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‘It Starts With Transparency’: Lawmakers Talk Drug Pricing Fixes

WASHINGTON — Drug price transparency was touted by legislators at a Senate Finance Committee hearing Tuesday.

“I think it starts with transparency,” said Sen. Chuck Grassley (R-Iowa), the new chair of the committee, who added that patients shouldn’t need a PhD in economics in order to know what their drugs cost.

Grassley said he supports the Trump administration’s proposal and pending legislation that would require pharmaceutical companies to post the list price of a drug in direct-to-consumer advertising.

Ranking Member Ron Wyden (D-Ore.) pressed for more transparency with regard to pharmaceutical benefit managers (PBMs), the middlemen between drug companies and insurers. PBMs have been targeted lately by the Trump administration; the latter has suggested PBMs are skimming profits instead of holding down costs.

“We need to pull back the curtain on what’s really going on with these pharmaceutical benefit managers, and see who benefits,” Wyden said.

Other topics discussed at the hearing were rethinking physician payment for Part B therapies, forcing insurers to become better negotiators of Part D payments, and ending the gaming of Medicaid rebates.

‘Isolated Incidents?’

In his testimony at the hearing, Douglas Holtz-Eakin, PhD, president of the American Action Forum, a conservative think tank, noted that the total drug spending is only about 10% of the national health expenditure — about the same percentage as it was in 1960. However, after studying the data, he noted “isolated incidents” of high costs that are associated with off-patent sole source drugs.

In these situations, drug makers have taken advantage of their market power and hiked the price of their drugs, Holtz-Eakin stated. Such actions represent anticompetitive behavior and should be investigated by the Federal Trade Commission, he said.

Specialty drugs is another category lawmakers should zero in on, Holtz-Eakin stated, as these are expensive therapies with small patient populations, but the number of such therapies is growing.

Part B Payments

Mark Miller, PhD, vice president of health care for the Laura and John Arnold Foundation in Houston, suggested that the buy-and-bill model, where physicians are paid a percentage of Part B drugs’ costs, isn’t working. Shifting to a lower percentage add-on or flat fee would remove the incentive for physicians to prescribe more costly drugs, he said.

In Miller’s written remarks, he also noted that physicians could be allowed to “form purchasing groups and negotiate their own formularies for physician-administered drugs.”

In October 2018, the Trump administration announced a proposal to eliminate the “perverse incentives” of the “buy and bill” Part B model. The proposal also touched on the concept of developing third parties to procure and hold title to Part B drugs rather than physicians.

Peter Bach, MD, director of the Memorial Sloan Kettering Center for Health Policy and Outcomes in New York City, added that “de-link[ing] the provider’s bottom line from the pharmaceutical corporation pricing” was a good idea.

Research consistently shows that the percentage-rebate mechanism does in fact encourage physicians to prescribe higher cost Part B therapies, he said.

When asked by Sen. Pat Toomey (R-Penn.) whether paying a flat rate to physicians for Part B drugs was preferable to paying a percentage of the drug’s costs, all of the expert witnesses, including Holtz-Eakin, agreed that it was.

But Sen. Catherine Cortez Masto (D-Nev.) pointed out that under the Obama administration, efforts to overhaul the Part B drug program was met with resistance from patient groups concerned that changes to the program could limit access to critically needed treatments.

Bach said he was familiar with that argument, and noted that some patients suggested that doctors would leave the Medicare program if the markup on Part B drugs were reduced, or that they might shift patients to outpatient settings. But he dismissed that idea.

During the Medicare sequestration, reimbursement to physicians fell 2% and none of those fears played out, suggesting that any similar markdown would not threaten patient access, he said.

Part D Benefit

Spending in Part D rose 49% from $62.9 billion in 2010 to $93.8 billion in 2017, more than any other category of Medicare spending, according to the Wall Street Journal (subscription required). The Journal article stated that insurers have gamed the program by overestimating their projected costs, which Medicare pays on a monthly basis, and pocketing some of the extra monies.

Miller, a former executive director for the Medicare Payment Advisory Commission (MedPAC), suggested that the Medicare Part D structure needs to be realigned in order to pressure insurers to be more aggressive in negotiating drug prices with manufacturers.

For instance, he suggested that drug companies could be required to cover 80% of Part D drug spending when patients enter the catastrophic phase of their benefit plan, instead of the 15% of costs they currently pay. Any policy change could also include enhanced protections for when they reach the catastrophic phase of the benefit.

Another “more ambitious” idea would be ending rebates all together and shifting to a fee-based model, Miller proposed.

Separately, for the highest cost drugs that lack any competition, Miller recommended a few policy options: reference pricing (using external prices to determine reimbursement rates); paying for the clinical value of the drug; or employing “binding arbitration.”

In the case of the latter, the Secretary of the Department of Health and Human Services would negotiate a price with drug manufacturers directly, he suggested, adding that when enough competitors have entered the market, standard negotiations could resume.

Medicaid Drug Rebates

During his opening remarks, Grassley plugged a bill that he and Wyden introduced last week, the “Right Rebate Act.” The legislation would prevent drug manufacturers from exploiting the Medicaid Drug Rebate program, through which senators say drug makers have intentionally misclassified their products and cost taxpayers billions.

For example, Mylan allegedly misclassified certain EpiPens as generic devices, instead of brand-name products, and pocketed an extra $1.27 billion in federal rebates, according to Quartz.