The Latest on Drug Spending: Medicare Advantage to Add ‘Step Therapy’ for Certain Medications

Rising prescription drug costs remain a pressing issue for lawmakers in Washington and in the states. From new Trump administration policy proposals to state initiatives to control drug spending, here are some recent developments.

Medicare Advantage Plans authorized to use step therapy for physician-administered drugs. On Aug. 7, the Centers for Medicare & Medicaid Services (CMS) announced that, beginning in January 2019, Medicare Advantage (MA) plans can require what is known as “step therapy” when considering treatment options. Under this approach, patients must try a preferred drug before insurance will cover a more expensive therapy. CMS is rescinding guidance from 2012 that prevented MA plans from using step therapy. Plans that choose to introduce this rule must also offer care coordination and patient incentives.

Medicare solicits information on Competitive Acquisition Program for physician-administered drugs. As part of a proposed rule for the Medicare hospital outpatient prospective payment system, CMS announced on July 31 that it is soliciting information on how to leverage authority for the Competitive Acquisition Program (CAP) to improve how Medicare pays for physician-administered drugs through greater competition and negotiation.  

Medicare implemented one version of the CAP model from June 2006 to December 2008. CAP was then viewed as unsuccessful, largely because of low physician enrollment and little vendor ability to negotiate discounts. In 2017, the independent Medicare Payment Advisory Commission (MedPAC) proposed potential improvements to CAP through the Drug Value Program, changes that can now be explored by CMS.

Ohio Medicaid requires managed care plans to sever contracts with pharmacy benefit managers (PBMs) using “spread pricing.” An Ohio Medicaid audit commissioned by state lawmakers found that from April 2017 to March 2018, PBMs working with Medicaid managed care plans in the state retained a spread of nearly $224 million between what they paid pharmacies for prescriptions and what they were reimbursed by Ohio Medicaid. That’s about 9 percent of the total drug costs billed. In response, Ohio Medicaid will require all five Medicaid plans to cancel contracts with PBMs and renegotiate them to include a “pass-through” model for these costs by January 2019.

FDA approves first competitive generic therapy. On Aug. 8, FDA approved the first generic drug to receive a “competitive generic therapy” designation. That means there is no adequate generic competition, which is defined as a market with no more than one approved drug. FDA offers priority eight-month review and technical assistance to sponsors of drugs for a sole-source product  to incentivize competition in these markets. A competitive generic therapy is also eligible for 180 days of exclusivity if marketed within 75 days of FDA approval.

CVS announces new plan design that incorporates cost-effectiveness thresholds. CVS Caremark, a PBM, announced a new formulary option that incorporates a value benchmark as assessed by the Institute for Clinical and Economic Review (ICER). A value benchmark is a price marker by which payers can determine the cost-effectiveness of a drug. Under this program, if a drug’s price exceeds $100,000 per quality-adjusted life year, a plan can exclude it from its formulary—except for FDA-designated breakthrough therapies.

Louisiana asks for public input on novel financing model for hepatitis C drugs. As states grapple with high-priced medicines, Louisiana is requesting public and manufacturer comments on a proposed subscription model for hepatitis C drugs. Under the proposal, Louisiana would pay a flat fee to drugmakers, equal to or less than the state’s current expenditure for hepatitis C drugs in the Medicaid and correctional populations, for unlimited access to these therapies for a set period of time. With this model, the state would have an incentive to identify and treat as many people as possible.

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