Part D Discount Liability Coming Into Focus: CMS Releases Drug Cost Data

Newly released Medicare Part D data sheds light on the sales hit that branded pharmaceutical manufacturers will face when the coverage gap discount program gets under way in 2011.

Manufacturer-level brand drug spending data for 2009 from the Centers for Medicare and Medicaid Services indicate the discounts could reduce annual sales for individual leading biopharmaceutical firms by nearly $100 million to more than $200 million.

CMS data show the total cost, by manufacturer, of drugs provided to Part D enrollees who do not receive the Medicare low-income subsidy once they reach the benefit's coverage gap and must pay for prescriptions out-of-pocket (see chart: " ¹ Manufacturer-Level Brand Drug Spending In The Gap In 2009 ").

Under the health reform law, manufacturers will be required to provide 50 percent discounts on the negotiated price of branded drugs and generics marketed under a new drug application (excluding dispensing fees) to such beneficiaries starting next year.

Figures in the CMS report are presented by labeler codes and product-specific sales are not broken out. The agency also lists the total number of drug "utilizers" per labeler code, total number of Part D plans processing claims for each labeler code and total drug costs.

CMS's purpose in releasing data is informational, "to help size the potential manufacturer liability for coverage gap discounts in 2011," an agency spokesman said in an e-mail. He noted the discount amounts would be 50 percent or less of the total drug costs listed in the report.

The top 11 companies in terms of branded drug costs generated about 70 percent of the $5 billion spent in total by non-LIS beneficiaries in the coverage gap, based on an analysis of the data by "The Pink Sheet." CMS reports 3.7 million non-LIS beneficiaries received branded drugs in the gap during 2009.

The 2009 figures suggest the discount program could reduce branded biopharmaceutical sales by approximately $2.5 billion.

Pfizer could be looking at a reduction of about $280 million on sales of its drugs to non-LIS beneficiaries in the gap. Total drug spending for Pfizer products to such beneficiaries reached more than $560 million in 2009, based on the analysis.

The report is a new one from CMS and drug companies are still in the process of evaluating the data. It is expected to be one of a number of information sources that companies use to estimate their financial responsibilities under the discount program.

However, using 2009 figures to forecast the future is complicated by pending patent expirations for a number of major drugs in the Part D world. Pfizer's Part D sales are likely to look very different than in 2009, for example, once the patent for its blockbuster cholesterol reducer Lipitor (atorvastatin) expires in 2011.

Reducing Negotiated Rebates To Plans

There's another reason why companies may not lose as much in drug sales as the numbers would indicate. Manufacturers have been looking to recoup lost revenues by negotiating upcoming drug contracts with Part D sponsors to include lower rebates than were paid in 2009.

But they also are getting push-back from payers. Insurers and pharmacy benefit managers have urged in public comments that CMS specify in policy documents that discounts in the new program are in addition to, and not in lieu of, the existing remuneration arrangements the companies negotiate with plans ² ('The Pink Sheet,' May 19, 2010).

Insurers also warn that if rebates decline, plan premiums will rise. At a June 1 CMS workshop on the discount program, Humana VP-Pharmacy and Clinical Integration William Fleming challenged the position held by some in the drug industry that rebates and the discount are interchangeable.

While each is expected to ultimately lower beneficiary costs, they do so in different ways, Fleming emphasized. "Rebates are a meaningful buy-down against member premiums." In response to those concerns, CMS has said in its final program guidance that it expects drug companies to continue to provide rebates (³ (Also see "CMS Expects Part D Rebates Will Continue Despite Donut Hole Discounts, Guidance Says" - Pink Sheet, 21 May, 2010.)).

It is unclear what other concrete measures CMS can take to address the issue, given the legal restrictions on government interference in price negotiations between drug companies and plans in Part D.

- Cathy Kelly ( ⁴ [email protected] )