Fight Brewing In Congress Over Part D Coverage Gap Discounts

Biopharma is mobilizing support in Congress for rolling back the new law increasing the discounts required for branded drugs provided to Medicare Part D beneficiaries in the coverage gap from 50% to 70% beginning in 2019.

The discount surprised many in industry when news that it was part of a budget deal being worked out in the Senate emerged on Feb. 7. (Also see "Part D Coverage Gap Discounts Deepened To 70% In Budget Bill" - Pink Sheet, 8 Feb, 2018.) It ultimately became part of the budget legislation that was passed by Congress and signed by President Trump Feb. 9.

It is the most potentially negative development relating to drug pricing for manufacturers since Trump heightened political attention to the issue when he came to office a year ago. Unofficial estimates on the financial impact it could have on manufacturers range from $10bn to more than $30bn over 10 years.    

Senate Finance Committee Chairman Orrin Hatch, R-Utah criticized the new discount requirement during a hearing on the HHS budget Feb. 15.

"I am working with my colleagues who share my concern on the increased manufacturer discount provision to mitigate its impact." – Sen. Hatch

"Some have made a crusade out of scapegoating the companies that develop drugs and treatments," he said in an opening statement. "And when this almost singular focus prevails, the result is a policy that tends to be less than perfect, to put it charitably. We saw an example of this in last week's Bipartisan Budget Act that increased the discount that manufacturers are required to provide under the so-called donut hole in Medicare Part D."

Hatch added that "I voiced my opposition to the inclusion of this provision in the budget agreement on the Senate floor last week. I am working with my colleagues who share my concern on the increased manufacturer discount provision to mitigate its impact." 

One vehicle for change might be an upcoming budget bill that needs to be passed by March 23 to fund the government for the balance the current year. The legislation enacted Feb. 9 gave Congress six weeks (ending March 23) to come up with a funding plan.  

The Pharmaceutical Research and Manufacturers of America is strongly opposed to the increased discount requirement, arguing that it will not save beneficiaries much because plans don't pass discounts down at the pharmacy counter anyway.

The requirement "will save Part D insurance plans over $40bn – roughly seven times what Medicare Part D beneficiaries will save," PhRMA argues.

"Congress should repeal the harmful Part D changes in the recent budget deal and instead pursue additional reforms to improve affordability and predictability for seniors, such as adding an out-of-pocket maximum as called for in the president’s budget request," the trade group adds in a Feb. 12 release.

Democrats Unimpressed With Drug Pricing Policies In Budget Proposal

Repealing the provision may be a tough sell to Democrats, who feel the drug pricing proposals included in the president's budget request do not go far enough in addressing the problem of high drug costs. Finance Committee Member Ron Wyden, D-Ore., argued that none of the proposals target list prices directly and so would fall short. Nevertheless, he and other Democrats on the committee also acknowledged that some of the drug pricing proposals in the president's budget will help.

"In the plan released late last week, I still don’t see a solution to the fundamental issue: drug companies set prices that are way too high," Wyden said. "Yes, the whole system is broken and needs reform. But if drug companies can still come right out of the gate with unaffordable prices, patients will still suffer. I’ll put this simply. The Trump prescription drug plan lets pharmaceutical companies keep on, to borrow a phrase, 'getting away with murder'."

That said, Wyden added, "much of what the administration put forward last week looks awfully familiar. That might be because a lot of it borrowed directly from legislation I’ve proposed, or recommendations that came from outside groups. There’s value in these ideas, and much of it could move forward on a bipartisan basis. But the American people are still looking for the kind of muscular policies the president promised he’d bring forward, and it’s still not there."

HHS Secretary Alex Azar testified on behalf of the Administration at the hearing. He noted he did not participate in assembling the budget proposals because he was not yet installed as secretary. Nevertheless, he defended them as important solutions to removing incentives that drive higher list prices.

Asked by Sen. Sherrod Brown, D-Ohio, to highlight one proposal that would lower list prices, Azar pointed to a recommendation to establish an out-of-pocket cap on beneficiary costs in the catastrophic phase of the Part D benefit while also shifting more responsibility for costs from Medicare to plans in that phase. Medicare currently covers 80% of costs in the catastrophic phase while plans cover 15%. The proposal would increase plan liability to 80% and decrease Medicare's to 20%.

"One of the things we're trying to do in the budget proposal is to create the incentives that will [exert] downward pressure on the list price of drugs," Azar said.

So "we're recommending changing the incentive structure in catastrophic coverage in Part D. Right now, the government is on the hook for most of the cost once a senior citizen gets to catastrophic coverage. We propose to progressively switch that so that the insurer is on the hook for that and will then have even more incentive to fight against the branded drug companies to keep those list prices down. Now they've got a lot of incentive to [encourage] those higher prices to just drive [beneficiaries] into catastrophic coverage and off-load that expense onto us."

Drug Proposals In 2019 Budget Just One Step, Azar Says

Azar also pointed to proposal for redirecting rebates to the point-of-sale in Medicare Part D as a cost saver for beneficiaries and maintained that a proposal to establish a price inflation cap for drugs covered under Medicare Part B would directly address list prices.

He did not highlight the proposal to exclude manufacturer discounts in the Part D coverage gap from calculations of beneficiary out-of-pocket spending. (Also see "At Cross-Purposes? How Trump Budget's Part D Gap Discount Policy Aligns With New Law" - Pink Sheet, 12 Feb, 2018.) The rationale behind the idea is that it would delay the time before beneficiaries enter the catastrophic phase, when Medicare is responsible for most of drug costs. Another possible advantage is that it could act as a disincentive for beneficiaries to choose more expensive brands.

It is opposed by manufacturers. It would also likely be opposed by patient groups because the policy would keep beneficiaries in the coverage gap longer, which would increase their costs.

Nevertheless, Azar emphasized the drug pricing recommendations in the budget proposal are just the beginning of the Administration's efforts to lower drug pricing. "This is just one step in working on the issue of drug pricing and this is the one that's in the context of the budget and Medicare and Medicaid," he told Brown. There are "many more things that we're working on. And ideas that you have around list price, ways that we can reverse those incentives on list price, I would love to work with you and hear them."