Current and Future Status of Drug Pricing Reform as the Blueprint Approaches the 1-Year Mark

Several efforts are underway nearly a year after the Trump administration released its blueprint to lower drug prices in May 2018, but tracking their outcomes depends on what metric is used to define drug prices, according to a session at the Academy of Managed Care Pharmacy Managed Care & Specialty Pharmacy Annual Meeting, held March 25-28 in San Diego, California.

Melissa Andel, MPP, vice president of health policy, Applied Policy, started her talk by providing what she called an “oversimplified explanation of drug prices.” It’s essential to understand what kind of drug prices policy makers are talking about—published list prices, net costs to plans or pharmacy benefits managers (PBMs) after rebates, the price paid by the patient at the pharmacy counter, or other measurements of price—before observers can assess the results of drug pricing efforts.

Rebates garner a lot of negative attention in these efforts, because the process is opaque and doesn’t reveal whether the discounts are being passed through to patients. As patients have increased cost liability through higher co-payments and deductibles, it’s more difficult to determine which price should be used to calculate their cost sharing. Andel noted that reasonable people disagree on the answer.

Because patients think that drug prices are those they hear about in the news or what they pay at the pharmacy counter, politicians need to carefully consider which mechanisms will actually address those costs. For example, pressuring manufacturers to lower list prices could drive them to get rid of rebates, resulting in no net reduction in spending. Lowering out-of-pocket (OOP) costs through changes to the benefit structure could result in higher premiums, which could be considered unfair by Americans who do not use prescription drugs but must still pay those premiums.

Regardless of the measures used to define drug pricing, the topic will remain at the forefront of political priorities in the foreseeable future, Andel said.

“Drug costs are one of the top, if not the top issue for many Americans, so we’re going to continue to hear a lot about it and we’re going to see changes,” she predicted. “Changes are coming; it’s really just a matter of what those changes look like.”

Next, Andel moved into discussing the blueprint released by the Trump administration in May 2018. The document is a comprehensive overview of various proposals and ideas that the administration is considering, and it has been a fairly accurate predictor of the steps that have been seen so far. It focuses on 4 problems considered the pillars of drug pricing: high list prices, rising OOP costs, foreign free-riding, and overpaying due to lack of negotiation.

Some of the proposals related to list prices include removal of the rebate safe harbors and establishing 2 new safe harbors protecting point-of-sale discounts. Comments on this proposal are open, and HHS says the rule will be in effect January 1, 2020, but Andel noted that the comment period may close in June, after 2020 plan bids must be submitted to CMS.

Rebate change agreements will come with tradeoffs, she warned. With the loss of rebate revenue, customers may face higher premiums and fewer plan choices, and these consequences could hit around the time of the 2020 election when beneficiaries shop for Part D plans in late October and early November. Additionally, lower list prices would slow beneficiaries’ progression through their benefits and could lead to longer times spent in the coverage gap.

Andel discussed 2 other proposals with uncertain prospects. It is unclear whether CMS has the authority to mandate drug makers to disclose list prices in direct-to-consumer ads, so she would be “shocked” to see this rule finalized without a legal battle, but some manufacturers have moved to voluntarily disclose prices. Similarly, if CMS moves to revoke protected status for drugs in 6 classes, plans would no longer have to cover drugs in these classes that are priced above a certain threshold, but lawsuits or Congressional action might prevent this from going into effect.

In terms of rising OOP costs, a successful step is that Part D plans now can immediately drop coverage or increase cost sharing for a branded drug once a generic becomes available, and there is more flexibility for midyear formulary changes when therapeutic alternatives are launched. However, not all steps will be so impactful: Andel’s slide about the banning of pharmacy gag clauses featured an image of Bigfoot, because she’s “never actually met someone who can prove that these things actually exist.”

One idea in the administration’s plan to end foreign free-riding is an International Pricing Index (IPI) that ties the amount paid for drugs to that in foreign countries. However, Andel noted that this idea is not an actual proposal yet, yet alone a final rule, and the document released by CMS lacks detail on the methodology that would be used. For instance, would CMS calculate a single IPI for all drugs or an individual IPI for each drug? How would the physician add-on payment be calculated?

“We’re talking about a wholesale change in the way that physicians who administer these drugs would be doing business. They would lose a major revenue stream, and so far we haven’t really talked about how that would impact them,” said Andel.

More concrete steps have been taken in the realm of negotiation, where Medicare Advantage (MA) and Part D are being run more like a commercial plan. Step therapy in MA began in 2019, and CMS will allow indication-based formulary design in Medicare Part D starting in 2020.

As a resident of Washington, DC, where “it’s always election season,” Andel discussed potential future policy changes surrounding drug pricing. There are some areas where the 2 parties may be able to agree, such as allowing drug importation, increasing generic drug access, and ramping up scrutiny on insurers and PBMs, but they are unlikely to reach a compromise on issues like federal negotiation of prescription drug prices or international reference pricing.

If in 2020 the Democrats win the White House and Senate and keep control of the House, Andel still did not think “Medicaid for all” would be enacted. Public polling is against it, especially when respondents are told it will require higher taxes, and the candidates’ promises don’t match up with what Medicare actually delivers. For instance, candidates say their plans would eliminate co-pays and deductibles, which do exist in Medicare, and aim to prohibit private insurance, even though MA plans cover more than one-third of Medicare enrollees.

Andel offered words of comfort for those in the audience who may be worried about the prospect of a single-payer plan. “For those of you in the audience who break out into sweats when you think about Medicare for all, I think you can probably sleep at night,” she said.

Instead, Andel predicted that some more incremental reforms could be enacted if 2020 brings a Democratic president. We could see Medicaid expansion extended to all states, Medicare buy-in options for those older than 50 or for all Americans, or changes addressing the current Affordable Care Act subsidy cliff for individuals making 401% of the federal poverty level. These steps are “more realistic than straight-up single payer Medicare for all,” Andel concluded.