Perspectives

Many lawmakers want to address drug pricing, but can they agree on a solution?

Health Care Current | November 26, 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

Many lawmakers want to address drug pricing, but can they agree on a solution?

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

Several months ago, I offered my take on where we were on prescription drug pricing regulation and policy changes. At that point, the administration had decided to pull its proposed regulation on drug rebates, which would have altered business practices between drug companies and pharmacy benefit managers (PBMs). This policy would have meant lower drug costs for some consumers and higher costs for others. It also would have increased drug benefit premiums for Medicare beneficiaries, which might have been difficult to sell to constituents as a big win.

While that policy now seems like a dim memory, two new PBM bills did pass the House. One of them would require the US Centers for Medicare and Medicaid Services (CMS) to collect and publish information from PBMs about their generic dispensing rates, aggregate drug discounts and rebates by therapeutic area, and payments between PBMs, health plans, and pharmacies. A second bill would provide rebate data to the Medicare Payment Advisory Commission (MedPAC) and the Medicaid and CHIP Payment and Access Commission (MACPAC).

While the earlier proposals would have done away with rebates as we know them, these two bills could change the rules of drug pricing but might not replace the existing system. Depending on how the regulations are written, PBMs, manufacturers, and payers would need to revisit their pricing and formulary placement strategies. This could shift demand among consumers and impact access to some drugs, but the market would likely continue to function as it has.

Lawmakers shift focus from PBMs to pharmaceutical companies

Other bills on Capitol Hill, one in the House and the other in the Senate, seek to change the Medicare Part D benefit and reduce the amount enrollees pay. Depending on the outcome of the elections next November, either bill could become a starting place for whichever parties control the House, Senate, and White House. Much of the press coverage has focused on how each bill would approach payment—and I’ll get to that in a moment. But I find it interesting that both bills would also affect coverage, which could directly help the subset of Medicare beneficiaries who face substantial out-of-pocket costs today.

Bills would change Medicare Part D

Medicare Part D coverage is a popular program—almost 72 percent of Medicare beneficiaries choose to pay a premium to a Part D plan. Premiums, which are paid out of Social Security checks, average about $35 per month, and low-income seniors receive financial help to cover the expense. However, Medicare beneficiaries who are not low-income but use high-cost drugs might spend a lot out of their own pockets. Beneficiaries face a deductible and are responsible for cost nsharing for covered drugs—with some expensive drugs on a formulary tier that requires higher cost sharing. Beneficiaries also pay more in the so-called donut hole/coverage gap, as well as covering 5 percent of a drug’s cost after meeting the catastrophic threshold.

nov 26 graph

Both bills would eliminate cost sharing for beneficiaries in the catastrophic phase, but the House bill would reduce out-of-pocket spending more than the Senate bill. Each bill takes a different approach toward restructuring cost-sharing between the government, the drug company, the beneficiary, and the plan (which would presumably pass on to premiums). The bottom line is that beneficiaries would have caps on their total out-of-pocket spending. The Senate bill, which calls for more payments from drug companies, would save federal dollars.

Setting prices for drugs
Both the Senate and the House bills rely primarily on savings through regulatory price setting rather than competition to reduce the federal dollars spent on drugs⁠—through both the Part B and Part D programs. A significant difference between the two bills is the approach they take toward pricing formulas for Medicare as well as other markets.

The Senate bill would cap year-to-year price increases for Medicare Part D and change the payment formula for Part B drugs and caps increases in that program.

The House bill, by contrast, would require drug companies to negotiate prices for up to 250 drugs. Regardless of the negotiated price, the payment for a drug could not exceed the international average price, which is based on pricing data from Australia, Canada, France, Japan, and the United Kingdom. These prices would apply to Medicare, Medicare Advantage plans, and commercial payers (see the September 24, 2019 Health Care Current).

The administration had proposed a pilot that would have used an international average to pay for Part B drugs. That program has not been finalized yet, and may itself be evolving, according to the Secretary of HHS.

Senate vs. House: How did CBO score the bills?
The Congressional Budget Office (CBO) estimates that, over 10 years, the Senate bill would save the government:

  • $10.7 billion for Part B drugs
  • $34.6 billion for the Part D benefit redesign
  • $57 billion for Part D drugs
  • $12 billion through changes to Medicaid formulas1

For the House bill, savings to the government could be much larger. CBO estimates the bill would reduce Part B and Part D drug spending by $345 billion over 10 years. In addition to estimating cost savings, CBO also said:

  • The lower prices under the bill would immediately reduce current and expected future revenues for drug manufacturers, change manufacturers’ incentives, and “have broad effects on the drug market.”
  • Enactment of the international-pricing mechanism would likely increase drug prices in other countries.
  • “In the short-term, lower prices would increase the use of drugs and improve people’s health.” In the longer term, however, the agency said the bill would likely cause drug manufacturers to spend less on research and development (R&D), which would mean fewer new drugs being released.2 CBO estimated that the House bill would mean between eight and 15 drugs would come to market over the next 10 years, while 300 new drugs would be marketed over that period—about a 4 percent reduction in the rate of innovation.3

If the House and Senate bills change in the coming weeks and months, CBO scoring might change.

Do either of these bills have legs?
The House is expected to vote on its drug bill in November. While this bill might pass a House vote, it remains to be seen if there is room for a solution between these two approaches. Lawmakers and the public are considering the issue that CBO’s commentary also notes—where is the right balance between investment into drug R&D and affordability for individuals and purchasers? Stay tuned.

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1 The Prescription Drug Pricing Reduction Act of 2019, CBO, July 24, 2019
2 Letter to the House Committee on Energy and Commerce, CBO, October 11, 2019
3 CBO estimate on Pelosi drug bill misses its long-term impact on health, October 16, 2019

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In the News

White House regulatory agenda delays interoperability final rules, suggest others may come out soon

CMS’s final interoperability rule, which was expected this month, has been delayed until March 2022, according to the White House Office of Management and Budget’s (OMB’s) November 20 regulatory agenda (see the February 19, 2019 Health Care Current). Under CMS’s interoperability rule, Medicaid, the Children’s Health Insurance Program (CHIP), Medicare Advantage (MA), and plans purchased through the Affordable Care Act’s (ACA’s) health insurance exchanges would have to ensure patient data could be accessed via application programming interfaces (APIs) by the following year.

OMB’s unified regulatory agenda for fall 2019 provides estimates for regulations the administration plans to release during the coming year. The agenda also notes that the final HHS rule preventing information-blocking among health providers will likely be released this month. That rule, which was proposed in February, seeks to advance interoperability adoption by modifying IT certification criteria (see the July 2, 2019 My Take). Several stakeholder groups previously urged HHS to delay implementation of this rule (see the September 24, 2019 Health Care Current).

OMB’s agenda also provides updates on the timing of drug-pricing regulations. One proposal expected to be out this month is a demonstration that ties the price of physician-administered drugs covered under the Medicare Part B program to an index of lower prices paid in other countries. The agenda estimates a January 2020 release date for a proposed rule to create a pilot program allowing states, drug wholesalers, and pharmacists to begin reimporting prescription drugs from Canada (see the August 6, 2019 Health Care Current).

(Source: Office of Management and Budget, Office of Information and Regulatory Affairs, Fall 2019 Agency Statements of Regulatory Priorities, Statement of Regulatory Priorities for Fiscal Year 2020, US Department of Health and Human Services, November 20, 2019)

Congress passes continuing budget resolution that funds extenders, delays DSH cuts

On November 19, the House approved a short-term spending fix to prevent a government shutdown. The Senate passed the continuing resolution (CR) on November 21. In addition to funding the government through December 20, the CR extends funding for various policies, funding for which would otherwise lapse, including community health centers, a contract with the National Quality Forum (NQF) to support quality-measure development in Medicare and Medicaid, and State Health Insurance Assistance Programs (SHIP).

The CR also delays $4 billion in cuts to Medicaid disproportionate-share hospital (DSH) payments until December 20. Several hospital groups, including the American Hospital Association (AHA), praised the delays and asked for a longer-term fix—at least two years. CMS released its final DSH-cut calculation in September, which would reduce 2020 payments by $4 billion and subsequent payments by $8 billion until 2025, if implemented (see the October 1, 2019 Health Care Current). Several lawmakers have called for DSH payment reform. In September, the House Energy and Commerce Committee passed a bipartisan bill seeking to repeal DSH cuts for 2020 and 2021 and reduce annual reductions from $8 billion to $4 billion, starting in 2022.

Improper-payment rate in Medicare declined in 2019, CMS says

The 2019 improper-payment rate in traditional Medicare fell to its lowest point since 2010, CMS said in a prepared statement November 18. According to the agency, the improper-payment rate for fiscal year (FY) 2019 was 7.25 percent, a decrease from 8.12 percent the prior year. Additionally, FY 2019 is the third consecutive year the improper-payment rate for traditional—or fee-for-service (FFS)—Medicare fell below 10 percent, according to CMS.

The agency also noted that improper payments fell by more than $7 billion to $28.9 billion from FY 2017 to 2019. According to CMS, several documentation changes and initiatives helped improve billing accuracy, which likely helped reduce improper payments—and saved taxpayer dollars—during FY 2019. They include:

  • Home-health claims corrective actions, including policy guidance, resulted in an estimated $5.32 billion decrease in improper payments from FY 2016 to 2019
  • Clarifications on documentation and billing for Medicare Part B services, such as physician office visits, lab testing, and ambulance usage led to an estimated $1.82 billion reduction during the last year
  • Corrective actions for durable medical equipment (DME) and prosthetics suppliers helped reduce improper payments by an estimated $1.29 billion from FY 2016 to 2019

In October, the agency launched a five-pillar initiative aimed at reducing fraud and waste in the Medicare program, which would also allow it to adopt new payment models and expand coverage to new provider groups (see the October 29, 2019 Health Care Current).

CMS also announced that the national improper-payment rate for Medicaid in FY 2019 was nearly 15 percent ($57.4 billion), and the rate for CHIP was 15.8 percent ($2.7 billion). The agency has expressed concern about supplemental Medicaid payments, and on November 12, it issued a proposed rule aimed at preventing unauthorized Medicaid spending (see the November 19, 2019 Health Care Current). If enacted, the proposed rule would require states to give the federal government provider-level information about Medicaid supplemental payments, which are additional fees paid to hospitals over and above fees for services.

(Source: CMS, Fiscal Year (FY) 2019 Medicare Fee-For-Service Improper Payment Rate is Lowest Since 2010 while data points to concerns with Medicaid eligibility, November 19, 2019)

FDA will include Singapore and Switzerland in Project Orbis pilot

The US Food and Drug Administration (FDA) recently announced plans to expand its Project Orbis pilot program to include Singapore and Switzerland in simultaneous drug-approval decisions. The project, which was launched in September, is a collaboration between the US, Canada, and Australia to grant accelerated or conditional approval for new drugs. Adding Singapore and Switzerland to the mix would take advantage of existing collaborations built through a work-sharing agreement called the Australia-Canada-Singapore-Switzerland (ACSS) Consortium. While the new project encourages regulators to discuss whether a drug should receive accelerated approval, regulators can still move forward without consensus.

(Source: Regulatory Focus, FDA’s Project Orbis May Expand to Singapore and Switzerland, November 12, 2019)

Health costs continue to rise for employees, Commonwealth Fund study finds

Premiums for employer-based health coverage has climbed steadily over the past decade, according to a report released November 21 by the Commonwealth Fund. The sharpest rise occurred between 2016 and 2018. Researchers analyzed 2018 survey data from more than 40,000 private-sector employers and found that premiums paid by employees grew faster than their median income over the past 10 years. According to the report:

  • The national median household income was $64,202 in 2018, a 1.9 percent increase from $53,000 in 2008.
  • From 2008 to 2018, the average cost of individual employer-sponsored coverage rose from $4,386 a year to $6,715. For family plans, the average increased from $12,298 to $19,565 during the same period.
  • In 2018, workers contributed about 21 percent of the overall premium for individual plans ($1,427 a year), and 28 percent for family coverage ($5,431). In 2008, employee-paid premiums averaged $882 for individual and $3,394 for family-plan premiums.
  • In 37 states, employees paid at least 6 percent of their incomes toward premiums, and in some states, workers paid as much as 10 percent.

(Source: The Commonwealth Fund, Trends in Employer Health Care Coverage, 2008–2018: Higher Costs for Workers and Their Families, November 21, 2019)

Breaking Boundaries

Increased demand for health coaches illustrates that technology will enhance, not replace, the human connection

Chronic conditions such as diabetes, hypertension, and depression are on the rise, and so is consumer demand for more personalized, convenient health-care solutions. To meet the growing demand, digital health companies are offering services such as virtual visits, easy online scheduling appointments through apps, and tailored reminders, information, and prompts that can help people manage and track their condition.

Technology platforms, sophisticated data analytics, and artificial intelligence (AI) help to differentiate these companies from each other and from traditional health care organizations. However, a live health coach typically sits behind the technology to help consumers or patients stay motivated. Health coaches are typically registered dieticians, nurses, or diabetes educators. In the past, these professionals would likely have commuted to hospitals and clinics so they could sit face-to-face with patients and help them manage their conditions. Today, many of them are sitting at home in front of a screen, engaging with patients regardless of geography. The coaches usually have dashboards that give them information about each patient—though they typically do not have access to electronic medical records (EMRs). Coaches normally have patients’ vitals, information around behaviors, and a list of medications patients are taking. Some digital companies are experimenting to determine what information and services can be automated vs. what requires a human connection. Bots can handle certain reminders, but coaches are more effective in helping individuals set weight-loss goals, develop strategies for responding to blood-glucose readings that are too high or too low, and understand healthy eating habits.

RELATED: Digital health technologies have the capacity to inform, personalize, accelerate, and augment humans’ ability to care for each other. However, increased use of digital or virtual health is not about technology replacing humans in health care, but rather augmenting and supplementing humans who provide care. Deloitte’s 2018 survey of US health care consumers found that about a third of consumers are interested in connecting with a live health coach who offers 24/7 text messaging for nutrition, exercise, sleep, and stress management. Consumers who report being in excellent or very good health tend to be more interested in using coaching combined with health apps. This suggests that the health care system has more work to do to encourage people who have more complex health needs to engage in these delivery models.

(Source: Rebecca Robins, Valued for their tech, Silicon Valley digital health companies rely heavily on armies of faraway coaches, STAT, November 13, 2019)

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