By John McManus, The McManus Group
The Trump administration disrupted the typically sleepy August recess with a frenetic release of proposals that implement components of its “blueprint” on drug pricing. The proposals are intended to strengthen the negotiating leverage of Medicare plans over pharmaceutical manufacturers, but physician and patient advocates expressed concern that they may result in impaired patient access to needed drug therapy.
Step Therapy For Part B Drugs In Medicare Advantage
Determined to inject more competition for physician-administered Part B drugs, the Trump administration announced a new policy to permit Medicare Advantage plans to impose step therapy for drugs in Part B. Step therapy requires the beneficiary to try a plan-preferred product instead of the drug prescribed by their physician. The policy does not impact beneficiaries who remain in traditional Medicare and whose drugs will continue to be paid average sales price plus 6 percent with no formulary whatsoever.
Medicare Advantage plans are integrated health plans that cover the panoply of health services and enroll about one-third of the Medicare population. Previously, Medicare Advantage could only use less onerous formulary tools such as tiering and cost-sharing differentials for Medicare Part B drugs. Last year, Medicare Advantage plans spent nearly $12 billion on Part B drugs.
The policy is slated to go into effect next year and designed to provide plans with more leverage to negotiate prices with manufacturers who fear losing access to patients. Health and Human Services Secretary Alex Azar explained another key goal: integrating management of Part B and D drugs. “For the first time, Medicare Advantage plans will be allowed to use a consolidated step therapy program for drugs covered under Parts B and D, reflecting our desire to bring these programs closer together.”
The program would grandfather existing prescriptions, but a coalition of 45 physician organizations as well as every single state medical society expressed deep concerns on impact to patient care. They wrote, “While step therapy protocols are problematic for many patients on a variety of therapies, they are particularly concerning where physician-administered drugs are concerned. Patients receiving drugs covered under Part B are especially vulnerable, many with serious or life-threatening conditions. Many cancer therapies, for example, are covered under Part B. For cancer patients, selecting the proper personalized treatment as quickly as possible can be crucial to survival.”
The policy also would permit Medicare Advantage plans to mandate coverage of an off-label indication of a drug over a drug with a labelled indication, which would undermine a long-standing goal of providing proper incentives for pharmaceutical manufacturers to undertake the clinical trials necessary to merit additional indications of their drugs.
Indication-Based Coverage In Part D
Under Part D, when a plan covers a drug for one indication, it must cover all indications.
On August 29, CMS issued a memo to permit Medicare Part D prescription drug plans to exclude coverage of certain indications of otherwise covered drugs. CMS administrator Seema Verma declared, “By allowing Medicare’s prescription drug plans to cover the best drug for each patient condition, plans will have more negotiating power with drug companies, which will result in lower prices for Medicare beneficiaries.”
Steven Pearson of the Institute for Clinical & Economic Review explains, “Multi-indication drugs pose a particular dilemma since one drug may demonstrate superiority over existing alternatives in one indication and merely marginal benefit in another. Yet drugs are typically reimbursed in the U.S. on per-unit basis with the same price paid for all covered indications, including those where benefit is marginal.”
But CMS is not suggesting differential reimbursement based on indication, which a plan could certainly pursue. Rather, it would permit plans to exclude coverage entirely based on indication.
The CMS statement announcing the new program, slated to go into effect in 2020, cheerfully predicted that the new policy “is expected to increase both the number of drugs available on a given plan’s formulary and the diversity of plan formularies available.” Increase patient choice by excluding coverage of certain drug indications? Sounds counterintuitive.
The American College of Rheumatology said, “Unlike step therapy, which often delays treatments, this proposal would go even further and allow plans to remove therapies from the formularies altogether, leaving patients completely unable to access treatments that doctors and patients choose together.”
The American Medical Association (AMA) expressed concern that the policy would create unnecessary complexity and confusion. Dr. Barbara McAneny, president of AMA, said, “Under the plan, Medicare patients will face increased challenges as they navigate health plans to make sure that their needed drug is on their selected formulary, which can change based on the health conditions they have. … Furthermore, Medicare patients with several chronic diseases are unlikely to find a formulary that covers all their needs.”
Imagine seniors checking to see if their drug is listed on the plan’s formulary, only to find out later that the listed drug is not covered for their disease or condition. Many seniors are unlikely to understand that a plan may cover a drug for some diseases but not others.
Expediting Generic Entry
A recent FDA study noted that the introduction of just three generic competitors drives down prices in half. The Trump administration has made removing the backlog of generic drug applications a priority in its efforts to bring more competition to the markets. There was a record number of generic approvals in 2017. And in July of this year, the FDA approved a record 126 generic drugs, more than in any single month in the agency’s history.
Last week, Azar announced, “The FDA released 54 new or revised product-specific guidances to support manufacturers about how to demonstrate bioequivalence in generic drug applications. These guidances are also especially focused on complex products, where it can be more challenging for generic competition to emerge.”
Proposals On How To Reform Drug Rebates
Though each of these policy initiatives is significant in its own right, the 800-pound gorilla waiting to be unveiled is the administration’s proposed reforms to the drug channel. Competing proposals on how to reform drug rebates remain under review and can be announced at any time.
One option would require retrospective rebates to be passed to the beneficiary as a discounted price at the point of sale in Part D. The other would repeal the safe harbor from the anti-kickback statute for manufacturer rebates, thus making them illegal.
Either approach could have very disruptive and far-reaching impact on an industry’s pricing scheme that the administration is convinced has led to higher prices to patients. The administration may develop a hybrid approach that creates new terms and conditions for any rebate arrangement and requires a substantial portion of those rebates to be passed on to the patient at the pharmacy counter.
John McManus is president and founder of The McManus Group, a consulting firm specializing in strategic policy and political counsel and advocacy for healthcare clients with issues before Congress and the administration. Prior to founding his firm, McManus served Chairman Bill Thomas as the staff director of the Ways and Means Health Subcommittee, where he led the policy development, negotiations, and drafting of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Before working for Chairman Thomas, McManus worked for Eli Lilly & Company as a senior associate and for the Maryland House of Delegates as a research analyst. He earned his Master of Public Policy from Duke University and Bachelor of Arts from Washington and Lee University.