Legislating Medicare and Medicaid Drug Plans

Ross Margulies, JD, MPH

Drug list prices are increasing at exponential rates. And both Congress, as well as the Trump Administration, have promised to find ways to get curb those costs.

Late last year, for example, the specialty pharmacy industry, as well as the healthcare industry as a whole, was thrown into a tumult when HHS proposed a new rule to eliminate rebates commonly paid by drug manufacturers to Medicare Part D and Medicaid managed care plans, as well as pharmacy benefit managers (PBMs). While the rule has now been abandoned, Congress is currently considering new strategies to revamp Medicare and Medicaid drug plans in order to allow them to remain competitive-and address rising drug costs.

Ross Margulies, JD, MPH, senior associate at Foley Hoag LLP, says, as the country is in the midst of an important national discussion about healthcare in general, it’s easy to point fingers about why costs are as high as they are.

“I think if we were all to look in the mirror, we’d see that a little bit of blame can be spread across the entire industry,” he explains. “That includes manufacturers, PBMs, plans, pharmacies, and other stakeholders. But the important thing here is that there is national recognition that things need to change. And we are starting to see some real conversations in Congress and at the federal agency level among regulated entities about ways we can fix it.”

Margulies outlined some of those conversations, as well as different legislative proposals resulting from them, at the Academy of Managed Care Pharmacy (AMCP) Nexus event, to be held October 29-November 1, 2019, in National Harbor, Maryland, in his educational session, “The Times They Are a-Changin’ – A Look at Congressional Efforts to Reform the Medicare and Medicaid Prescription Drug Programs.” The session was held on October 30, 2019, from 10:15 a.m. to 11:45 a.m.

While Margulies says many would love to see wholesale reform all at once, it’s more likely we’ll see piecemeal changes that slowly work us toward a system where there are fewer incentives to keep drug list prices so high.

“The proposed rebate rule put everyone in a kind of panic-and the Trump administration has now backed off that proposal,” he says. “And for good reason. Based on the government’s own estimates, the rule itself would have been quite costly. Part of the problems in estimating costs for that rebate rule is that it’s so difficult to account for behavior change. Removing those rebates would introduce a lot of uncertainty into the system and how much price negotiation could still occur.” 

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So, what might work in the rebate rule's sead?  Margulies says there are a number of major reforms currently on the table.

“The House of Representatives is considering a proposal to allow what is essentially directed negotiation for many Part D and Part B drugs that pegs to an international reference price,” he says. “There are also proposals to cut inflation to drug prices by applying inflationary rebates. But I think the policies that have the best chance of moving forward is around restructuring the Part D drug benefit.”

Margulies spent his session discussing ways that potential restructuring might occur. He highlighted that, since 2005, the Part D benefit has been in place and, in general, the cost sharing has remained relatively stable. He said the proposals under consideration right now would dramatically redesign the benefit, with a number of implications for all stakeholders.

“We’ve never had a cap on out-of-pocket costs and there’s always been a catastrophic phase in which beneficiaries are responsible for a certain percentage of costs,” he said. “Plans have always had some skin in the game in that catastrophic phase, but largely, it was the federal government who would be responsible for those costs. The proposals under consideration right now, for the first time, introduce a maximum out-of-pocket cost for beneficiaries in response to the increase in specialty drugs.”

He said, today, with 5% cost sharing, beneficiaries can blow through their drug benefit very quickly-and then may be responsible for thousands of dollars, or more, each month for life-saving drugs. Proposals that cap those costs could help beneficiaries save but it would increase catastrophic liability for both plans and drug manufacturers.

“That, arguably, puts downward pricing pressure on their drug prices, knowing that they will have responsibility for some costs,” he says. “To avoid beneficiaries reaching the catastrophic phase, payers and PBMs have increased incentive to manage pharmacy spend to avoid a place where they have an increased obligation. Those kinds of proposals really change the cost equation for everyone.”

Kayt Sukel is a science and health writer based outside Houston.