Currently, if a drug falls intoone of six protected categories, privately covered Medicare planshave to cover it — giving drug manufacturers significant power tocharge what they want. (Photo: Getty)

Pharmaceutical companies that raise the cost of certain drugs risk losingprotections that guarantee Medicare coverage, part of a Trumpadministration proposal to give insurers leverage to negotiate lower prices.

The U.S. Centers for Medicare and Medicaid Services on Mondayproposed exceptions to six protected classes of treatments forillnesses including HIV, depression and cancer. If a drug fallsinto the category, privately covered Medicare plans have to coverit — giving drug manufacturers significant power to charge what they want.

Related: Trump criticizes “global freeloading” in latestdrug price action

Under the administration's proposal, some drugs could be kickedout by insurers if, for example, their manufacturers raise theprice by more than the consumer price index over about a year, CMSAdministrator Seema Verma said in an interview with Bloomberg. Theproposal could save $692 million over a decade, she said.

The Obama administration ditched a 2014 effort to limit thenumber of protected classes after fierce blowback from patientgroups and members of Congress.

“What we want to do is make sure our beneficiaries are gettingthe drugs that they need at affordable prices,” Verma said. “If themedication isn't affordable, they aren't going to be able to accessit.”

Insurers would have to cover at least two drugs in eachtherapeutic class. The proposals released Monday are scheduled tobe finalized in early April.

Step therapy

The proposal would give insurers other powers to control costs.Drugs that are merely new formulations — an extended-releaseversion of an existing drug, for example — would no longer getprotection. Insurers could also force patients to try a cheaperdrug before using a more expensive one, a tactic known as steptherapy.

“President Trump is following through on his promise to bringtougher negotiation to Medicare and bring down drug costs forpatients,” Health and Human Services Secretary Alex Azar said in astatement.

The administration has also suggested it could support a policyto require rebates drugmakers offer insurers to be passed on toseniors at the pharmacy counter. Such a move could raise insurancepremiums, but lower out-of-pocket spending. CMS is now asking forinput on a policy that would take the rebates into account whendetermining the amount seniors must pay out of pocket. The policycould be implemented as soon as 2020.

The potential changes are part of a long list of policies CMS isproposing to govern Medicare Advantage plans and Medicare Part Dprescription-drug plans that will cover seniors in 2020. BothMedicare Advantage, which provides extra benefits in addition totraditional Medicare, and Part D are offered by privateinsurers.

Verma and Azar wrote in a blog post that non-Medicare plansobtain discounts of 20 percent to 30 percent for protected drugs,while Part D discounts average 6 percent. For example, Medicarespending on Latuda, a biopolar depression drug made by SumitomoDainippon Pharma Co., grew almost 19 percent annually from 2013 to2017, Verma and Azar said.

In 2015, protected-class drugs accounted for 20 percent ofspending by Medicare's Part D prescription-drug benefit but only 14percent of prescriptions, according to the Pew Charitable Trusts.Total Part D spending on drugs in 2015 was $137 billion, the KaiserFamily Foundation said.

The administration also proposed letting insurers continue torequire step therapy for drugs that are given in a hospital orclinic, a separate Medicare program called Part B.

The move is another effort to give insurers a negotiating toolto gain discounts and rebates from drugmakers in exchange for notsteering patients to rival treatments.

“We've had a lot of interest from plans,” Verma said. “They'reexcited about this.”

More on the administrations efforts to rein in drugprices:

• Pharma balks at proposal to list drug prices in TVads
• Trump proposal to cut drug prices promisesimmediate impact
• Drug price hikes continue despite pressure from theWhite House

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