Both Democrats and Republicans have been vocal advocates for passing legislation targeting drug prices, though discussions were delayed as legislators turned their attention to the coronavirus pandemic. (Photo: Shutterstock)
Health care spending in the U.S. continues to increase year after year, with prescription drugs accounting for a significant portion. The Centers for Medicare and Medicaid Services estimates that prescription drug expenditure in the United States came to some 335 billion U.S. dollars in 2018. CMS predicts that, over the next 10 years, spending on prescription drugs will be the fastest growth health category and will consistently outpace other health expenditures. It is for this reason that health plans, employers and policymakers have been calling for measures to help lower the cost of prescription medications.
Both Democrats and Republicans have been vocal advocates for passing bipartisan legislation to address this national concern, specifically working on bills S.2543 and H.R.3. Understandably, however, these discussions were delayed as legislators turned their attention to federal aid bills designed to ease COVID-19-related economic concerns. Recently, the Trump administration announced drug pricing is a priority again, but there is no firm timetable in sight for movement on major proposals.
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Before the global pandemic hit, self-insured businesses were already bracing for the impact from the rising cost of prescription drugs. With legislation slowed, payers and members will have to continue waiting for federal-level action to help lower costs, but that doesn't mean brokers and employee benefit consultants should take a wait-and-see approach.
It's important to understand the potential impact of bills on the table for self-insured employers — if and when they do move forward. More importantly, there are steps brokers can take in the meantime to help their clients reduce spending on pharmacy benefits while still prioritizing employee health and satisfaction.
Here are the top things benefits consultants need to know about pending drug pricing legislation.
The Prescription Drug Pricing Reduction Act of 2020
In the Senate, Senators Chuck Grassley (R-Iowa) and Ron Wyden (D-Ore.) created S.2543 – also known as the Prescription Drug Pricing Reduction Act of 2020. Originally introduced by the Submitted Finance Committee in September of last year, the proposed legislation passed out of the committee on a bipartisan vote of 19-9 on July 2, 2020.
The details: S.2543 establishes a $3,100 cap on annual out-of-pocket spending in Medicare Part D, starting in 2022. It indirectly impacts drug pricing by creating much stronger incentives for payers to manage costs throughout all phases of the Medicare Part D benefit. In turn, this could lead to lower drug prices, as it will force Part D plans to be more efficient in their pricing negotiations and management of drug spending.
For costs above the "catastrophic threshold," the bill proposes reducing Medicare reinsurance payments from 80% to 20% over a three-year period, while simultaneously increasing insurers' share of cost responsibility from 15% to 60%.
The bill also requires that drug manufacturers pay a 20% rebate in the catastrophic phase and proposes an inflationary rebate for physician-administered Part B drugs. If prices for brand-name drugs or biologics covered under Part B increase faster than the rate of inflation, manufacturers would be required to pay the difference in the form of a rebate to Medicare.
In order to mitigate the financial incentive for physicians to prescribe higher-priced Part B drugs, the PDPRA proposes establishing a maximum add-on payment of $1,000 per drug, biologic, or biosimilar that is administered on a calendar date beginning on January 1, 2021.
The bottom line: Advocates for the bill, such as Senator Wyden, suggest that the final version of the bill will tackle out-of-pocket costs for drugs such as insulin products, namely through pass-through rebates to patients. Critics of the bill cite concern that penalizing drug makers for price hikes would be equivalent to imposing government price controls.
The key takeaway for brokers: The bill's current language would have no direct impact on drug pricing for commercial plans or self-funded employers.
The Lower Drug Costs Now Act
Currently, federal law restricts Medicare from negotiating lower drug prices, even as drug companies raise prices on seniors and beneficiaries without any limit. The Lower Drug Costs Now Act, or H.R.3, seeks to eliminate that ability and give Medicare the power to negotiate directly with the drug companies.
The details: This bill strives to create strong new tools to bring drug companies to the table to agree to real price reductions while ensuring seniors never lose access to the prescriptions they need. In its current state, the bill would limit the maximum price for any negotiated drug to the average price. H.R.3 would also create a new $2,000 out-of-pocket limit on prescription drug costs for Medicare beneficiaries and reverse years of price hikes above inflation across thousands of drugs covered by Medicare.
Additionally, the lower drug prices negotiated by Medicare would be made available to Americans with private insurance — not just Medicare beneficiaries.
The bottom line: H.R.3 passed in the House of Representatives in December 2019 but was considered dead on arrival by Senate Majority Leader Mitch McConnell (R-AL) because of its perceived correlation to government price setting. Advocates for the bill state that it would enable the significant cost savings to be reinvested in innovation – potentially freeing up billions of dollars which could be reallocated toward the search for breakthrough treatments at the National Institutes of Health.
Conversely, drug makers warn that less revenue will have significant implications on the industry, especially for smaller biotech companies, and the opportunity for pharmaceutical manufacturers to develop new drugs for rare conditions. They claim that if H.R. 3 had been in effect from 2009 to 2019, California's startups would have produced only three drugs instead of the 25 that actually made it to market.
The key takeaway for brokers: While the bill would likely reduce pharmacy spend across the board, it is unlikely to move forward in the coming months and should not be counted on during forecasting and planning meetings with self-insured clients.
As the country continues to navigate the COVID-19 pandemic, it is more important than ever for brokers to help their clients find meaningful cost savings in their benefits plans. The good news is that there are ways for brokers to help self-insured employers proactively mitigate the impact from rising drug costs, regardless of what happens on Capitol Hill.
By carving out and carefully analyzing employer pharmacy benefits contracts, as well as implementing sustainable clinical strategies that closely monitor claims and utilization management, brokers can ensure their clients are not overpaying for prescription drugs. Optimizing pharmacy benefits can help self-funded employers significantly reduce costs and ensure members have access to the right medication for the right reason and at the right price. Bryan Statham is CEO of RxBenefits, a technology-enabled pharmacy benefits optimizer (PBO) with more than 500 pharmacy pricing, data and clinical experts working together to deliver prescription drug program savings to employee benefit consultants and their self-insured clients.
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