2023 Halftime Report — Price Negotiation, PBM Legislation, Med Shortages

Editors note: This story was featured in the July 2023 issue, originally covering six hot topics in healthcare, but has been broken into two parts. Below is the first part covering three topics and developments. This half has been edited for clarity.

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Bipartisan appetite for PBM issues. Medicare drug negotiations. Medication Shortages. They have been fodder for healthcare headlines, hashtags and tweets so far this year. They are also likely to have some staying power during the second half of 2023 and spillover into 2024. Here’s a look at three topics and developments in healthcare and how they might play out over the next six months and beyond.

1. The rollout of Medicare price negotiation

Pharmaceutical companies were not happy when the Inflation Reduction Act (IRA) allowed Medicare to negotiate prices on some drugs it covered. The process starts this year on Sept. 1, when CMS will publish its list for the first 10 Medicare Part D drugs. In March 2024, manufacturers will receive CMS’ offer for a maximum fair drug price to accept or counter, and on Sept. 1, 2024, CMS is scheduled to publish the prices. These prices will not go into effect until Jan. 1, 2026. In a laddered approach, 15 more drugs will be selected in 2024 for 2027 implementation, another 15 drugs covered either under Medicare Part D or Part B for 2028, and another 20 drugs for 2029 and later years.

The timing assumes no disruption from litigation, according to Howard Deutsch, a principal at ZS Associates, a management consulting and technology company. Merck, which is expected to have one of the 2023 drugs listed, filed a lawsuit in early June against the government, claiming First and Fifth Amendment violations, which was followed by lawsuits filed by the U.S. Chamber of Commerce and Bristol Myers Squibb. Although CMS published draft guidance in March on the negotiation process, Deutsch says he read all 90-plus pages of guidance and still was unclear on how pricing will work.

Deutsch says the CMS price negotiation isn’t really a negotiation. “For all practical purposes, the government will set a price, and it will allow the pharmaceutical company to accept that price or be ruined in penalties.” The target drugs for 2023 have not been explicitly announced, but “it’s not like people are waiting with bated breath,” Deutsch says, given the CMS parameter. Lists predicting which 10 drugs CMS will select the first year have been published, and they have included Eliquis (apixaban), Januvia (sitagliptin) and Jardiance (empagliflozin).

It is unknown how the CMS pricing will impact commercial payers, although the pricing will carry through to Medicare Advantage.

“We expect (commercial) payers will try to use that as leverage of sorts, but fundamentally, there’s no new market leverage they’d have that they didn’t have before,” says Deutsch. “There are no strong reasons to believe manufacturers will have to change their discounting behaviors.”

2. The bipartisan appetite for pharmacy benefit manager legislation

Pharmacy benefit managers (PBMs) were in the spotlight — and not in a favorable way — during the first half of 2023, as Congressional hearings were held and bills were introduced that would increase oversight and ban or restrict certain of their business practices. There is a bipartisan appetite for the PBM issues, says Adam Colborn, J.D., director of government affairs at the Academy of Managed Care Pharmacy. “We (have) a divide in Congress. I think this is something parties will be motivated to move on just because there’s not a lot of other territory to agree on.” Colborn says his organization is watching three bills in particular: the Pharmacy Benefit Manager Transparency Act and the Pharmacy Benefit Manager Reform Act that were introduced in the Senate, as well as the Protecting Patients Against PBM Abuses Act that was introduced in the House.

“The top-line thread for all these bills is that they’re drilling down on behaviors labeled as anticompetitive,” Colborn says. The sponsors’ goal is to improve transparency and competition between payers, he explained. The bills mostly target spread pricing, the margin between what a plan sponsor is charged, and what the PBM pays pharmacies for a prescription. The bills also contain language about reporting to CMS.

So far, it’s largely been a one-sided conversation, according to Colborn . “We haven’t seen a ton of engagement from the payer community or from the other PBM folks in the space.”

Eventually, the various PBM-related pieces of legislation are likely to be rolled into one bill,predicts Erin McKeon, associate director of federal advocacy at the Crohn’s and Colitis Foundation. McKeon says she expects a bill to pass during this Congress, but that could mean sometime next year. Part of the current political dynamic is that the various committees and their chairs and ranking members are maneuvering to take credit for whatever law finally emerges, observes McKeon.

3. The empty medicine cabinet

Medication shortages are at their highest numbers since 2014 and have affected drugs for a wide range of conditions and medical purposes, including cancer treatment, ADHD and local anesthetics.

“We have seen this tremendous spike in drug shortages,” says Vimala Raghavendran, MBA, vice president of informatics product development for U.S. Pharmacopeia (USP), an independent, scientific nonprofit organization. “These shortages have also been lasting longer, with more severe patient impact.”

One reason for this shortage is “tremendous economic pressure on the generic industry over the (past) several years, driving down prices,” she says. “We have this unhealthy cycle where manufacturers are not making enough margin and not being incentivized to invest in quality, which is spurring drug shortages.” Some expensive brand-name drugs are also in short supply for other reasons.

The shortages are drawing government attention. Both the House and Senate held hearings this spring, and the White House is also looking into it. USP is advocating for an early warning system for drug shortages, coordinated with government and private sectors. They created a Medicine Supply Map to increase visibility into the supply chain.

Deborah Abrams Kaplan writes about medical and practice management topics for Managed Healthcare Executive and other publications.