By Peter Pitts
November 16, 2018 at 5:00 am ET
What exactly did the president propose?
Lowering the price that Medicare pays for the prescription drugs it purchases.
The president couched his remarks as part of an effort to battle “unfair foreign prices.” But none of his proposals addressed any change in the pricing policies of any other country. The villain wasn’t the pharmaceutical industry, but “unfair foreign nations who free load off of American drug development.” The president’s comments, as they say, were “for the fans, not for the players.”
(It’s also interesting that the president’s proposal for referencing a basket of European drug prices does not include most of the globe’s richest economies.)
How will this be accomplished?
The president wants the Centers for Medicare and Medicaid Services to negotiate directly with manufacturers to achieve price parity with a basket of reference countries. By 2025, the target price decrease would (assuming all things work out according to a yet-undeveloped plan) average about 30 percent.
How soon will this happen?
These new strategies would be rolled out post 2020 via a pilot program that will be gradually phased in (and has not yet been developed).
Initially, this will take place via Center for Medicare and Medicaid Innovation pilot programs. Specific CMMI pilots would each address a specific product. For the plan to roll out across the entire spectrum, it would require federal legislation to revoke the existing non-interference clause that prohibits direct federal negotiations. This is why the president spoke about his desire for “bipartisan support.” Political response from Democratic leaders has been tepid.
The non-interference clause was written by former Sens. Ted Kennedy and Tom Daschle. Nobody doubts that President Donald Trump and his team are shrewd negotiators. But the sorts of “negotiations” that Trump refers to have nothing in common with haggling over a real estate deal. Instead, the action that Trump has proposed — repealing the non-interference clause — would result in Medicare drug prices going up and patient choice going down.
Through their own negotiations with drugmakers, private insurers that offer Part D plans have had great success in keeping pharmaceutical prices down. In fact, the Congressional Budget Office observed that Part D plans have “secured rebates somewhat larger than the average rebates observed in commercial health plans.” The non-interference clause prohibits government officials from intruding in these negotiations.
Doing away with the non-interference clause, on the other hand, “would have a negligible effect on federal spending.” In a report from 2009, the CBO reiterated this view, explaining that such a reform would “have little, if any, effect on [drug] prices.”
In fact, allowing the feds to negotiate drug prices under Part D likely would have a negative effect on the program. The CBO explains that to achieve any significant savings, the government would have to follow through on its threats of “not allowing [certain] drug[s] to be prescribed.”
In other words, the government might drop some drugs from Medicare’s coverage. Patients who need those drugs would then be forced to pay for them out-of-pocket, which would make medicines vastly more expensive for the seniors the president wants to help.
This clause has been the key to Medicare’s success. Between 2004 and 2013, the Medicare “Part D” prescription drug benefit program cost an extraordinary 45 percent less than initial estimates. Premiums for the program also are roughly half of the government’s original projections. These unprecedented results are largely due to Part D’s market-based structure. Beneficiaries are free to choose from a slate of private drug coverage plans, forcing insurers to compete to offer the best options to American seniors.
What about Part B drugs?
Per Part B, the president announced a move from physician “buy and bill” payments based on the price of a product to a flat fee-for-service platform. This was previously tried during the Obama administration as a CMMI pilot program and worked pretty well. It would, among other things, remove the incentive for physicians to prescribe a more expensive product when less-expensive options are available.
This will be particularly important for biosimilars. Such a change would require changes in both the strategies and tactics manufacturers use to incentivize physician prescribing. A “target price” will be set for Part B drugs, but even when the pilot program goes live, it will be slowly phased in (and we don’t get to the new target price of drugs until 2025 at the earliest).
Per the Health and Human Services plan, initial CMMI “negotiation” pilots will focus on “single source drugs and biologicals, as they encompass a high percentage of Part B drug spending and are frequently used by physicians that bill under Medicare Part B.” The focus of Part B drugs “in the line of fire” are largely oncology-related medicines that represent the highest gross cost to CMS.
Republicans and even some Democrats excoriated the Obama administration when it tried to reduce how much the government paid for these drugs in 2016. It’s unclear what will be different this time around. The president’s ideas — which haven’t even been officially proposed as rules yet — face an uphill battle in Washington.
The president’s proposal lays out “potential calculation steps” and asks for feedback via an Advance Notice of Proposed Rulemaking. Comments must be submitted by, Dec. 31.
The president’s proposals do not address the “other 90 percent” of health care costs in the United States. Those that have nothing to do with pharmaceuticals. Are we really willing to risk investment for development of innovative medicines by slicing and dicing 10 percent of health care costs but ignore the middlemen, insurers, pharmacy benefit managers, hospitals and other entities that consume the lion’s share of health care spending in the United States?
Bottom line, nothing is going to happen quickly, and nothing will happen comprehensively at least until 2020 at the earliest.
Peter J. Pitts, a former FDA associate commissioner, is president of the Center for Medicine in the Public Interest.
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