Takeaway: Leaked House plan has some features similar to Senate version including incentives to spend less on drugs

UNH, ANTM, CI, CVS | Ignore Crazy Talk on Drug Price Negotiation; Redesign of Part D Benefit looms - 2019.09.11 Senate Finance PartD

UNH, ANTM, CI, CVS | Ignore Crazy Talk on Drug Price Negotiation; Redesign of Part D Benefit looms - 2019.09.11 House PartD

Flying around Capitol Hill this week is a leaked version of Democrats drug pricing plan. No one is quite sure if it is a recent iteration or even represents the view of leadership.

In Washington we call this sort of thing a trial balloon.

The draft outline contains several incendiary positions like a 75% penalty on gross sales of drugs for manufacturers that do not agree to negotiate drug prices with the federal government and retroactive rebates for price increases above inflation since 2016. Such provisions are not likely to pass muster with the courts let alone the U.S. Senate.

What is most interesting about this particular trial balloon is the way in which House Democrats have mimicked Senate-proposed changes to the Medicare Part D program. Beginning Jan. 1, 2022, the draft proposal suggests:

  • Elimination of the coverage gap
  • Establishment of 25% beneficiary cost sharing between annual deductible and catastrophic threshold. The House proposal suggests the balance of the liability will be split between manufacturers and insurers.
  • Elimination of cost-sharing during catastrophic phase and catastrophic threshold at some unnamed amount. Medicare liability reduced to 20%.
  • Manufacturer discounts of an unnamed percentage off negotiated prices during initial and catastrophic phases of benefit. This discount would apply to brand name drugs, biologics and biosimilars and would be available at the point of sale.

Like the Senate Finance approach, the House draft offers a much simpler benefit design and eliminates the coverage gap. The two proposals are also similar in the way in which they reduce the federal government’s liability from 80% to 20% in the catastrophic phase.

The House draft proposal and the Senate Finance bill differ in two important respects. First, the House appears interested in requiring manufacturer discounts off the “negotiated price” at the point of sale. It is not clear from the text if the House authors are relying on the current definition of “negotiated price” used by CMS or the price that is determined through a negotiation process outlined elsewhere in the bill.

In either case, the House is suggesting another form of pass-through rebates contemplated by the White House. The result will be lower beneficiary cost in the coverage phase. It could also reduce the value of the manufacturer rebates that would be passed along to Plan D sponsors.

Another key difference with the Senate bill is the effective date. The Senate bill calls for a phased-down reduction in federal reinsurance liability from 60% in 2022 to 20% in 2024 for brand drugs and 40% for generic drugs.

Even given these differences, the incentives for plan sponsors and manufacturers would be significantly altered. The current, near limitless assumption of liability by the federal government in the catastrophic phase has encouraged plan sponsors to hustle high cost enrollees through the initial phases of the benefit to the catastrophic phase when the federal government picks up most of the tab. The incentive provided by a reduction in the federal government’s liability will discourage plan preference for high list price drugs.

UNH, ANTM, CI, CVS | Ignore Crazy Talk on Drug Price Negotiation; Redesign of Part D Benefit looms - 2019.09.11 Catastrophic Threshold

The changes to plan design may also mean higher premiums in the short run as changes to the benefit design are absorbed and behavior is altered. In the long term, a reduction in spending as plan sponsors emphasize use of lower cost drugs and utilization management should reduce the upward pressure on premiums.

Despite the agreement, there is plenty of opportunity for a legislative change to Part D benefit design to crash onto the partisan shoals. The call for Medicare negotiation of drugs has been constant and not very easily retracted. However potent the progressive agenda, agreement on Capitol Hill is difficult to find and so it is not easily dismissed.

Emily Evans
Managing Director – Health Policy



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Thomas Tobin
Managing Director


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