The Latest on Drug Spending: Medicare Seeks to Reduce Payments for New Physician-Administered Drugs

Rising prescription drug costs remain a pressing issue for lawmakers in Washington and in the states. From new Trump administration policy proposals to potential conflicts of interest among doctors shaping Medicaid-preferred drug lists, here are some recent developments on this issue.

The Centers for Medicare & Medicaid Services (CMS) proposes changes to Part B drug payment. On July 12, CMS issued a proposed rule that would reduce reimbursements for new Part B drugs. When a new physician-administered drug enters the market, data on the average sales price (ASP), the basis for Medicare reimbursement of these products, is not yet available. For two to three quarters after a drug launches, CMS reimburses providers at 106 percent of the drug’s wholesale acquisition cost (WAC), a list price that does not account for prompt pay or other price concessions. Because WAC does not include any discounts, it is typically higher than ASP. CMS wants to adopt the June 2017 recommendation from the Medicare Payment Advisory Commission to reduce reimbursement for new products from 106 to 103 percent of the WAC.

States debate drug spending policy options. On July 10, The Pew Charitable Trusts held an event in Washington to highlight state efforts to control drug spending. Legislators from Arkansas and Nevada discussed new laws to address spending on drugs in those states, and a representative from the University of Texas discussed strategies being used in his state to control costs in its corrections population. A panel of drug spending experts explored a range of novel policy options being developed, including proposals by Pew.

Trump administration considering how drug importation might be allowed. On July 19, Alex Azar, the secretary of health and human services, asked the Food and Drug Administration to form a working group to examine options for FDA to allow for safe importation of prescription drugs from other countries. Any importation would be done on a temporary basis only in cases where an off-patent product is sold by a single manufacturer and has undergone a dramatic price increase. Increased competition from imported drugs could put pressure on drug companies to reduce the prices of their products in the U.S., though importation has the potential to increase safety risks.

Congress takes action on pharmacy gag clauses. On July 25, the Senate Health, Education, Labor and Pensions Committee unanimously advanced to the full Senate S. 2554, the Patient Right to Know Drug Prices Act. The bill would prohibit gag clauses in contracts between pharmacies and insurance companies or pharmacy benefit managers. Though there is little evidence that they are in widespread use, gag clauses preclude pharmacists from informing patients when they could pay a lower price for a drug by filling the prescription without using their insurance. Senator Susan Collins (R-ME), who sponsored S. 2554, discussed gag clauses and her work on drug spending policy at an event hosted by Pew on July 16. Several states have enacted measures that ban gag clauses in insurer and pharmacy benefit manager contracts with pharmacies.

Investigation sheds light on potential conflicts of interest in Medicaid formulary decision-making. State Medicaid programs rely on health care practitioners to serve on committees that establish preferred drug lists and utilization management tools, such as prior authorization requirements. A recently published investigation by the Center for Public Integrity and National Public Radio found widespread financial relationships between pharmaceutical manufacturers and the individuals who serve on pharmacy and therapeutics committees and drug utilization review boards. The investigation found that more than 60 percent of doctors serving on state Medicaid drug committees nationwide received payments or items of value from pharmaceutical companies; at least 38 state committees included doctors who received more than $1,000 from pharmaceutical companies. The project also found undisclosed financial ties to pharmaceutical companies among external speakers who testified before the committees about drugs under consideration.

Ian Reynolds is a manager and Amy Abadir is an associate with The Pew Charitable Trusts’ drug spending research initiative.