Insurers, hospitals could reap benefits from leaked drug price bill from Pelosi

Nancy Pelosi
A leaked summary of House Speaker Nancy Pelosi's drug price plan would give Medicare the power to negotiate drug prices and punish drug companies that don't participate. (Gage Skidmore-CC BY-SA 2.0)

A leaked summary of a proposed bill from House Speaker Nancy Pelosi to combat drug prices brought some good news for insurers and hospitals struggling with exorbitant drug costs, experts say.

The proposal, a draft of which was published by Bloomberg Business, would allow the Department of Health and Human Services (HHS) each year to pick 250 brand-name drugs that lack at least two generic or biosimilar competitors. Medicare would have the power to negotiate with the drugmaker on a rate for these products.

While the proposal hasn’t been officially released, it provides an outlook into how the speaker’s office is handling the issue of drug prices this year.

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Here is a look at how some sectors of the healthcare industry would fare if the plan becomes law:

Insurers

Insurance companies have been pleading with Congress to take action to rein in drug prices, and there are some things to like in this proposal from their perspective.

For one, the negotiated price would apply to Medicare Advantage and Medicare Part D plans. Such insurers would also be able to negotiate with manufacturers for a price that is lower than the negotiated price. But the draft goes a step further by saying that a manufacturer must offer the negotiated Medicare price to commercial health plans alongside the Department of Veterans Affairs.

This would be a “game changer,” one expert said.

“The concern from the private side is that their prices would somehow go up if the prices under Medicare were more constrained,” said Tricia Neuman, senior vice president with the Kaiser Family Foundation. “This draft acknowledges that is a concern and aims to address it." There is also a penalty if a manufacturer doesn't participate.

A manufacturer cannot increase the price of the drug in the program beyond inflation and will remain in the program until more competition enters the market, according to the leaked summary. Drug companies that don’t agree to enter negotiations will face an excise tax of 75% of the gross sales for the product they are negotiating the price on.

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While drug companies could still decide to not participate in Medicare, that move is unlikely, because “Medicare is a good payer and will still be a good payer even through negotiation compared to other industrialized countries,” said Gerard Anderson, a professor at the Johns Hopkins Bloomberg School of Public Health.

Insurers have complained in recent years over the high cost of specialty drugs that treat conditions such as cancer and autoimmune disorders such as arthritis. A recent analysis found that high-cost specialty drugs made up 40% of a major purchasing group’s drug spending in 2018, despite making up only 1% of prescriptions.

Hospitals

Hospital systems have strained to deal with rising drug costs for the past couple of years. A study released in January (PDF) by the American Hospital Association found that average total drug spending per hospital admission increased by 18.5% from 2015 to 2017.

While hospitals would benefit from lower drug costs, there are some unanswered questions.

For instance, hospitals and doctors' offices are reimbursed for the average sales price for a physician-administered drug under Medicare Part B, plus an add-on payment of 6% of that price to cover storage and handling costs.

While hospitals would be reimbursed for the new negotiated price under the proposal, it doesn’t delve into whether the add-on payment will stay intact. Hospitals have pushed back against previous efforts by the Trump and Obama administrations to curtail the add-on.

The Trump administration has proposed doing away with the add-on payment and replacing it with a flat fee.

Pharmacy benefit managers

Pharmacy benefit managers (PBMs) may not be happy that the proposal would do away with drug rebates for Part D products.

The summary would sunset the current drug discount program where manufacturers pay 70% of the drug costs in the catastrophic phase of Part D coverage, commonly known as the “donut hole.” Manufacturers would instead provide a discount off of the negotiated Medicare price “during the initial and during catastrophic coverage, including for (low-income subsidy) beneficiaries,” the proposal said.

RELATED: Study shows wide variation in specialty drug coverage among commercial payers, but rationale is murky

Coverage discounts would be provided at the point of sale at a pharmacy or mail-order service, disregarding the current Part D rebate system managed largely by PBMs.

HHS tried to get rid of the rebate system for Part D drugs earlier this year with a proposal that would have replaced drug rebates with a discount offered at the point of sale and got stiff pushback from both the PBM and insurance industries. The proposal was scrapped by the White House after concerns over raising seniors’ premiums.

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