The administration’s blueprint to lower drug prices and reduce consumer costs is likely to be a complicated game of Risk

Health Care Current | June 19, 2018

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

The administration’s blueprint to lower drug prices and reduce consumer costs is likely to be a complicated game of Risk

By Anne Phelps, principal, US Health Care Regulatory Leader, Deloitte & Touche LLP

Remember the game of Risk? My older brother and his friends used to play it for days—much to my annoyance because I didn’t understand it and wasn’t allowed to play with them. Multiple players sit around a board game making strategic moves that are part diplomacy and part conquest. The game is based on some fairly simple rules, but it incorporates a lot of complex interactions. Setting and negotiating drug prices has always reminded me of a complicated board game where multiple players make strategic moves to reach the end of the game—and patients, much like me as a little sister, do not understand and can’t play the game.

Last month, the White House and the Secretary of Health and Human Services (HHS) released a “blueprint” to lower drug prices and to reduce out-of-pocket costs for consumers (see the May 22, 2018 Health Care Current). The report states that there are four major challenges facing our health care system today:

  1. High list prices for drugs
  2. Seniors and government programs that pay too much for drugs because they lack the latest negotiating tools
  3. High and rising out-of-pocket costs for consumers
  4. Foreign governments that are able to access innovative drugs without investing in innovation

The administration is reviewing strategies to improve competition, achieve better negotiations, create incentives for lowering list prices, and achieve lower out-of-pocket costs for patients.

In essence, HHS wants to change the rules of the game that will affect the complex interactions among the mix of players in our health care market. And like any game, timing is everything. So, what are the moves, which players will feel the impact, and what can we expect when it comes to the timing of the moves?

Changing the game rules: How might players be affected?

The first powerful players in this updated game are the pharmaceutical and medical device manufacturers. Under existing law, HHS does not have the regulatory authority to negotiate directly with manufacturers to set drug prices. Thus, the significant proposals HHS has put forth include reforming Medicare Part D to give health plans and Part D plans more power when negotiating with manufacturers. This could include, for example, examining whether certain Medicare Part B drugs could be negotiated by Part D plans, and fostering value-based purchasing in federal programs (including indication-based pricing). HHS is driving toward a system where drugs and devices should be viewed holistically within the context of the total cost and value of treating conditions.

Given that we have multiple players in the game, the potential impact these new policies could have on pharmacy benefit managers (PBMs), health plans, hospitals, and pharmacy retailers will be just as interesting. Here’s how I see this playing out:

  • PBMs typically act on behalf of health plans or self-insured employers to negotiate with pharmaceutical manufacturers. Part of the negotiation process commonly involves complex drug rebates among the players. In addition to policies that affect pricing, HHS has also proposed making these rebates and lower-cost alternatives more transparent—and passing that savings on to the consumer. There has been talk about going beyond transparency to eliminate or reduce rebates, which are a key component of the PBM business model.1 However, shifting Part B plans into Part D, then limiting rebates, could change the rules of the game. Those rebates have historically driven negotiations with manufacturers.
  • Health plans play a major role in negotiating rebates, establishing drug formularies and benefit packages, and setting premiums and out-of-pocket costs for consumers. Health plans that offer Part D might implement policies around including Part B drugs and changing benefit designs. Moreover, HHS is considering which policy levers could strengthen the value-based contracts that health plans might be interested in pursuing, in partnership with providers and pharmaceutical and device companies.1
  • Hospitals and physicians are a bit like the unexpected players in a game. HHS is using its broad regulatory authority to affect change through hospital and physician reimbursement policies. This includes examining whether certain Medicare Part B drugs could be negotiated by Part D plans, fostering value-based purchasing in federal programs, requiring site neutrality in payment, and reforming the 340B drug-discount program. For health systems that take care of low-income patients, the 340B program lets them pay less for drugs than other health systems.1 If this program was changed, those health systems might pay more for drugs than they do today.
  • Some pharmacy retailers, like some health plans, have their own PBM. Based on some of the merger proposals, we could see even tighter integration between these players. It is likely that pharmacy retailers are considering how the blueprint’s discussion of confidentially provisions and other directives could impact their business—particularly as it relates to prices pharmacists can charge patients based on their health insurance.

Blueprint outlines the short and long game

The blueprint looks first at immediate or short-term actions to be taken by HHS. It then offers other ideas that need feedback, or require legislation because certain actions go beyond the regulatory authority of HHS. The May release of the request for information on drug-pricing proposals included a 60-day comment period, which closes on July 16. This timeframe gives the administration a uniquely-timed opportunity to include some proposals in the roster of Medicare payment rules for 2019. The US Centers for Medicare and Medicaid Services (CMS) is slated to release the rules between August and November.

As I reflect on the possibility of regulators using various payment updates to change the game rules for drug pricing policies, it reinforces the potential to impact the complex interactions of health care players beyond drug makers and PBMs. Health systems, providers, health plans, and other stakeholders could see significant effects on their own businesses and might begin to make their own strategic moves, reminding me of how extremely interconnected and complicated this game of Risk is.

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1 Department of Health and Human Services. American Patients First: The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, May 2018.


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In the news

FDA issues guidance to encourage competitive contracting, reduce drug pricing

On June 12, the US Food and Drug Administration (FDA) issued two final guidance documents to encourage competitive contracting and to lower drug prices:

  • The first document, Drug and Device Manufacturer Communications with Payors, Formulary Committees, and Similar Entities—Questions and Answers, updates a draft from the previous administration that outlines how drug and device manufacturers can share off-label health care economic information with purchasing entities such as hospitals and health plans. The guidance extends to both unapproved products and unapproved uses of cleared drugs or devices.
  • The second document, Medical Product Communications That Are Consistent With the FDA-Required Labeling, provides the FDA’s views on manufacturers’ sharing of information that is not specifically included on their product's FDA-approved label.

The lack of clarity regarding these communications was noted as a barrier to value-based payment in the Deloitte Center for Health Solution’s report, Delivering medical innovation in a value-based world.

NIH: $500M to combat opioid crisis

The National Institutes of Health (NIH) on June 12 detailed how the agency intends to spend the $500 million it received from Congress to target the opioid crisis. Under its Helping to End Addiction Long-term (HEAL) initiative, launched in April, NIH divides its approach into two tracks: (1) developing better treatments for patients with opioid use disorder (OUD), and (2) finding new methods for patient pain management, particularly for first-time treatment. According to the outline, critical components of the HEAL plan for 2018 include:

  • Developing extended-release and longer-acting OUD medications and new therapies to counteract opioid-induced respiratory depression
  • Reformulating medication-assisted treatments (MAT) to promote adherence to recovery programs for patients who are taking OUD medications
  • Supporting the discovery and development of targets for non-addictive pain management and therapies to treat those targets
  • Collecting data to determine factors that cause acute pain to transition to chronic pain and how to block this transition
  • Partnering with public and private groups to test effective treatments for pain and addiction using HEAL’s clinical trial networks
  • Expanding NIH’s Advancing Clinical Trials in Neonatal Opioid Withdrawal syndrome (ACT NOW) to assess its prevalence and to determine best practices for the clinical care of infants who have this condition
  • Advancing new models of care for OUD and testing integrated, evidence-based interventions within health care and criminal-justice settings through the multi-site HEALing Communities initiative

CMS urges Medicaid directors to use telemedicine to address opioid crisis, among other strategies

In a June 11 letter to state Medicaid directors, CMS offered guidance for using the program to combat the opioid crisis. Among other issues, the letter addressed covering services for infants born with neonatal abstinence syndrome (NAS) and the use of telemedicine. CMS encouraged state Medicaid directors to use existing federal funding to support health IT initiatives that are designed to fight the opioid crisis. The letter also suggested that Medicaid programs integrate prescription drug-monitoring program (PDMP) data into electronic health record (EHR) systems to reduce the burden on hospitals and physicians and to enhance interstate information exchange.

NASHP report offers initial findings from Vermont’s next-generation ACO

It has been six months since Vermont’s Green Mountain Board approved the state’s all-payer accountable care organization (ACO). A report published on the National Academy for State Health Policy (NASHP) website this month offers a look into early lessons from the state’s ACO model. The report suggests ways stakeholders—including health plans, health systems, patients, and policymakers—can help the ACO achieve its goals. Vermont’s ACO model went into effect on January 1, 2017, and will conclude on December 31, 2022. According to the report, this type of model would likely be most effective in small or rural states. It could also work at the county, regional, or municipal level.

FDA, CMS discuss payment demonstration to reduce drug-resistant infections

In statements released June 12, FDA Commissioner Scott Gottlieb proposed ways his agency—along with CMS and other federal agencies—could develop reimbursement models for new antibiotics. Specifically, the agencies are interested in antibiotics for public health concerns, such as those that can fight drug-resistant infections. Each year, at least two million people in the US become infected with bacteria that is resistant to antibiotics, according to the FDA.

The FDA’s press release says the demonstration could replace the existing per-use payment model with a licensing model. Under such a model, “the acute care institutions that are most likely to prescribe these medicines would pay a fixed licensing fee for access to the drug, which would offer them the right to use a certain number of annual doses,” the agency explained. The FDA and CMS are discussing plans to test this model as a demonstration project.

Gottlieb noted that the FDA wants to separate the return-on-investment for antimicrobial drugs from the volume of drugs used. Using antibiotics sparingly can help reduce the likelihood of developing a resistance to the drugs, he suggested. But this could create some concern among drug companies when it comes to recoupment of development costs and financial incentives to invest in new drugs. Gottlieb’s statements accompanied the June 12 release of a draft guidance on the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD), which was established under the 21st Century Cures Act to help bring new antibiotics to market.

AMA encourages training medical students on EHRs

At its annual meeting this month, the American Medical Association (AMA) House of Delegates adopted a policy to teach medical students to use and navigate electronic health records (EHRs). It is critical for future physicians to know how to use EHRs, and not knowing how to operate them can keep new residents from using time efficiently, the AMA stated on its website.

The training guidelines encourage medical schools to solicit feedback from their students about the value and effectiveness of what they’ve been taught. The AMA recommended medical schools and residency programs to provide resources to faculty that can help them demonstrate how to use the platforms.

The AMA’s guideline comes amid a slew of federal efforts to promote EHR use and interoperability. For instance, CMS proposed a rule in April that would make it easier for a patient’s doctors to share EHR data with each other (see the May 1, 2018 Health Care Current).

Rising medical costs could push 2019 premiums higher

Rising health care costs—combined with recent legislative and regulatory changes—could drive rate changes in the individual market for 2019, according the American Academy of Actuaries. An issue brief released this month highlights some of the key factors that the organization expects will influence premium rates. These include:

  • Higher costs for medical services and specialty drugs 
  • The elimination of the individual-mandate penalty
  • Expanded use of short-term coverage and association health plans 
  • Health plan assumptions regarding the composition of risk pools 
  • State actions to implement reinsurance programs, impose individual mandate penalties, or enact rules that allow or prohibit alternative coverage options

According to the brief, the suspended health insurance provider fee could help offset a portion of the anticipated premium increases.

NASBO report: state spending on Medicaid is expected to slow in the short-term

The National Association of State Budget Officers (NASBO) published a report on June 14 projecting state Medicaid spending to slow during 2019. According to the report, the median rate of state Medicaid spending is anticipated to be 4.5 percent in 2018, with total spending rising to $3.6 billion. However, this growth rate is expected to slow to 1.5 percent in 2019. NASBO uses governors’ budgets to develop its assessments.

Health care costs are expected to grow at a faster rate than revenue, which can put a strain on state budgets. In most states, Medicaid is the second-largest expenditure, and the Congressional Budget Office (CBO) predicts overall Medicaid costs will grow by a historic rate of 5.5 percent in future years. States have implemented several methods to control program costs, such as passing laws to reduce medication prices and shifting Medicaid programs into managed care. As of June 2018, 33 states and the District of Columbia have expanded their Medicaid programs under the Affordable Care Act (ACA). States began to pay for 5 percent of the expansion cost in 2017, and by 2020, states will pay a maximum 10 percent share of the expansion.

According to NASBO, state fiscal conditions are improving and stabilizing compared to this time last year. States are collecting more general fund revenue, which gives governors greater flexibility for spending. Additionally, most states are meeting or exceeding revenue projections for 2018 due to job growth and favorable stock-market performance in states that rely heavily on the energy sector.

Appeals court rules government not required to make risk-corridor payments to health plans

On June 14, the US Court of Appeals for the Federal Circuit ruled that the federal government does not need to pay billions of dollars in risk-corridor funds to health plans. The ACA established the risk-corridor program to offset potential plan losses—and to discourage premium hikes due to risk-pool uncertainty—during the first three years of the health insurance exchanges (see the June 12, 2018 Health Care Current). Three dozen health plans claimed the government collectively owed them more than $12 billion in payments.

The court acknowledged that the ACA provision requiring HHS to establish risk-corridor payments is mandatory. However, the court determined the payments are not necessary since Congress required the program to be budget-neutral.

Breaking Boundaries

New research shows less aggressive breast cancer treatment is an option for many patients

Encouraging results from different studies published in June highlight the progress researchers are making in developing less-invasive treatment options for women with breast cancer. In the 1950s and 1960s, radical mastectomies were thought to be the most effective means to treat breast cancer. By the 1980s, chemotherapy following surgery lowered the risk of recurrence and death for many women. In recent years, drug therapies have evolved, which allows for more personalized, and sometimes less invasive, treatments.

The June 4 issue of the New England Journal of Medicine featured findings from the Trial Assigning Individualized Options for Treatment (Rx), or the TAILORx trial. Results show no benefit from chemotherapy for 70 percent of women who had the most common type of breast cancer. For women diagnosed in the early stages, treatment with hormone therapy alone was just as effective. The data show that using a genetic test to assess the risk of cancer recurrence could help physicians identify patients who do not need to be treated with chemotherapy.

More than 10,000 women enrolled in the international clinical trial, and were each assigned a risk score for cancer recurrence based on information about the type of cancer in their tumors. Patients in the low-risk range received hormone therapy only. Those in the high-risk range were treated with hormone therapy and chemotherapy, and those in the intermediate-risk range were randomly assigned either hormone treatment only or hormone treatment plus chemotherapy. For most patients in the intermediate-risk group, the findings showed no benefit for chemotherapy combined with hormone therapy. According to the authors, these results suggest that chemotherapy could be avoided in about 70 percent of women who have the most common form of breast cancer.

Also in June, the journal Nature Medicine featured an article about the successful outcomes of a patient with metastatic breast cancer whose prior treatments had failed. This study focused only on one patient: after being treated with an immunotherapy regimen, she has been cancer-free for two and a half years. A team working at the National Cancer Institute isolated and reactivated the patient’s cancer-specific T-cells in a process that targeted certain proteins on the cancer gene. There have been two other cases over the years where this type of treatment has succeeded—one patient had advanced liver cancer and the other had advanced colon cancer. The breast cancer case strengthens hope among researchers that identifying the right antigen on the cancer (which can be targeted by the immune system) can have significant results, though larger-scale trials are necessary.

What does this mean for the future of cancer diagnosis and treatment?

As the field of targeted therapies advances, different types of genetic and other targeted testing are likely to become more common for patients who are diagnosed with cancer. Researchers are also pursuing blood tests for diagnosing cancer, as well as for monitoring treatments, rather than relying on more invasive tissue biopsies. Scientists have long known that tumors shed molecules and cells into bodily fluids, and in recent years, they have been able to analyze these molecules and cells to learn more about the tumors. Research is increasingly focused on analyzing tumor DNA in blood, which is known as circulating tumor DNA. Several liquid biopsy tests that use this method are in clinical development. The research has much potential, but the science is still evolving; many scientists would like to see more evidence of the test’s efficacy.

Other research is focusing on advancing immunotherapy. Researchers have found that combining drugs with different targets can have positive results, potentially leading to lower mortality or better quality of life for some patients. While chemotherapy is designed to kill fast-growing cancer cells, more targeted therapies home in on specific weaknesses within the cancer cells.

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