CMS Seeks to Prod Insurers to Negotiate Lower Drug Prices

Kerry Dooley Young

January 18, 2019

The Trump administration on Friday unveiled a proposed Medicare pilot program intended to entice insurers to negotiate lower drug prices for customers of their Part D pharmacy plans.

Medicare also said it is planning to expand a separate test program with an aim of improving coordination of care of chronic illnesses and use of telehealth through insurer-run Advantage programs. The Centers for Medicare and Medicaid Services (CMS) said it intends to test adding a hospice benefit to Advantage in 2021 through this expansion of the Value-Based Insurance Design model.

With these moves, the Trump administration intends to make use of a key feature of the 2010 Affordable Care Act, its creation of the CMS Center for Medicare and Medicaid Innovation (CMMI). This platform allows Medicare officials flexibility to try out new approaches intended to improve the care of the more than 58 million people enrolled in the giant federal health program.

Medicare also intends to use CMMI to partly address the growing chorus of criticism about the generosity of a Part D safety-net feature for insurers. Medicare's reinsurance covers about 80% of liability for so-called catastrophic spending in Part D. This mechanism originally was intended to shield insurers from the consequences of customers with markedly expensive prescription needs, particularly in the start-up of the Part D program.

The Part D plans are then responsible for 15% of this catastrophic spending, with patients paying 5% out of pocket.

"The structure introduces perverse incentives to push patients to the catastrophic phase and leaves plans with little reason to negotiate lower costs for the highest-spending patients," CMS Administrator Seema Verma said on a Friday call with reporters.

The tab for this reinsurance almost quadrupled to $37.4 billion in 2017 from $9.4 billion in 2008, according to Medicare's board of trustees. That far outpaced growth in Part D in general, for which the cost didn't quite double in the same period. The total tab for Part D rose to $93.9 billion in 2017 from $53.9 billion in 2008, according to the board of trustees.

CMS on Friday said that the high list prices of new medications for cancer, hepatitis C, and rheumatoid arthritis had increased in Part D catastrophic phase spending.

Aiming for Sustainability

CMS noted that many influential groups, including the Medicare Payment Advisory Commission, have called for action to address the rising reinsurance cost of Medicare Part D's reinsurance. "Continued growth at this pace may pose a risk to the sustainability of Part D," the Office of Inspector General for the US Department of Health and Human Services (HHS) said in a 2017 report.

CMS is proposing a voluntary, 5-year model that would target rising federal reinsurance subsidy costs in Part D. It would run from 2020 to 2024. Plans would get a target level of spending for expected catastrophic pharmaceutical bills, Verma said. If the plans spend less, they can share in the savings. They will have to take losses if they exceed the target, she said.

"For the first time, plans will have incentives to lower costs and negotiate down list prices and therefore out-of-pocket expenses for the patients who need relief the most," Verma said.

Verma pointed out that President Donald J. Trump has asked Congress to consider changes to the Part D structure. She said that the CMMI Part D model is expected to gather information to help lawmakers assess potential revisions to the program.

Elizabeth Carpenter, a practice director at the consulting firm Avalere, told Medscape Medical News that the Part D model fits into HHS's strategy of using regulatory tools and mechanisms to address drug prices.

There's also clearly interest in the topic of drug costs from leaders in both chambers of Congress, particularly Senate Finance Chairman Charles E. Grassley (R-IA) and Elijah E. Cummings (D-MD), chairman of the House Oversight and Reform Committee. Still, CMS could prove the faster path for action.

"Regardless of what Congress may or may not do this year, the administration has the authority and the will to take action focused on drug prices, and this is the latest example of that," Carpenter said about the proposed Part D model.

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