncing workout data with information collected by wearable devices lets consumers track their outcomes and progress—and could help maintain their engagement.

Smart refrigerators are also in development. These high-tech appliances will be able to analyze eating habits and nutritional values of food to provide feedback. They could also create recipes to make meal planning easier.

Helping consumers quit smoking is another big focus for some startups. Ro, a telemedicine company, recently launched a direct-to-consumer smoking cessation service. The platform integrates a prescription nicotine-replacement therapy and a behavioral app that tracks progress. Another company, Somatix, has a wearable body-motion detector that can tell when someone is smoking. It can send the user text messages to confirm and then use cognitive behavioral therapy to intervene. Carrot Inc. offers a carbon monoxide breath-sensing system for smoking-cessation programs that connects to a smart-phone app.

As Sarah Thomas discussed last month, we know that technology doesn’t always translate to better health outcomes. However, as these potential solutions become more available, we might able to move the needle on some of our most pressing preventable conditions.

(Source: Rina Raphael, The most promising health and wellness trends for 2019, Fast Company, December 26, 2018)

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