Three Ways IPAB Can Reduce Drug Costs In Medicare: An Interview With Scott Gottlieb
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The Independent Payment Advisory Board is likely to take three approaches to reining in drug costs under Medicare, according to American Enterprise Institute Resident Fellow Scott Gottlieb. The three main approaches are:
In an interview, Gottlieb, a former senior policy advisor at CMS and former deputy commissioner for medical and scientific affairs at FDA, outlined how he expects IPAB to operate when it comes to prescription drugs under Medicare. IPAB was created by the Affordable Care Act to control costs in Medicare and has great authority to make changes; if Congress fails to act on its recommendations within a defined timeframe, the changes will automatically be implemented. The board, which has yet to be formed, is required under statute to issue its first recommendations in 2014. The pharmaceutical industry has targeted IPAB as one element of ACA it would like to see changed, because of its potential to strongly affect drug reimbursement (Also see "PhRMA Hopes To Change Medicare Payment Board Even As It Applauds House-Passed Reform Package" - Pink Sheet, 22 Mar, 2010.). Overall, IPAB is not likely to make coverage decisions on individual products, but rather give CMS the tools it needs to tamp down on drug costs. “They’re going to have to fly at a pretty high level,” Gottlieb said. “They’re not going to be able to get down into the weeds and adjudicate individual medical technologies. And if they try, I think they’re going to really undermine themselves from a credibility standpoint.” He suggested that the level of the recommendations will likely be similar to those of the Medicare Payment Advisory Commission. MedPAC regularly makes recommendations for legislation to Congress, although they are not binding as IPAB’s will be. In fact, Gottlieb said, “I think the MedPAC recommendations that never made it into any policy because they might have been too controversial are a good blueprint for where [IPAB] might look first.” An example of such recommendation might be the "least costly alternative" payment policy. MedPAC anticipates working closely with IPAB (Also see "MedPAC Wants Strong Working Relationship With Independent Payment Advisory Board, Director Says" - Pink Sheet, 16 Jun, 2010.). Taking Down Existing Price Schedules IPAB’s first broad tool would involve “just taking down existing price schedules … like ASP plus 6%, just bringing it down, or [durable medical equipment] pricing, putting in negative adjustments,” Gottlieb said. So IPAB could say the statutorily defined reimbursement rate for drugs dispensed by physicians under Medicare Part B, set at average sales price plus 6%, is too high, and reduce that to ASP plus 4%, for example. Medicare reimbursement for outpatient drug administered in hospitals is also a multiple of the drugs ASP, although CMS currently has authority to adjust that multiplier each year. New Pricing Schemes The second approach would basically allow CMS to “create a new pricing scheme” for drugs in areas where no price schedule currently exists, Gottlieb said. “I think that they’re going to be able to import price schedules into parts of the Medicare market where they currently don’t exist, so things like Medicaid best price for the duals on Part D,” Gottlieb suggested. Mandating Medicaid-level rebates for drugs used by Medicare/Medicaid dual eligibles has been considered by Congress, but so far has failed to garner enough support to pass. It is an idea the pharmaceutical industry has worked to keep out of legislation. Gottlieb added that IPAB could even reach outside of CMS programs to find pricing schedules: “I think you can even see some creative constructs, like, I’ll use the example of [Department of Veterans Affairs] pricing around the single source drug.” VA negotiates discounted drug prices, which are listed in a federal supply schedule, for its health programs. New CMS Authority Finally, IPAB could give authority to pay less for a drug if it believes it works the same as a lower priced drug. “The third thing that I’ll think they’ll do is just confer CMS with broad authority that will allow CMS to have more discretion over what it does and doesn’t pay for. And there you get into things like least costly alternative authority, or … consolidating drugs with separate Orange Book listings under the same [reimbursement] code,” Gottlieb said. He added that this is “authority CMS has long wanted, and IPAB could confer it on them overnight.” CMS has previously tried to institute a least costly alternative policy for drugs, where if it believes two are more drugs are therapeutically equivalent, it will use the lowest price available for any of those drugs for all the others. However, a federal court ruled that CMS does not have authority to do this under current law; MedPAC is looking at recommendations on the best approaches to providing CMS with LCA authority (Also see "MedPAC Considering Two Options For Reinstating Medicare Least Costly Alternative Policy For Drugs" - Pink Sheet, 7 Oct, 2010.). “The separate Orange Book listing becomes operative in spaces like IVIG [intravenous immunoglobulin] or interferon or hyaluronidase, or even EPO [erythropoietin], for that matter, where there are multiple drugs that are therapeutically very similar but priced differently,” Gottlieb explained. “And CMS wants to be able to say they’re therapeutically interchangeable and we’re going to pay them all the same rate, or pay them all under the same code.” Giving several products the same code in effect pulls down reimbursement for the higher-priced items. In such a situation, the only way a company could ensure that it receives a separate code with a higher reimbursement would be to prove to CMS that its product is better or somehow different in a way that justifies separate treatment. Politically, reducing the general reimbursement rate is likely to be the easiest to undertake, despite likely concerns from physicians and drug manufacturers. The other two options could not only generate strong opposition from the pharmaceutical industry but also from those members of Congress who are wary of anything that looks like price controls. Nonetheless, Gottlieb expects IPAB to try all three approaches. He noted that the law gives Congress a restricted schedule for acting before IPAB’s recommendations go into effect. Gottlieb said: “The reality is, Congress isn’t going to be able to intervene in time to block what IPAB does, I think, because they have 30 days to act, and you know, all those measures were put in place to basically leverage Congress’ inability to act in this context. I suppose Congress can always come back and re-legislate an issue and strip something away that IPAB might have conferred, but IPAB could confer those broad authorities.” - Scott Steinke ([email protected]) |