On Nov. 20th, the Trump Administration issued new regulations intended to lower the cost of prescription drugs covered by both Medicare Part B and Part D. Reducing prescription drug prices has been a top health policy priority for President Trump since he took office in 2016. The two regulations are attempts to reform the way Medicare pays for Part B and Part D drugs. The Obama Administration attempted to put in similar reforms, but ultimately did not finalize its proposal. It does appear to be a bipartisan concern. While the headlines suggest this is a positive change, as nearly always, the details raise a challenge.
Medicare covers prescription drugs that must be administered by healthcare providers (e.g. biologics given in the office by allergists/immunologists) under Part B. Medicare currently reimburses providers for Part B drugs at 106% of the manufacturer’s average sales price (ASP). This formula has been criticized because of the view that it incentivizes the use of a more expensive drug over an equally efficacious but less-costly alternative.
The Trump Administration announced a new, mandatory payment model that will replace the ASP add-on model with a pricing framework that is based on what other countries pay for the same drug. The model will apply to a predetermined list of 50 single source drugs and biological products that accounted for approximately 75% of the annual Medicare Part B drug allowed charges for separately payable drugs during 2019. At the top of the list is an ophthalmologic drug, and, as would be expected, oncology drugs make up thirteen of the top twenty drugs listed. Drugs used by allergists/immunologists include three biologics: omalizumab (21st), mepolizumab (39th), and benralizumab (47th).
For these drugs, the new model will replace the ASP add-on price with a “Most Favored Nation” (MFN) Price based on the “lowest GDP-adjusted price paid by an Organization for Economic Cooperation and Development (OECD) member country with a GDP per capita that is at least 60% of the U.S. GDP per capita, and the ASP.” Table 6 (Page 10) in the Supporting Documentation summarizes the estimated MFN reimbursement rate for these drugs. As you can see, the proposed reductions in payments are significant across the board, affecting all specialties.
The new model is being implemented using the Centers for Medicare and Medicaid Services (CMS) Center for Medicare and Medicaid Innovation (CMMI)’s demonstration authority. The model will be tested over a period of seven years before CMS will determine if it will permanently adopt the model.
The new model, which will be a flat payment per dose, is scheduled to begin on Jan. 1, 2021 but will be phased-in over the first four years of the seven-year model, phasing in 25% per year for years 1-4, and will be 100% of the MFN Price for years 4-7. The Advocacy Council is evaluating the potential financial impact of this proposal on the practicing allergist/immunologist, especially those who “buy & bill” biologics. The Advocacy Council will let you know our thoughts as more information is forthcoming.
The second regulation would impact Medicare Part D drug prices by removing the safe harbor exception from the anti-kickback statute for rebates that pharmacy benefit managers (PBM) reach with manufacturers. While details of these arrangements are often kept secret, in general, PBMs negotiate discounts with manufacturers as a condition of including the manufacturer’s drugs in their formularies. It is not always clear if the PBM passes these discounts on to the patient or if the PBM keeps the savings themselves.
By removing these rebates from the list of financial arrangements protected from anti-kickback statute scrutiny, the Administration will have the authority to investigate rebates and penalize PBMs if the savings generated by rebates are not shared. This rule will take effect on Jan. 1, 2022.
It is widely expected that pharmaceutical manufacturers and other interest groups will challenge both of these regulations in court. The courts could delay implementation to allow the legal process to play out. Additionally, the incoming Biden Administration would have the ability to change these regulations through subsequent rulemaking. Although these proposed changes affect Medicare Parts B and D at the moment, the response by private carriers remains unknown.
Because of the proposed PBM changes, they are likely to oppose at least that portion. As always, the Advocacy Council of the ACAAI will be following all of these issues closely.