Closer Look at Trump’s Medicare Drug Price Change Raises Doubts

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By Jacquie Lee

Some researchers and health policy wonks are skeptical the Trump administration’s latest push for drug price negotiation in certain Medicare plans will lead to long-term savings.

Private insurance companies that provide coverage through Medicare Advantage Part B plans will be able to negotiate with drug companies for lower prices next year. The main crux of the negotiations is plans following certain steps before allowing a patient to be prescribed an expensive drug. Typically, the patient has to try the cheapest version available before moving on to an expensive counterpart, which means cheaper drugs get priority over expensive ones.

That setup is commonly referred to as “step therapy.” Theoretically, it provides incentives for brand drugmakers to lower their prices so they can remain competitive with generics.

The move could save money for roughly 20 million Americans who are covered by those plans, Seema Verma, head of the Centers for Medicare and Medicaid Services, told reporters earlier this week. But the doctors who treat those patients will shoulder more administrative costs as a result, Michael Kolodziej, vice president and chief innovation officer of ADVI, told Bloomberg Law. ADVI is a health-care consulting company in Washington.

“It will increase administrative burdens, no doubt,” Kolodziej said. The U.S. health-care system already spends an inordinate amount filing paperwork compared to other countries. Twenty-five percent of hospital costs in the U.S. are administrative, according to a study from the Commonwealth Fund.

Patients and doctors can try to circumvent the first “step” of the new setup and request the more expensive drug first. That appeal process will drive up costs for both doctors and health insurance plans, but it’s the doctors who will feel the brunt of it.

“The savings are going to accrue directly to the health plan,” Kolodziej said. Which means for doctors, “the real question will be, is it worth it?”

Kolodziej anticipates doctors will consider reducing the number of Medicare patients they treat if administrative burdens get too high down the road.

“Medical groups may say ‘we aren’t able to treat every single Medicare patient that comes into this office because the Medicare payments are so low and the regulatory burdens are so high,’” Anders Gilberg, vice president of government affairs for the Medical Group Management Association, told Bloomberg Law. “Those are a lot of the tough choices being made.” Gilberg is also a Bloomberg Law advisory board member.

Who Gets the Savings?

The CMS has instructed plans that “more than half of the savings generated through these approaches must be provided back to patients through plan rewards programs,” Verma said Aug. 7. Those rewards programs are typically delivered through gift cards, Verma said.

However, the history of gift cards in the U.S. health system has been fraught with brand drugmaker interference, said Robin Feldman, a professor at the University of California Hastings College of the Law in San Francisco. She specializes in pharmaceutical pricing and competition.

Patients can typically use gift cards—sometimes called coupon cards—to get direct dollars back from a drug company if they choose to buy their drug.

“It has been a way that an expensive brand drug [company] can coax patients into using their expensive drug,” Feldman said, which “can have very odd effects. It can operate so that the patient is happy buying a branded drug while the really cheap generic is shut out of the market.”

That’s not good for the patient’s financial interests in the long run, she said.

Feldman isn’t sure if these are the types of gift cards Verma was referring to in her memo to drug plans. If they are, she’s skeptical those types of “rewards programs” will lead to long-term savings for patients.

Other groups remain optimistic the change will mean lower costs for patients. “Higher rebates are driven by competition and leverage,” Daniel Nam, executive director of federal programs for America’s Health Insurance Plans in Washington, told Bloomberg Law. The group represents about 1,300 member companies that sell health insurance.

“We appreciate the administration’s recognition to have negotiation power to drive down prices,” he said.

Does It Work?

Both Verma and Dan Best, the senior drug policy adviser to Health and Human Services Secretary Alex Azar, say private commercial plans use step therapy often, and that it’s resulted in savings.

Step therapy is “is a broadly used approach for managing drug benefits in the commercial sector in the Part D plans,” said Jack Hoadley, a research professor at Georgetown University. But there doesn’t appear to be a lot of research that delves into how effective step therapy is at saving money in the long run, he said.

There are studies that show step therapy works. One from 2007 shows it saved patients 13 percent on blood pressure medicine. Another study from 2006 showed 9 percent savings on antidepressants.

More recent research casts some doubt about the effectiveness of step therapy. A 2010 review of 15 studies concluded “although formulary restrictions are intended to reduce costs while maintaining or improving quality, few comprehensive studies support these claims,” according to a report in the American Journal of Pharmacy Benefits. “Further research is needed to quantify the effect of formulary restrictions such as step therapy,” it said.

A 2015 study published in the Journal of Managed Care & Specialty Pharmacy said there was no overall cost difference for patients who used step therapy and those who didn’t, but that patients who used step therapy had delayed access to medicine.

“Across the board I would expect prices to stabilize or have limited improvement,” Feldman said of the short-term implications of the new Medicare change. “When patients and politicians are howling for change, drug companies have an incentive to look like boy scouts and create some improvement,” she said.

“But the real question remains: have we done anything that will fundamentally change the system?”

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