Magazine Article | December 13, 2018

Rx Industry Under Multifront Siege

Source: Life Science Leader

By John McManus, The McManus Group

The latest regulatory salvo from the Trump administration on Medicare Part D and the Democratic takeover of the House of Representatives have the pharmaceutical industry scrambling to fight a multifront war to defend market-based pricing in the United States. In just the last six weeks, the Trump administration has fired off sweeping proposals overhauling reimbursement of Medicare Part B for physician-administered drugs (to be based on foreign reference prices) and has now issued a proposed rule substantially changing the Part D outpatient drug program.  

Meanwhile, Democrats are preparing to take the reins of power in the House, and a priority is increased oversight and control over the pharmaceutical industry. They are preparing investigations to hold companies accountable for price increases and proposing a bevy of legislation that would fundamentally alter how drugs are paid for in Medicare and beyond.

All sectors of the industry are under siege. The varied proposals are testing the industry’s ability to marshal allies in the patient and provider communities and build political support needed to defeat or substantially alter proposals meant to address an increasingly bipartisan consensus that something dramatic needs to be done about prescription drug pricing.

That political consensus is based on populist hyperbole, not statistics. The National Health Expenditure survey shows that retail drug spending grew just 0.4 percent last year — the slowest growth rate since 2012. CMS actuaries said the slowdown was due to a shift toward less costly generic drugs, decreased growth in the volume of certain high-cost drugs, as well as a slowing in the volume of prescriptions, especially for pain treatment.

Arguing that patient protections, which require Medicare drug plans to cover substantially all drugs in six protected classes, are undermining negotiations, the Trump administration unveiled substantial reforms which would restrict patient access and increase leverage over pharmaceutical manufacturers for those drugs. A final rule will be issued this spring, with implementation in 2020.

The six protected classes were created at the outset of the Part D program by the Bush administration in response to concern that many dually eligible beneficiaries were enrolling from state Medicaid plans that generally did not restrict access to products in these classes and needed to maintain continuity on their therapy as they transitioned to the new program. The regulation required Part D plans to cover substantially all drugs in six classes: antipsychotics, antidepressants, antiretrovirals (used for HIV), immunosuppressants (used to prevent organ rejection), antineoplastics (used to treat cancer), and anticonvulsants (used to treat epilepsy).

In 2008, Congress created a statutory two-part test to identify protected classes. The class of drug must be one for which:

  • restricted access would have a major or life-threatening clinical consequence
  • beneficiaries have significant need for multiple drugs.

A key reason for the policy was the understanding that while patient adherence may increase Part D spending — something contrary to the economic incentives of a free-standing prescription drug plan — it could substantially reduce overall healthcare costs to Medicare. The law did not name any specific class of drugs and left the plans with the ability to utilize many formulary tools for those drugs.

Trump Proposed Rule on Part D
In late November, CMS proposed a rule allowing plans to exclude protected class drugs from coverage if their price had risen greater than the consumer price index (CPI). As the CPI typically averages about 2 percent, this proposal could have a substantial impact on even those drugs with modest price increases (averaging in the middle single-digit range) because it would permanently lower the baseline spending for years. The proposal would peg September 2018 as the base month/year and track cumulative price increases thereafter.

The proposed rule also would allow plans to use more tools to deny or restrict access to drugs in protected classes, including:

  • indication-based formularies, which permit exclusion of nonprotected class indications
  • step therapy for new starts and existing therapies
  • allowing Medicare Advantage plans to require step therapy for a Part B drug before a Part D drug
  • excluding a protected class drug from a formulary if it is a new formulation of an existing single-source drug, regardless of whether it is currently on the market.

CMS quotes analysis from the insurance industry that drug costs for protected class drugs are about 10 percent higher because of the beneficiary protections. But that analysis belies statistics from Pew Charitable Trusts showing protected classes currently have a higher overall rate of generic utilization than other drug classes (92 percent and 84 percent of prescriptions, respectively).

However, antiretrovirals for AIDS/HIV stand out as a class with a low generic rate: 91 percent of these prescriptions are for branded drugs because federal clinical guidelines recommend the use of newer brand drugs based on effectiveness and safety. According to the NIH, new branded drugs are recommended over older generic monotherapies due to the increased risk of virologic failure and drug resistance associated with monotherapies.

When the proposed rule was issued, The AIDS Institute responded with a statement warning, “This proposal runs contrary to current U.S. government HIV treatment guidelines, which state that prior authorizations for HIV drugs ‘result in fewer prescriptions filled and increased nonadherence …. and have substantially reduced timely access to medications.’ Step therapy is unheard of in the treatment of HIV due to the danger of developing resistance to an entire class of drugs and potential side effects.”

The AIDS Institute concluded, “We now have the drugs to keep people with HIV healthy and alive, and once on treatment, suppress their virus to such a level that they cannot transmit HIV to others. This proposal conflicts with public health recommendations and efforts to expand treatment to everyone living with HIV.”

Moreover, the federal government is getting a good deal on these drugs because a very high percentage of antiretrovirals are sold through AIDS Drug Assistance Programs and Federally Qualified Health Centers, which are entitled to the steep discounts of the 340B drug program.

Meanwhile, key Democrats who are about to assume power in the House of Representatives are preparing investigations and legislation targeting the pharmaceutical industry.  Rep. Elijah Cummings (D-MD), who will become the next Chairman on Oversight and Government Reform, has said he plans to call pharmaceutical executives to testify, stating “Hearing from drug companies themselves will be an important part of our efforts … we cannot forget that drug companies are the ones setting these prices.”

Rep. Lloyd Doggett (D-TX), who will become the next Chairman of the Ways and Means Subcommittee on Health with jurisdiction over Medicare, recently said, “High drug prices are not a problem with one pharmaceutical manufacturer, one class of drugs, or one disease — this problem is widespread.” He is sponsoring legislation which could require compulsory licensing of drugs whose prices have risen too much.

Rep. Frank Pallone (D-NJ), who has tens of thousands of drug company constituents living in his district and will soon be elevated to the chairmanship of the Energy & Commerce Committee with jurisdiction over Medicare, FDA, and private health insurance, said, “I’ve always been an advocate for negotiated prices in Medicare, and as you know, President Trump says that he’s for that, so I think that is an area we can get agreement with the president.”

2019 is shaping up to be a bang-up year for the pharmaceutical industry!

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.