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We look at drug price reform proposals from the White House CEA and President Trump’s FY2019 budget.

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Feb. 16, 2018

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FEATURED STORY
 

Luge Administrative Proposals on Drug Prices

 
 

Late last week, the White House Council of Economic Advisors (CEA) released a white paper titled, “Reforming Biopharmaceutical Pricing at Home and Abroad,” which was quickly followed Monday by President Trump’s fiscal year 2019 budget proposal. While both documents contain ideas that could give healthcare stakeholders a panic attack, these documents are aspirational and not yet in motion.

The CEA white paper outlines 2 goals for drug price reform. The first is to reduce the price Americans pay by promoting competition and changing government reimbursement. The second is to reduce the price of health by increasing incentives for innovation by changing US policies and limiting foreign underpricing.

Included in the paper’s far-reaching proposals for Medicaid and Medicare drug payment reform:

  • Changing rules on how Medicaid best price is calculated (and allowing for outcomes to be factored into pricing)
  • Removing the Medicare Part B buy-and-bill structure, moving Part B drugs to Part D, requiring more accurate sales data, and cutting payment for new drugs for which an average sales price has not yet been set
  • Eliminating the 2 drugs per category and class requirement in Part D, changing low-income subsidy cost-sharing to encourage lower-priced options, and having the (now 70%) manufacturer coverage gap discount not count toward the true out-of-pocket costs
  • Aligning incentives in Part D including requiring plans to share discounts (as in the Part D proposed rule released last November), allowing plans to manage formularies, lowering copays for generic drugs, and discouraging plan benefit design that pushes beneficiaries into catastrophic coverage

The paper also proposes a series of options for incentivizing innovation and addressing underpricing, including:

  • Changing the Food and Drug Administration (FDA) review process to allow for expedited review of second- or third-in-class product/indication
  • Decreasing the concentration of players in the supply chain (pharmacy benefit managers [PBMs], wholesalers, pharmacies) to allow for competition
  • Reviewing trade policies that take advantage of US-funded innovation
  • Re-examining eligibility in the 340B program
  • Improving generic and biosimilar development and approval

The President’s budget was, as most Presidents’ budgets are, equally aspirational in its outline of the Administration’s priorities. In some places, the budget was juxtaposed to the CEA paper; ideas presented include:

  • Test state innovation by having a demonstration for up to 5 states to establish a formulary in Medicaid and negotiate directly with manufacturers
  • Require Part D plans to share discounts at the point of sale, increase plan formulary flexibility, eliminate generic cost-sharing for the low-income subsidy, and discourage manufacturer strategies that increase spending for beneficiaries and the government
  • Introduce a new out-of-pocket spending cap for Part D
  • Improve price reporting in Part B and put an inflation cap on price increases
  • Modify 340B payments in Medicare and require that hospitals provide charity care
  • Continued push toward block grants in lieu of the Affordable Care Act (ACA)
  • Clarify the definition of innovator and non-innovator drugs in Medicaid

While neither document will be implemented in its entirety, they serve as important beachheads for the Administration’s thinking and potential policy shifts coming from the agencies. We only need to look to last week’s budget legislation and the passage of the coverage gap discount increase (straight from Obama’s 2017 budget) to see the potential impact of what is typically seen as a fairly innocuous document.

 

Xcenda Examines the Impact of the Tax Cuts and Jobs Act on the Life Science Sector

 
 

The Tax Cuts and Jobs Act (TCJA), which was signed into law on December 22, 2017, is of particular interest to the life science investment community.

Described as a windfall for corporate tax infrastructure and the most far-reaching piece of tax legislation enacted in the US since the Tax Reform Act of 1986, the TCJA highlights the potential for US companies to repatriate their liquid foreign subsidiaries at a lower tax rate.

Xcenda’s latest issue brief, Life Science Investing During the US Tax Reform Windfall: Key Insights to Guide Smart Decision Making,” takes a look at the mergers and acquisition activity in the life science sector as a result of the act and provides key insights for investing in the sector.

 

 

 
LEGISLATIVE UPDATES
 

State Legislation Tries to Curl Drug Spending

 
 

The Pew Charitable Trusts has summarized states’ 2017 efforts to manage prescription drug spending, which reached $477 billion in 2016. The article indicates that states have used a broad range of approaches in what may be judged as, collectively, a “shotgun approach” at trying to control costs. These efforts range from policies that restrict price increases and ease the substitution of biosimilars to those that prohibit exploitive practices by PBMs and manufacturers.



In addition, the article notes that CO, DE, IA, MD, OR, TX, and WV have enacted laws that inactivate step-edit requirements under certain conditions. This approach seems to be more targeted at mandating best practices, as determined by the physician, than it does at controlling costs.

Although the effectiveness of any of these approaches has yet to be determined, states have begun their 2018 legislative sessions with continued focus on drug spending and/or pricing initiatives. As we noted in our 2018 Healthcare Outlook, confusion at the federal level over prescription drug pricing regulation has caused states to take the lead on legislation to alter drug spending.

 

Legislative Bytes

 
 
  • Sen. John Thune (R-SD) and Rep. Diane Black (R-TN) introduced S 2410 and HR 4978, bills to permit high-deductible plans to provide chronic disease prevention services to enrollees before satisfying their deductible.

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REGULATORY UPDATES
 

Faster Than Mikaela: Health Spending Continues to Increase

 
 

This week, the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary continued its tradition of outlining its projected national health expenditures (NHE) for 2017–2026, presenting findings in a Health Affairs paper. NHE growth is expected to average 5.5% annually over 2017–2026; by comparison, Altarum reported this week that national health spending grew by 4.7% in 2017.

The CMS Actuary projects NHE growth to exceed gross domestic product (GDP) growth by 1.0% over 2017–2026. As a result, the health share of GDP would increase from 17.9% in 2016 to 19.7% by 2026.

Among the major payers for healthcare over the 2017–2026 period (ie, Medicare, Medicaid, and private insurance), Medicare is projected to experience the most rapid annual growth at 7.4%, largely driven by enrollment growth and faster growth in utilization from recent near-historically low rates.

Private health insurance spending is projected to average 4.7% over 2017–2026, the slowest of the major payers. The slower growth reflects low enrollment growth and downward pressure on utilization growth, which are influenced by: 1) lagging impact of slowing income growth in 2016 and 2017; 2) increasing prevalence of high-deductible health plans; and 3) repeal of the penalty associated with the individual mandate.

Medicaid is projected to average 5.8% annual growth over 2017–2026, which is slower than the average observed for 2014–2016 of 8.3%, when the major impacts from the ACA’s expansion took place.

Prescription spending growth is projected to be among the fastest-growing major sectors of healthcare, averaging 6.3% over 2017–2026, influenced by trends in relatively costlier specialty drugs.

The faster NHE spending growth over the next decade is far from unexpected, as the contributing macro vectors of basic demographics (aging population) and economics (increasing interest rates, expected wage increases) are difficult, if not impossible, to adjust. At some point in the near future, the faster growth of Medicare spending should cause lawmakers to focus on structural adjustments so it does not continue to crowd out other domestic spending.

 

Skeleton of What Modernizing Medicare Cost-Sharing Could Look Like

 
 

Last Thursday, the Government Accountability Office (GAO) released a report that addressed concerns related to the existing Medicare fee-for-service (FFS) cost-sharing design. The report examined 4 scenarios for modernizing Medicare cost-sharing rules and analyzed how those changes could affect beneficiaries’ costs.

The GAO began with revising Medicare’s cost-sharing structure so that it had a single annual deductible, uniform coinsurance, and an annual cap. It then tweaked this broad structure in 4 ways to explore differences in beneficiaries’ costs. Medicare’s aggregate share of costs remained similar to the current design, and utilization and enrollment were held constant.

The study found that modernizing the Medicare cost-sharing design would involve trade-offs, and the effect on beneficiaries’ costs would depend on the time horizon. For example, in year 1 of the analysis, designs with low deductibles and high caps resulted in a median annual beneficiary cost-sharing responsibility close to or below that of the current design. However, designs with low caps resulted in a median annual cost-sharing above that of the current design. By year 8 of the analysis, the differences in the median annual beneficiary cost-sharing responsibility were less substantial.

As delivery of care in the US has evolved over time, private insurance companies have responded by restructuring the way they pay for care. Meanwhile, Medicare’s cost-sharing structure hasn’t changed materially since its inception in 1965. While modernizing Medicare has been proposed (see the President’s budget in the Featured Story), it is a slog with changes likely facing strong headwinds from various healthcare stakeholders.

 

Information Buffet (AKA, Other Stuff That Caught Our Attention)

 
 

We kept running into stories we wanted to bring to your attention, so here’s a quick hit list of other news we thought you should know:

 

What Information Do Payers and Providers Want From Manufacturers to Make Coverage and Treatment Decisions?

 
 

Optimizing Evidence Exchange for Improved Outcomes

Payers and providers rely on various types of information from manufacturers to make coverage and treatment decisions. But what do they find most valuable? View our new infographic of our joint study with the National Pharmaceutical Council that highlights the data and evidence that matter most. View infographic

 

 

 
HEARD ON THE STREET
 

“There are rules and there’s a rule of law we need to enforce.

 

– Department of Health and Human Services (HHS) Secretary Alex Azar responding to questions about Idaho’s plan to let insurers sell plans that do not meet standards set by the ACA

Source: Ways and Means Hearing on HHS’ Fiscal Year 2019 Budget Request, February 14

 
POLICY BY NUMBERS
 

$93.6 Billion

 

The Association of Accessible Medicines says that generics and biosimilars saved the US healthcare system $93.6 billion between 2012 and 2016—and could save a further $140 billion between 2017 and 2021.

 
UPCOMING MEETINGS & CONFERENCES
 

CBI 10th HUB and SPP Model Optimization Conference

February 27–28 l Philadelphia, PA
Join AmerisourceBergen sister company Lash Group at CBI’s 10th Annual HUB and SPP Model Optimization Conference in Philadelphia. Mark Spykerman, Senior Vice President, Lash Group, will present a session titled, “Implement New Technology Innovations to Improve Speed, Scale, and Patient and Provider Experience for Electronic Benefit Verification and Prior Authorization.” Learn more

 

CBI 19th Patient Assistance and Access Programs Conference

March 6–7 l Baltimore, MD
Join leaders from Xcenda and Lash Group at the 19th PAP Conference in Baltimore. Ana Stojanovska, Vice President, Reimbursement & Policy Insights, and Teri’ Burnell, PharmD, Senior Vice President, Field Support at Xcenda, will host the Opening Luminary Address on “The Changing Landscape of Healthcare Coverage and Access.” Tommy Bramley, PhD, President of Lash Group, will present the Keynote Address on “Pioneering to New Grounds in Patient Access—Rewriting the Playbook for Patient Programs.” Learn more

 

AMCP Managed Care & Specialty Pharmacy Annual Meeting

April 23–26 l Boston, MA
Join AmerisourceBergen companies, US Bioservices and Xcenda, at AMCP’s Annual Meeting at the Boston Convention and Exhibition Center April 23–26. Meet with our specialty pharmacy and commercialization experts at the largest gathering of managed care professionals who work, lead, and innovate in the ever-changing world of pharmaceutical management. Visit AmerisourceBergen at booths 316 and 321. Learn more

 

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Count on Health Policy Weekly for an at-a-glance view of legislative and regulatory developments and news that impacts the healthcare industry.

 
 
 
 

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FEATURED CONTRIBUTORS
 

EDITOR-IN-CHIEF:
Jennifer Snow
Senior Director,
Health Policy
Xcenda

MANAGING EDITOR:
Scott Shields
Associate Director,
Health Policy
Xcenda

 

ADVISORY BOARD:

Peyton Howell, MHA
Executive Vice President & President, Health Systems & Specialty Care Solutions | AmerisourceBergen Corporation

Amy Grogg, PharmD
Senior Vice President | Strategy & Commercialization | AmerisourceBergen Corporation

Kristine Flemister, PharmD
President | Xcenda

Tommy Bramley, PhD, RPh
President | Lash Group

Stacie Heller
Vice President | Government Policy | AmerisourceBergen Corporation

Rita Norton
Senior Vice President | Government and Public Policy | AmerisourceBergen Corporation

Ana Stojanovska
Vice President | Reimbursement & Policy Insights | Xcenda

CONTRIBUTING AUTHORS:

Stew Kaufman | Scott ShieldsJennifer Snow | Linnea Tennant

PRODUCTION:

Laurie Kozbelt | Ellen Olson | Tia O’Brien

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Feb. 16, 2018

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