With rebates off the table, what’s next for drug pricing policy and regulation? has been saved
With rebates off the table, what’s next for drug pricing policy and regulation?
Health Care Current | July 23, 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.
With rebates off the table, what’s next for drug pricing policy and regulation?
By Sarah Thomas, managing director, Deloitte Center for Health Solutions, Deloitte Services LP
While summer is traditionally a rather slow time in Washington, D.C., the second week of July was anything but as the administration’s efforts to advance its Blueprint for Health initiative on drug prices ran into two major obstacles.
On July 8, a federal judge ruled against an administration policy that would have required pharmaceutical companies to disclose wholesale drug prices when advertising products on television. The pharmaceutical industry opposed this regulation, and several drug companies filed suit.1 The industry raised concerns about consumers’ ability to use information about list prices, which would not reflect the benefit design of their health plan or rebates and discounts. The court determined that the US Department of Health and Human Services (HHS) did not have the authority to regulate advertisements in this way.
On July 10, the administration announced it would not move forward with its plan to eliminate safe harbors for drug rebates in Medicare Part D and Medicaid. Not only would that policy likely have increased spending to federal and state budgets, it likely would have led to higher premiums for beneficiaries who pay into Medicare Part D and Medicare Advantage (MA) in 2020—an election year (see the July 16, 2019 Health Care Current). The decision to withdraw this proposed regulation directly benefited pharmacy benefit companies (PBMs) and health plans and might also mean less disruption for pharmaceutical companies. The pharmaceutical industry had supported eliminating safe harbors—especially if the policy eventually extended to the commercial market—but drug makers would have had to make major changes to their pricing and market-access strategies had it gone forward.
With two major policies off the table (at least for now), what else should we be tracking from the administration on drug pricing?
What’s left on the administration’s list?
While the administration is no longer pursuing two changes that it had hoped could reduce prescription drug costs, several other strategies are still in play.
Part B drugs:
- Step therapy—The administration is going forward with its regulation to allow MA plans to use step therapy for Medicare Part B. It started with a broader regulation that would also have allowed (but not required) Part D plans to have narrow formularies, but the administration backed away from that approach.
- International Price Index (IPI)—A draft regulation, which is still being reviewed at the Office of Management and Budget (OMB), would create a demonstration program to change the payment policy for Part B drugs in Medicare. This proposal has supporters and opponents. The previous administration had tried to advance an arguably less ambitious policy to improve the incentives in Part B and was not successful. The current administration’s proposal would test tying Part B drug prices to a composite of prices in other countries. Unlike the rebate rule, this one would save money for Medicare and beneficiaries, but without knowing more of the final details, the total amount of savings is unclear. However, it also raises a lot of complex economic, business, and operational issues as well as political philosophy questions.
Reimportation: While HHS Secretary Alex Azar had expressed concern about the impact reimported prescription drugs would have on costs, and last year tasked a work group to study the issue, he now appears to be more open to the idea.2 HHS already has the authority to allow for state reimportation if determined this can be done safely. So far, 17 states have introduced reimportation bills this year and three (Colorado, Florida, and Vermont) have enacted legislation that would allow them to reimport prescription drugs (see the June 18, 2019 Health Care Current). It’s worth noting that Florida’s population is 21.3 million and Canada’s is 37.4 million.3 If Florida residents began ordering all of their drugs from Canada, the volume could have an overwhelming effect on pricing and supply equilibrium.
When the idea of reimportation came up in the past, the pharmaceutical industry successfully raised safety issues that resonate with some consumers. In the US, track-and-trace regulations have been critical to helping keep counterfeit drugs from entering the market. Drug companies might continue to voice concerns about assuring safety—or demonstrate that not all imported drugs are cheaper. We also see a long list of logistical questions that states and suppliers would likely need to resolve before a reimportation program could be implemented.
Trade policy: One policy that has had less visibility than the others is in the US trade agreement with Mexico and Canada, which would maintain exclusivity for pharmaceuticals through patent law. That agreement has not yet been ratified, and consumer groups are asking the administration to reconsider provisions to shorten the period, which would allow for more competition from biosimilars. Trade with China is another important issue given that many of the active pharmaceutical ingredients (APIs) that drug companies use for their products come from China. Trade issues with China could further increase drug prices.
There have been some rumors that the president is considering more extensive policies—including broader application of the IPI—but I’d call this speculative.
Are we likely to see any action from Congress?
After countless hearings on drug pricing, which included panels of pharmaceutical and PBM leaders, members of Congress have put forward a variety of legislative policies. Examples of these (there have been many more) include legislation that—if enacted—would:
- Require companies to publicly report large price increases (Prescription Drug Sunshine, Transparency, Accountability and Reporting Act or the “Prescription Drug STAR Act”)
- Redesign the Part D benefit to reduce out-of-pocket spending for beneficiaries, a policy popular with both consumers and companies (draft legislation introduced by the House Ways and Means Committee)
- Add inflation caps to drugs in the Medicare Part B and Part D programs (Senate Finance Committee bill to require drug manufacturers to provide rebates for drugs furnished under Medicare Part B)
- Reduce impediments to allowing generics and biosimilars to come to market (Creating and Restoring Equal Access to Equivalent Samples Act of 2019 or “CREATES” Act)
Whether any of these policies will move forward to the president’s desk is still unclear. Congress has two more weeks before summer recess—and only a few months left in the legislative session after it returns. During that time, the focus of other business will be strong—particularly around the federal debt limit and keeping the government open. Of course, after the end of this year, we will find ourselves in an election year. Even if some of these policies do move forward, it’s unclear whether they will truly address drug pricing rather than just shifting costs.
What might we see from states, companies, and PBMs?
State legislatures have been actively working on—and enacting—a wide range of policies including efforts to improve price transparency and to encourage more aggressive use of formulary tools.
We have seen some interesting activity on the industry side. Several PBMs, for example, are trying out a rebate-at-the-point-of-service model, or are establishing formularies that reduce the influence of rebates, according to our recent report on optimizing drug market access. One PBM, for example, has developed a formulary that attempts to shift away from products with high list prices and high rebates toward products with lower list prices.4
Some drug companies are voluntarily making pricing information available to consumers and have pledged not to raise prices above a certain percentage. However, in the absence of government action, it is unclear how aggressive the private sector will be in addressing drug costs.
Despite the administration’s recent setbacks, the focus on drug prices is not likely to go away. Consumers continue to cite the high cost of drugs as a major reason for thinking that the US health care system is not working well for them. If neither the administration nor Congress put forward policies that address these concerns this year, the issue is likely to continue to be the point of political and policy debates.
Amazing and innovative therapies that cure diseases are coming across the finish line, but they often carry high price-tags. We are seeing a lot of interesting new payment models emerging that are trying to improve incentives and better reflect the value of drugs. That said, I expect that figuring out a balance between encouraging innovation and making therapies affordable will be an ongoing challenge for the administration, pharmaceutical industry, and many other stakeholders.
1 Amgen, Merck, and Eli Lilly sue over Trump administration policy to require drug prices in TV ads, STAT, June 14, 2019 (https://www.statnews.com/2019/06/14/lawsuit-drug-prices-tv-ads/)
2 HHS Secretary Azar Directs FDA to Establish Working Group on Drug Importation to Address Price Spikes, HHS, July 19, 2018 ( https://www.hhs.gov/about/news/2018/07/19/hhs-secretary-azar-directs-fda-establish-working-group-drug-importation-address-price-spikes.html)
3 National Public Radio, Florida wants to import medicine from Canada, June 18, 20198 (https://www.npr.org/sections/health-shots/2019/06/18/733483431/florida-wants-to-import-medicine-from-canada-but-how-would-that-work)
4 CISION PR Newswire, “Express Scripts introduces novel formulary built for evolution of drug pricing,” November 13, 2018.
In the News
House votes to repeal ‘Cadillac tax’
On July 17, the House voted to repeal an excise tax on high-cost, employer-sponsored health coverage known as the “Cadillac tax.” This tax was part of the Affordable Care Act (ACA) but had never been implemented. In December 2015, Congress voted to delay the tax until 2020—two years later than the original date called for by the ACA (see the January 26, 2016 Health Care Current). In 2018, the Cadillac tax was again delayed, this time until 2022. In 2022, individual health coverage costing more than $11,200 a year ($30,100 for family coverage) would have triggered the tax.
The House bill to repeal the tax had strong bipartisan support and was praised by the trade group America's Health Insurance Plans (AHIP). In the Senate, 42 lawmakers signed onto the companion bill. Stakeholders who oppose repealing the tax, notably the nonpartisan think tank Committee for a Responsible Federal Budget (CRFPB), worry that such a move could stymie efforts to reform employer tax breaks.
It is unclear yet whether the Senate will take up the bill. Because the tax is a future source of revenue, its repeal would increase the Federal deficit.
Number of physicians participating in APMs doubled in 2018, according to CMS
More than 183,300 Qualifying APM Participants (QPs) participated in advanced payment models (APMs) in 2018—nearly double the 99,076 participants from the previous year, according to preliminary data from the US Centers for Medicare and Medicaid Services (CMS). Eligible physicians who become QPs receive a 5 percent bonus and are excluded from the Merit based Incentive Payment System (MIPS) reporting requirements. Several other findings emerged from the recent data on the Medicare Quality Payment Program (QPP):
- 98.4 percent of eligible physicians participated in MIPS, exceeding the 2017 participation rate of 95 percent
- 89.2 percent of eligible physicians in small practices participated in MIPS
- 85 percent of small practices exceeded the scoring threshold for a positive payment adjustment
CMS Administrator Seema Verma attributes the increase in MIPS participation to new flexibilities given to physicians, which began during the 2018 performance year, and to the increased number of Medicare beneficiaries.
(Source: CMS, Quality Payment Program Releases 2017 Physician Compare Data and Sees Increases in Clinician Participation Rates and Success for 2018, July 11, 2019)
IRS expands list of preventive services exempt from HDHP deductible, increasing coverage for chronic care
On July 17, the Internal Revenue Service (IRS) published a notice expanding the list of preventive services that can be covered by a health savings account (HSA)-eligible high-deductible health plan (HDHP) outside of the annual deductible. Specifically, the guidance modifies safe-harbor provisions to allow HDHPs to define—and cover—certain chronic-disease management services as preventive. Such services are exempt from the health plan’s deductible if the following conditions are met:
- The service is low-cost
- The service is highly cost-effective
- There is strong evidence that the service can prevent the exacerbation of a chronic condition or development of a secondary condition that would otherwise require higher-cost medical services
Various studies have concluded that the cost barriers created by high deductibles can cause patients to delay or forgo both necessary and unnecessary medical services. In this new IRS guidance, the administration acknowledges that some individuals who have chronic conditions might fail to seek necessary health maintenance services due to high out-of-pocket costs prior to meeting their plan deductibles. This could worsen a patient’s condition and potentially lead to more intensive and costly medical interventions.
Background: On June 24, the White House issued an executive order, “Improving Price and Quality Transparency in American Healthcare to Put Patients First.” Among other things, the executive order calls for guidance expanding IRS’s safe-harbor provisions for HDHP’s pre-deductible coverage of preventative services to include chronic-care management (see the July 2, 2019 My Take). For more information on HDHPs and the role of HSAs, see our report Health Savings Accounts in the Individual Market.
(Source: IRS, Additional Preventive Care Benefits Permitted to be Provided by a High Deductible Health Plan Under § 223, July 17, 2019)
Senate ‘surprise billing’ legislation could save money for the government
On July 16, the Congressional Budget Office (CBO) released a score for the Senate Health, Education, Labor & Pensions (HELP) Committee’s bill to curb “surprise billing” for medical services (see the June 25, 2019 Health Care Current). According to CBO, the portion of the legislation specifically addressing surprise medical bills would increase revenue by $23.8 billion and reduce spending by $1.1 billion—resulting in total savings of $24.9 billion through 2029. To address surprise medical bills, which can occur when a patient is unable to choose an in-network provider (such as during an emergency), the bill requires health plans to pay a median in-network rate for out-of-network health services. It also bans balance billing, which can occur when a provider bills a patient for the difference between an insurer’s payment and the provider’s charges.
Senate HELP Committee Chair Lamar Alexander (R-Tenn.) and Ranking Member Patty Murray (D-Wash.) released a discussion draft of the bill in May (see the June 4, 2019 Health Care Current). In June, the HELP Committee’s subcommittee on health approved the bill by a 20-3 vote. In a prepared statement released July 15, Alexander urged the Senate to pass the bill and send to the president for his signature this month.
The legislation also has other provisions targeted at transparency, drug rebates, and public health, but these did not generate as high budget scores as the surprise billing provisions.
(Source: Congressional Budget Office Cost Estimate, July 16, 2019)
Premiums for ACA-compliant plans increased modestly for 2019
The average monthly premium for individuals who purchased unsubsidized ACA-compliant coverage increased modestly to $448 for the 2019 plan year—a 2 percent increase from the previous plan year—according to a recent report from online insurance broker eHealth, Inc. Since the 2014 open-enrollment period, individual plan premiums have increased by nearly 65 percent. Similarly, average monthly premiums for family coverage decreased by 1 percent—to $1,154—between 2018 and 2019, which is a 73 percent increase from 2014. The report details several other findings from the 2019 open-enrollment period, including:
- The average monthly premium for two-person families surpassed $1,000 for the first time, reaching $1,002
- The average deductible for individual coverage decreased by 6 percent—to $4,320—from the 2018 plan year
- The average deductible for family coverage increased by 8 percent—to $8,071—from the 2018 plan year
The report is based on 7,000 unsubsidized individual and family health plans sold by insurers via eHealth’s website between November 1 and December 15, 2018.
(Source: eHealth, Health Insurance Index Report for the 2019 Open Enrollment Period, July 2019)
Which emerging technologies are most likely to change the world?
The World Economic Forum recently compiled a list of the top 10 emerging technologies that will likely change the world. Many of the technologies cited in the report are coming from the life sciences and health care sectors. While some are more directly related to health than others, all have the potential to improve health outcomes.
Biodegradable plastics, for example, could reduce the amount of plastics that wind up in landfills or our oceans. One breakthrough idea involves using cellulose or lignin from plant waste to create a plastic-like material. Smarter fertilizers—composed of ecologically friendly materials that can slowly release nutrients when needed—could improve our food supply. Other technologies involve advanced food tracking and packaging, which could help us locate the source of food-borne illnesses immediately, rather than the days or weeks it can take under our current system (and sometimes we are not able to identify the exact source). Sensors in packaging could alert consumers that food is about to spoil, which could reduce food waste.
The technologies directly affecting health care and life sciences include:
- Social robots: Robots are becoming more advanced and can recognize voices, faces, and emotions. They also can interpret speech patterns and gestures and make eye contact. These social robots could help care for seniors.
- Metalenses: The miniaturization of lenses used for medical imaging devices has been ongoing. What once required a giant computer can now fit on phone. Advances in physics have led to miniaturized, lighter alternatives to established lenses, called metalenses. These tiny, thin, flat lenses could replace existing bulky glass lenses and allow further miniaturization in sensors and other devices.
- Disordered proteins as drug targets: Intrinsically disordered proteins are proteins that can cause diseases such as cancer. These proteins are hard to treat because of their flexible structure and ability to change shape. Scientists have found a way to prevent their shape-shifting long enough for treatment to take effect.
- Collaborative telepresence: A mix of augmented reality, virtual reality, 5G networks, and advanced sensors could take today’s typical conference call to a new level. People in different locations might exchange handshakes and feel they are in the same room. For health care, it could mean that medical practitioners would be able to work remotely with patients as if they were in the same room.
RELATED: To help life sciences and health care businesses navigate digital disruption, Deloitte’s latest Tech Trends series explores the top technologies—from blockchain to digital reality to the no-collar workforce—that are shaping strategic and operational transformations and redefining life sciences and health care.
(Source: Johnny Wood, These are the top 10 emerging technologies of 2019, World Economic Forum, July 2, 2019)