Changing Drug Benefit Design & Transparency to Impact Drug Prices

In this fifth and final in a series of five articles based on Cyan Health's white paper summarizing efforts to put each of the “American Patients First” blueprint's four strategies into action, Rick Kelly and Nisha Desai provide an overview of the plan's four key strategies. 

In May of 2018, The Trump administration released its plan to combat rising prescription drug prices and out-of-pocket costs via the American Patients First blueprint. This plan identified four key strategies for reform: fostering increased competition, ensuring better negotiation practices, creating incentives for lower list prices, and lowering out-of-pocket (OOP) costs. 

In our previous articles, we described the administration’s proposals to achieve reform and mitigate the challenges they believe are impacting the American drug market. Those challenges include high list prices for drugs, lack of negotiating tools to help control drug prices for seniors and government programs, rising OOP costs for consumers, and foreign governments benefiting from American investment in innovation. Current activities focus on:

Increasing competition

According to the Blueprint, the degree of competition for prescription drugs is insufficient to drive lower list prices. One specific concern is that pharma companies “game regulatory processes” to delay and prevent the availability of generic drugs. The blueprint aims to modify rules that make this gaming possible and to clarify and simplify processes for approving generics.

Improving government negotiation tools

Medicare pays for drugs via three programs: Part A for drugs administered in hospital inpatient settings, Part B for drugs administered in the physicians’ offices, and Part D for self-administered drugs. Since Part A drugs are paid for as part of a Diagnoses-Related Group (DRG) payment, it is difficult to quantify these costs. In 2016, the total cost for Medicare Part B drugs was $25.7 billion, with Medicare Advantage plans actively managing utilization of these drugs. The total cost for Medicare Part D drugs in 2016 was $141.4 billion, with use and costs managed by private payers.

Therefore, the blueprint strives to improve government negotiating tools as a means of lowering the costs of Part B drugs and empowering payers offering PDP and MA-PD plans to lower the costs of Part D drugs. The blueprint explores rules and regulations that empower plans to use management utilization tools which, in turn, would increase competition for coverage. Some of the more aggressive proposals still under consideration include the use of an international pricing index for some Part B drugs, shifting Part B drugs to Part D, and the utilization of value-based purchasing.

Incentivizing lower list prices

Higher list prices are currently incentivized by the business model between payers/PBMs and manufacturers that involves complex contracting tactics-primarily rebates in return for formulary position. This problematic scenario is further complicated by a lack of transparency regarding list prices, which serve as the basis for OOP costs. Unfortunately, patients may feel the brunt of these market factors as recent trends towards benefit designs with higher out-of-pocket costs have shifted the burden of these higher list prices to patients. 

The blueprint exploresincreasing transparency of prices in several ways: eliminating rebates, adjusting Part D OOPs and cost-sharing, and making minor alterations to Medicaid rebates and 340B reimbursement. The vast majority of these proposals would require significant changes to be implemented by HHS or CMS. 

Lowering OOP costs

At their core, the blueprint and its policies strive to accomplish one ultimate goal: to decrease the financial burden on patients. Approaches to achieving this goal are threefold: 1) allow plans to implement step therapy for Part B drugs in order to negotiate lower net prices, 2) lower OOP costs for 340B drugs in hospital outpatient settings, and 3) promote price transparency by eliminating “gag clauses” that prevent pharmacists from informing patients paying cash that there are less expensive alternatives than Medicare Part D copay or coinsurance.

The American Patients First blueprint has the potential to dramatically alter the drug pricing landscape which, in turn, has far-reaching implications for pharma companies. The administration has begun to implement the proposals and is actively investigating more changes on multiple fronts. 

As with most proposals, government initiatives are ever-changing and must evolve with market dynamics and the political environment. Recently, just as the drug pricing blueprint -including its groundbreaking proposal to eliminate rebates – was taking a few blows, the Republican and Democratic leaders of the Senate Finance Committee jumped into the fray. Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Oregon) have introduced the details of their far-reaching legislation, the Pharmaceutical Drug Pricing Reduction Act (PDPRA), with its 31 proposals spanning Medicare Part D, Medicare Part B, and Medicaid. If the proposals are implemented, pharma companies will need to change the way they price drugs; how they contract with Medicare plans; and how they communicate these actions to payers, the government, and the public. (For more insights on the implications and status of the PDPRA, visit https://bit.ly/2Zb98oU)

We are indeed standing at the threshold of a new, game-changing era in drug pricing. Pharma companies that want to continue competing will have to learn the rules.

Rick Kelly, RPH, MHA, and Nisha Desai, MPH, Cyan Health.