The budget deal was a mixed bag for Pharma. It did, however, reiterate a Republican theme that, in the ménage à trois that is pharmaceutical manufacturers, beneficiaries and various supply chain middlers, beneficiaries will come out on top.
In just the last few months, the Trump Administration has proposed and finalized changes to the 340B Drug Purchasing Program that will result in reduced beneficiary co-payments for Part B drugs. They have also requested information on changes to the Part D rebate system that would allow rebates to flow through to point-of-sale, thus reducing beneficiary cost-sharing. Additional proposals are pending as part of President Trump’s first budget to be released Monday.
Comes now with the budget deal a few more changes that drive the Republican pharma agenda further down the road:
Modifying Coverage Gap Calculation. The CR modifies the calculation for setting the percentage a beneficiary pays for prescription drugs while in the coverage gap. Specifically, it decreases the beneficiary share to 25 percent of prescription cost in 2019 – a year earlier than stipulated by the ACA. It also increases the amount a drug manufacturer must discount the cost of prescriptions starting in 2019 from 50 percent to 70 percent. Manufacturer discounts will continue to count toward beneficiaries’ out of pocket costs.
This provision had Pharma storming the hill last week. The CBO scored the provision (in combination with expansion of discount program to include biosimilars) as reducing the deficit by $10 billion over 10 years. But Pharma probably has little to worry about. CMS spent about $80 billion in Part D drugs in CY 2015 alone. An estimated $400 million hit in CY 2019 is not likely to be felt.
And may not even happen.
The change in law is most likely to make brand name drugs more attractive to Medicare Part D enrollees. With beneficiary share of the rebate dropping to 25 percent for brand names drugs while the cost sharing for generics remains above 50 percent and climbing, all the incentives necessary for beneficiaries to choose brand name drugs while in the coverage gap persist and expand.
Meanwhile PDPs have no incentives to encourage the use of generics because of potentially higher costs to the plan in the absence of a manufacturer’s discount. The more a PDP enrollee uses high cost brand name drugs the quicker the PDPs liability drops to 15 percent in the catastrophic phase of the benefit.
The ACA requirement that the manufacturer’s discount for branded, biologics and, now, biosimilar drugs, be considered part of the beneficiaries’ annual out-of-pocket expense, further hastens the enrollee’s passage through the coverage gap.
Congress’ action runs counter to recommendations of MedPAC which has recommended policies that discourage use of brand name drugs in the Part D program. However, the provision is politically tantalizing as it keeps President Trump’s promise to “do something” about drug prices.
The impact of this provision, if there is one, will be on the top Part D drugs:
Sunset of exclusion of biosimilars from Medicare Part D Coverage Gap. The ACA, in establishing the manufacturers’ discount in Part D, excluded biosimilar drugs, thus lumping them together with generics. The CR sunsets that provision after 2018.
The addition of biosimilars to the manufacturer discount program may mitigate to some degree, the program bias in favor of brand name drugs. A lower cost biosimilar, after the manufacturer discount, may result in a better price for the beneficiary.
First there are going to have to be more biosimilar drugs on the market. With incentives of PDP sponsors to promote brand name drugs (see above) still in effect that prospect is not a bright one for now.
Other provisions:
IPAB Repeal. We admit we are going to miss the annual exercise of responsibly speculating on whether or not IPAB will be triggered by Medicare spending. However, IPAB was a dumb idea and was always bound to come to an ignominious end. The gravitation pull of an politically potent program like Medicare beats fiscal responsibility every time.
In Congress’s defense, IPAB targeted, in part, Medicare Parts C and D whose popularity has soared in recent years putting the intent of the law out of step with political support.
Medicare Advantage and pharma can now go to the beach in June instead of waiting on a report from the Office of the Actuary.
RIP
PDP Access to Claims Data. Starting in plan year 2020, HHS must be able to provide drug plan sponsors claims data under Medicare Parts A and B. Plan sponsors are expected to use claims data to improve medication use; improve care coordination and for any other purpose CMS determines.
All of the major Medicare Advantage plans operate the stand-alone PDPs this provision is meant to support. Timely access to Part A and Part B claims will extend PDPs influence over utilization management.
Rebate obligation for line extension drugs. This provision clarifies the proper rebate for line extension drugs in the Medicaid program. Drug manufacturers, have taken advantage of a drafting error in the ACA and reduced rebate obligations through line extensions – as when a new time release formula of an existing product is marketed.
The provision in the CR corrects the rebate calculation and is expected to save the federal government about $5 billion over 10 years. Virtually all of the $5 billion will be a result of drug manufacturers paying higher rebates.
The bigger challenge for Pharma will be the one two punch tomorrow of HHS Secretary Azar drug pricing plan and President Trump's first budget. We doubt it will be as scary as lobbyists last week were suggesting but will continue the focus of lower beneficiary cost at the expense of everyone else.
Call with questions.
Emily Evans
Managing Director
Health Policy
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