In May we noted that the Obama administration had released its Spring 2016 Unified Agenda and identified a final action date of March 2019 for the Part B Drug Demo. The use of a date so far in the future looked to us like the beginning of a slow pivot away from the proposal. Yesterday, Politico released an interview with CMS Acting Director Andy Slavitt that further confirms our belief that the Part B Drug Demo may never see the light of day. That doesn't mean the debate over drug prices is over but it does reinforce what we have said all along; drug pricing in America is too complicated, too connected to the payment systems for physicians and hospitals and too opaque to be easily regulated. To the extent fear and loathing over the Part B Drug Demo has impacted drug research and manufacturing company valuations, it is probably time to consider the opportunities that may present themselves as CMS adopts a different approach.
To review, the Part B Drug Demo was released in March of this year. A complete description of the proposal and its implications can be found in our original note. The demo met with strong resistance especially from community oncologists without the market power of a large health system or research university. Hospitals, particularly those in the 340B drug discount program, also resisted the idea. Of course, behind the scenes, the legendary lobbying prowess of the Pharmaceutical Research and Manufacturing Association (PhaRMA) went to work on Capitol Hill. Over 1,000 comments were submitted to CMS - most of them critical of the proposal. Congress, readied a bill to kill the idea and a CBO score made passage in the November lame duck session probable.
Since the comment period was closed in early May, the administration has only said that it was reviewing comments and had no specific date for release of the final proposal. Yesterday, Politico released a podcast interview with CMS Acting Director Andy Slavitt (relevant conversation at 31:45). In the interview Politico reporter Dan Diamond asked if the project would be finalized before the election. The response? "I am not going to run up against a clock, just to shove something out." In other words, "probably not."
Slavitt insists that CMS released the Part B Drug Demo to get a reaction and that is what they got. He identifies two major problems with the proposal; it was too large and might hurt patient access. Slavitt points to the recently released MACRA rule as the model for significant changes to the Medicare program. To develop that regulation, CMS held hundreds of meetings with physicians and other health care professionals and was able to finalize a program that received a relatively warm reception. To finalize the Part B Drug Demo, Slavitt hints that they would have to concede to the significant objections of the medical and pharmaceutical communities.
Then, in the non-capitulation capitulation that keeps the administration from getting too much heat from the Sanders/Warren wing of their party, Slavitt responds to a direct question about whether or not they have given up on the demo with a pivot to the need for a larger conversation about the cost of medicine - something he had discussed earlier in the interview in the context of health insurance affordability. Drug prices are without a doubt a major contributer to increased health expenditures that cannot be ignored in the face of higher deductibles and premiums, according to Slavitt.
Probably the most interesting aspect of this portion of the Politico interview is the way in which Slavitt draws a distinction between "life sciences companies, pharmaceutical companies, many of which have very promising innovations" and "others that do not have promising innovations, they have generics and other things they are moving the price up on but that is another matter." The latter reference is, of course, to VRX and MYL, among others, that have been the bane of PhaRMA's existence these last few months. This distinction, no doubt arises from the education CMS recieved over the Part B Drug Demo from researchers and manufacturers who felt the Part B Drug Demo painted the problem with a broad brush.
Slavitt, in making this important distinction, hints at what could be a new approach the drug pricing problem. He says that when he talks to life sciences and pharmaceutical companies they tell him that there is absolutely a way that the drug industry can continue to innovate, continue to conduct R & D while still keeping costs down. In other words, any change to drug pricing or reimbursement will come with the full cooperation of those seriously engaged in the business of developing and manufacturing drugs. That new direction is probably bad news for drug companies that leverage an opaque and overly regulated system into severe price increases and eventually bad press. It appears though that a more rational and intelligent approach than the Part B Drug Demo may be in the offing in the next administration.
Call with questions.
Emily Evans
Managing Director
@hedgeyeEEvans
