Historic Drug Legislation Passed: What It Means for Employers and American Workers
August 18th, 2022
The landmark drug pricing reforms passed by Congress and signed into law by President Biden on August 16 will provide needed relief from the burden of prescription medication costs for many Americans by enabling Medicare to negotiate prices for certain high-cost drugs and limit further price increases.
This was an historic step in curbing what most Americans agree is an issue that Congress has long needed to address. Unfortunately, based on arcane Senate rules, the drug price provisions in the Inflation Reduction Act will not extend protections to the 180 million Americans with commercial health coverage.
Here, a look at what the law will and won’t do, and the steps large private employers and public purchasers of health care can take to help mitigate rising drug costs in the wake of legislation, that at least for now left them behind.
What the Law Accomplishes
The new law includes a provision that will enable the Centers for Medicare and Medicaid Services (CMS) to begin negotiating prices in Medicare starting in 2026 for a limited number of high-cost drugs that lack generic or biosimilar competition.
This marks a significant break from the existing prohibition on negotiation, which was a condition for drug manufacturers’ support for the creation of Medicare Part D nearly 20 years ago. That prohibition, combined with the market exclusivity for new drugs granted under the Hatch-Waxman framework, has allowed drug companies to set prices without competition or negotiation. This law begins to pierce the monopolies drug companies have long enjoyed, an important first step in pursuing further legislative action. CMS previously estimated that an earlier version of the negotiation proposal could reduce Medicare enrollee cost-sharing expenses by more than $102 billion by 2029.
Two other key provisions of the law include a $2,000 cap on out-of-pocket spending for Part D enrollees and a reduction in Medicare beneficiaries’ portion of total drug costs below the $2,000 out-of-pocket cost threshold from 25% to 23%.
Further, the bill requires manufacturers to pay rebates to CMS if drug prices charged to Medicare increase faster than the rate of inflation. This will apply to all drugs over $100 covered by Medicare Part D and single-source drugs and biologics covered by Part B. The penalty is expected to discourage drug makers from raising prices in Medicare, thereby reducing out-of-pocket costs for Medicare beneficiaries and constraining Part D premium increases.
What the Law Does Not Do
While this legislation is step in the right direction toward controlling prescription drug prices, it does not protect the 180 million Americans who get their health insurance coverage either through their employer or on the private market. Therefore, large employers and public purchasers that provide coverage to working Americans must remain vigilant and be ready to call attention to any adverse effects of this new law once it is implemented, including the potential of dramatic increases in the launch prices of new drugs and for existing medications, which would indicate manufacturers are charging high prices to make up for lost Medicare revenue.
We have seen this kind of cost-shifting before in the hospital sector, with ample evidence demonstrating that large private employers and public purchasers pay an average 224% more than Medicare for the same services. PBGH and its members will be watching prescription drug prices for evidence of cost-shifting to make up for lost Medicare revenue. This could lead to future opportunities for additional policy changes.
6 Steps Large Health Care Purchasers Can Take to Mitigate Cost Increases
In the absence of further policy changes, PBGH recommends six steps employers and purchasers can take to address the exceedingly high-cost burden of prescription drugs:
- Engage in a detailed negotiations with pharmacy benefit managers (PBMs) related to rebates and insist that all earned rebate dollars are passed back to you as the employer/purchaser.
- Take your PBM out to bid at the end of every contract cycle and consider working with new market entrants that have adopted a more innovative, transparent approach aligned with the needs of employers and American workers.
- Scrutinize your PBM contract and ensure you have access to the data ownership and audit rights you need to evaluate and optimize your pharmacy benefit.
- Look at total manufacturer revenue, not just rebates, and push for a guarantee of a major percentage of all manufacturer revenues, or the higher of, the guaranteed rebate amount or actual manufacturer rebates earned.
- Ensure your PBM contract has contractual terms clearly defined in an all-inclusive Definitions section, using the readily accessible industry standards as the source, and include a clause dictating that the terms and their definitions are only available once.
- Use your purchasing power to ensure your PBM is consistently working in you and your employees’ best interests.
You can learn more about how to evaluate the drug supply chain and your PBM performance here.
5 Policies to Create a Fair Health Care Market
March 30th, 2022
This week, actuaries with the Centers for Medicare and Medicaid projected health care spending will grow to reach almost $6.8 trillion by the year 2030 and consume nearly 20% of the country’s gross domestic product, or one in every five dollars spent. A significant portion of that spending is paid by private and public employers, which in turn, acts as a drag on both business growth and household incomes.
As innovative employers seek market solutions to wrangle health care costs while improving the quality of care they offer working Americans, they also recognize that the government has a role to play in ensuring they have a functional marketplace in which to purchase health care on behalf of their companies and employees. They have been eager to see action on the part of the Centers for Medicare and Medicaid Services (CMS) Innovation Center and Health and Human Services to help tamp down the ever-climbing health care costs that come out of their budgets – action they have yet to see.
Here are five policy areas employers want to see implemented.
1. Addressing Market Consolidation and Anti-Competitive Practices
Health care system consolidation is not a new problem, but it has gained attention over the past several years, particularly in light of a slew of megamergers proposed during the COVID-19 pandemic. In an executive order signed in July 2021, President Biden directs the Department of Health and Human Services to move forward with price transparency requirements, and directs the Department of Justice and Federal Trade Commission (FTC) to review and revise guidelines for challenging future consolidation by health systems. New guidelines would make it more likely that the FTC will intervene to stop anti-competitive mergers among health systems, improving the competitive landscape and combating rising health care costs that land on employers and other large purchasers, as well as consumers.
In addition, Congress should prohibit anti-competitive practices that have enabled some health systems to gain market power and raise prices. These practices have included anti-tiering and other contract terms that were the target of a successful lawsuit against Sutter Health System in California. The Healthy Competition for Better Care Act (S 3139), a bipartisan bill introduced by Senators Braun and Baldwin, would take on these practices. Federal legislation is also needed to prohibit drug manufacturers’ practices such as “patent evergreening” and other “patent thickets” to ensure that branded products will face healthy price competition from generic drugs and biosimilars in line with the intent of current laws.
2. Universal “Site Neutral” Payment
Medicare, along with other payers, often pay substantially more for the same care if it is delivered in a hospital outpatient department, rather than in a physician’s office, even when the service is identical. The higher payment rates put independent physician practices at a disadvantage and encourage more industry consolidation. What’s more, the higher prices charged by practices owned by a hospital system tend to be hidden from patients, causing unexpected – and often excessively elevated — out-of-pocket costs.
Universal site-neutral payments – the same pay for the same service — would save the health care system more than $350 billion (and as much as twice that) if adopted by all payers. It would also balance the playing field for independent physician practices.
3. Support for Physician-Led Accountable Care Organizations and Alternative Payment Models
All the evidence suggests that physician-led Accountable Care Organizations and alternative payment models, including those that pay clinicians prospectively to manage patient care, are more successful than hospital or payer-led models. Large employers and purchasers are interested in seeing CMS take an active hand in promoting these efforts. Policymakers can support the success of physician-led ACOs by helping them create the infrastructure needed to take on financial risk, invest in high-value care and develop partnerships with other organizations to provide comprehensive care. This includes providing financial incentives for quality performance to encourage providers to redesign care to improve health outcomes. CMS and leading payers need to communicate clear outcomes objectives and attach significant rewards and penalties providers’ performance.
In addition, a recent PBGH survey of large employers found that nearly six in 10 see low investment in primary care as a barrier to better employee health. Roughly 90% said they would be in favor of reallocating funds to primary and preventative care. One way to finance this effort, which employers would like to see CMS support, is to redirect money paid to health plans for care coordination to physician practices engaged in advanced primary care.
4. Renewed Push for Build Back Better – Including Prescription Drug Price Relief
President Biden’s nearly $2 trillion Build Back Better (BBB) proposal included provisions on drug pricing, but the effort was stymied. On Jan. 19, 2022, President Biden suggested in a press conference that the Senate would break the BBB bill into pieces, attempting to pass provisions that have support of all 50 Democratic Senators.
The current legislation would allow Medicare to negotiate on the price of certain high-cost sole-source drugs after their patent and market exclusivity periods have expired. It would also impose strict inflation caps on all high-cost sole-source drugs. Importantly, those inflation caps would apply to all purchasers, not just Medicare. If enacted, this provision would save employers, other health care purchasers and consumers tens of billions of dollars over the next decade.
5. Holding Drug Makers and Third-Party Organizations Accountable for Drug Prices
Policymakers have been looking at opportunities to increase transparency and accountability of pharmacy benefit managers (PBMs) and others in the drug supply chain. The Trump Administration’s Transparency in Coverage rule, which is being implemented by the Biden administration, albeit on a somewhat delayed timeframe, includes significant new drug price transparency requirements of health plans and PBMs. Not surprisingly, the Pharmacy Care Management Association (which represents PBMs) has sued the administration to stop implementation of certain sections of the rule. If implemented, the rule would require PBMs to report on negotiated rates and historical net prices for covered prescription drugs. Combined with the Consolidated Appropriations Act (CAA), which ultimately requires PBMs to provide the information employers need on prescription drug spending to meet their obligations under the law, would be impactful.
Importantly, no explicit statutory authority exists for policymakers to regulate PBMs directly. What is needed is for policymakers to establish direct oversight authority for PBMs in all markets. AND we need PBMs to be held to the same fiduciary standards that self-funded employers are held to. Only then will we get the accountability we need.
What the Biden Administration’s Drug Pricing Reforms Mean for Employers
March 1st, 2022
The landmark drug-pricing reforms included in President Biden’s now-stalled Build Back Better initiative will likely reemerge later this year, either as stand-alone legislation or as part of a revised budget proposal, experts say.
Policy specialists taking part in a recent PBGH roundtable on drug costs noted the reforms continue to enjoy broad, bi-partisan support and will help address a top concern of the American people in an election year. Although employer advocates are disappointed the proposals don’t go further in helping non-government purchasers address drug costs, they agree the policies mark a significant first step.
“It changes the paradigm and equips the government with a whole new set of tools that can be altered over time to increase their reach and impact,” said roundtable participant Richard Frank, Ph.D., a senior fellow in economic studies at the Brookings Institution.
Added James Gelfand, executive vice president for public affairs with the ERISA Industry Committee: “This is the first time Congress has taken up policies that big pharma doesn’t like. Congress has its foot in the door now and is saying `we’re going to create a way of affecting drug prices.’”
Rebates for Excessive Price Hikes
The primary focus of the proposals is on reducing costs to the Medicare program. However, a key provision would require manufacturers to pay rebates if drug prices charged to both Medicare and private payers increase faster than the rate of inflation. The rebates would be paid to the Medicare trust fund and would total 100% of revenues earned from price hikes that exceed inflation.
The proposal targets virtually all drugs covered by Medicare Part D and single-source drugs and biologics covered by Part B. Observers believe the penalty will help reduce out-of-pocket spending for both commercial plan members and Medicare beneficiaries and also constrain premium increases.
Desiree Hoffman, assistant legislative director for the United Auto Workers, said escalating drug prices and the continually rising cost of employer-sponsored health insurance, are major concerns for America’s workers, both union and non-union.
“With waging declining over time, employees are really feeling the squeeze,” she said. “The high cost of employer-sponsored health care is an issue we frequently face at the bargaining table.”
Shawn Gremminger, PBGH’s director of health policy, said it will be essential in the months ahead for supporters to ensure the rebate is not watered down—either in the legislative or rule-making processes—and, critically, that it continues to apply to both government and private payer pricing.
In addition to the inflation rebate, privately insured people also will benefit from a provision requiring all insurers to limit patient cost-sharing for insulin products to no more than $35 per month. The move should lower costs for all insulin users. According to the Kaiser Family Foundation, average yearly out-of-pocket insulin spending for Medicare beneficiaries increased by 79% between 2007 and 2017, from $324 to $580.
Negotiating Medicare Drug Prices
Beyond the inflation rebate, among the legislation’s most significant reforms is a provision that would enable the Centers for Medicare and Medicaid Services (CMS) to begin negotiating prices for a limited number of high-cost drugs that lack generic or biosimilar competition.
Drugs targeted for negotiation would be selected from 50 with the highest total Medicare spending. The number of drugs impacted would gradually increase from 10 in 2025 to 20 in 2028. CMS has previously estimated that an earlier version of the negotiation proposal could reduce Medicare enrollee cost-sharing expenses by more than $102 billion by 2029.
Two other key provisions in the administration’s Build Back Better proposal include a $2,000 cap on out-of-pocket spending for Part D enrollees and a reduction in beneficiaries’ portion of total drug costs below the cap from 25% to 23%.
PBM Transparency Key to Reducing Employer Drug Costs Today
In lieu of new government policies that could bring down drug costs, roundtable participants offered suggestions on how employers can begin taking greater control of their prescription drug spending today.
Marianna Socal, M.D., an associate scientist at Johns Hopkins University, said central to reduced drug prices is greater transparency relating to the actions of the pharmacy benefit manager (PBM). As it stands now, she said, PBMs are often incentivized to cover more expensive drugs if they’re likely to receive a greater rebate from the manufacturer.
“We need solutions to disentangle these misaligned incentives, not only at the top when the price is set but also when we negotiate (through PBMs).”
Gelfand of the ERISA Industry Committee agreed, noting that employers often don’t know what prices they’re paying for drugs beyond a single, aggregate amount.
“If I’m paying $8 million for cancer drugs, I need to know if it was the same price each time the same drug was used,” he said. “Did the price differ when it was given in the hospital versus when it was filled by a retail pharmacy or a by a mail order pharmacy? It becomes very difficult to fix the problem if you can’t identify it.”
He and others said it was essential for employers to more closely scrutinize their formularies to determine if they’re promoting biosimilars and other appropriate drug substitutions. Gelfand said PBGH’s efforts to assist purchasers in developing and implementing waste-free formularies can be enormously beneficial when it comes to rationalizing drug purchases and spending. According to Socal, purchasers can save 10-15% of total per-member-per-month costs by implementing waste-free formularies.
Frank of the Brooking Institution said employers must overcome their traditional reluctance to leveraging their bargaining power with PBMs and intervene more directly in both formulary design and PBM-manufacturer negotiations.
“On the face of it, PBMs and manufacturers dislike each other because each is constantly pushing for a better deal. But in the end, they’re both playing the same game,” Gremminger said. “So the challenge will be to shift PBM incentives so they align with the needs of the purchasers and workers.”
Congress Must Keep Its Promise to Lower Drug Costs for All Americans
October 26th, 2021
The reconciliation bill currently being debated in Congress would reduce future prescription drug costs for everyone in the United States. It does this by limiting how much drug makers can raise prices for medications that have no market competition. Some members of Congress seem to think only people on Medicare deserve lower drug costs and are working to eliminate price protections for working Americans younger than 65.
The reconciliation bill in its current form would save employers and Americans with private health insurance nearly $250 billion over 10 years.* But if Congress only applies cost savings to people on Medicare, 180 million Americans will get no relief from high drug prices, and may be left to pay even more.
The Drug Companies Told Us They’ll Raise Prices:
Economists continue to debate the extent to which drug makers would increase prices for working Americans to make up for the profits they’ll lose if drug prices are reduced only for Medicare and not private insurance — a practice called “cost-shifting.” But PhRMA already told us in formal comments to the Department of Health and Human Services drug manufacturers would likely increase prices in the commercial market:
“… Government experts found that proposals to extend Medicaid rebates to other government programs will likely increase Medicaid spending and negatively affect other drug payers, such as employers in the commercial market.”
A Call for Congress:
Congressional leaders have made public promises to bring down prescription drug costs for all Americans. They need to keep those promises. Any drug price legislation must protect working people and their families, not just those with Medicare coverage. Americans with private insurance are already paying too much for their prescription drugs and need relief.
* EmployersRx estimate based on analysis by Council for Informed Drug Spending Analysis, with inflation caps based on drug prices in 2021.
The Employers’ Prescription for Affordable Drugs (EmployersRx) is a coalition of the Purchaser Business Group on Health, National Alliance of Healthcare Purchaser Coalitions, The Erisa Industry Committee (ERIC), American Benefits Council, Silicon Valley Employers Forum and HR Policy Association. EmployersRx supports public policies that drive down the cost of drugs while preserving true innovation as part of a value-based health care system. Learn more at EmployersRx.org.
Seeing Through Pharma’s “Free Market” Façade
October 26th, 2021
Throughout this year’s drug pricing debate – and for many years before – the brand-name pharmaceutical industry has resisted public policy efforts to reduce their sky-high prices by arguing any intervention is a violation of the free market.
It is a seductive argument, because it successfully puts drug manufacturers on the “right” side of a core value for most people in our country. A 2015 poll by the libertarian magazine Reason found that nearly seven-in-ten Americans say they have a net favorable view of a free-market economy. Less than one-third report having a favorable view of a “government managed economy.”
PBGH represents nearly forty of the largest employers and health purchaser organizations in the country, including many Fortune 500 companies. It should come as no surprise, then, that we tend to agree with the American public. We support free markets and, whenever possible, try to find free-market solutions to health care problems.
Here’s the problem with the drug industry’s top talking point: It’s a lie. The fact is, the pricing system that the drug industry is trying to defend isn’t a free market. Heck, it isn’t even a market. It is, in fact, a government-sponsored monopoly.
Government policy has deliberately sanctioned prescription drug monopolies, which have then been exploited by drug manufacturers to charge outrageously high prices. For brand-name drugs, a drug company’s monopoly is granted by the government for a specified period through patents by the Patent and Trademark Office and market exclusivity through the Food and Drug Administration. Granting drugmakers a time-limited monopoly represents a conscious trade-off by policy makers. In effect, the government seeks to give drug makers a financial reward for innovation while protecting consumers in the long run by allowing generic competition after the expiration of the patent and market exclusivity.
Unfortunately, this delicate balance has been badly abused by the drug industry. This is where the drug industry’s “free market” façade becomes a cruel joke. Instead of allowing the free market to come into play when their drugs’ patents and market-exclusivity periods expire, drug companies instead devote enormous energy to maintaining their monopolies through any number of anti-competitive schemes, including “patent thickets” (holding dozens of patents on a single product, thereby deterring competition), “patent evergreening” (making minor changes to formulations, delivery mechanisms, etc. to stave off competition), “product hopping” (forcing patients to switch to “new” formulations of older products with new patents before a generic manufacturer can introduce a competitor to the older product), and “pay for delay” schemes (brand name drug makers paying generic manufacturers not to introduce a competing product).
One would think that an industry that claims to support free-market competition would agree to stop these objectively anti-competitive practices. Instead, the drug industry has time and again worked to stop policies that would enable a free market to thrive.
This year, Congress is considering major legislation to allow Medicare to negotiate the price of drugs that face no competition (i.e., those with a government-sponsored monopoly) and limit price growth on those drugs on behalf of all Americans.
That last clause is critical to PBGH and our members. As we said above, we prefer market-based solutions to health care problems and have long supported bills that would stop patent abuses and lead to more competition for prescription drugs. But if Congress is going to enact policies to directly bring down the price of drugs with no competition, it is absolutely vital that everyone, including the roughly 180 million people who have health coverage in the private market, gain access to those lower prices. If government price negotiation is limited to just Medicare, we believe the bill will actually harm our member companies, their employees and their families, as drug companies will seek to make up for lost revenue to Medicare by raising prices on the rest of us.
It is no small irony that the drug industry is using talk of “free markets” to defend government-sponsored monopolies. We will continue to support the pro-market bills that stop drug company gaming of the patent system. And we hope that if the current drug bill is enacted, by taking away pharmaceutical manufacturers’ ability to engage in monopolistic pricing, the net result will be the thing that we all (claim to) believe in – a free market with more competition and lower prices for everyone.