MedPAC executive director: Part D sponsors need stronger incentives to negotiate lower drug costs 

Drug prices
MedPAC's executive director testified before Congress Tuesday on lowering Medicare drug prices. (Getty/Charles Wollertz)

Part D drug spending continues to rise, and a government watchdog argues giving plan sponsors stronger incentives to negotiate prices is a key solution. 

During a House of Representatives panel hearing on the state of prescription drug coverage in Medicare Tuesday, James Mathews, Ph.D., executive director of the Medicare Payment Advisory Commission (MedPAC), testified such a plan would have a “more direct” impact on beneficiary costs than the existing rebate model. 

“Our recommendation to restructure Part D would mitigate incentives of high-cost rebate drugs,” he said. 

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Lawmakers in both chambers of Congress and across party lines have been focused on drug pricing of late and have brought in a number of witnesses with varied perspectives to discuss the issue. Pharmaceutical companies and pharmacy benefit managers have also weighed in. 

Mathews provided more details on MedPAC’s suggested plan in his written testimony (PDF). MedPAC first recommended these Part D changes to Congress in 2016 and 2018, he said.

RELATED: MedPAC recommends Congress target rebate traps, biosimilars to bring down drug prices 

Under MedPAC’s plan, the reinsurance paid to plan sponsors when a beneficiary is in the catastrophic phase would be significantly lowered, from 80% to 20%. This boosts the amount plans have to cover in tandem from 15% to 80%, pushing them to more effectively manage catastrophic coverage costs as they have far more skin in the game. 

Spending in the catastrophic phase of the Part D benefit is generally high, because the government foots much of the bill, Mathews said in his testimony. About 8%, or 3.6 million, Part D beneficiaries are considered high-cost and reach this phase. 

High-cost beneficiaries accounted for 60% of Part D spending in 2017, according to Mathews, up from 40% in 2011. 

The trade-off for insurers would be greater flexibility in formulary design, he said. MedPAC suggests that protected status for two of six classes in Part D be removed—antidepressants and immunotherapy drugs to protect against transplant rejection—allowing payers to control their use more effectively. 

RELATED: Trump administration proposal would allow Part D plans to negotiate prices of drugs in ‘protected’ classes 

Some representatives at the hearing pushed back on this proposal, noting that it is a slippery slope to step therapy, which is controversial. The Centers for Medicare & Medicaid Services has proposed allowing step therapy in Part B, a plan that has garnered significant backlash from providers

Mathews said that while MedPAC hasn’t made specific recommendations in terms of carving out diagnoses for exemption, it does include in its plan that there will be clear and fair mechanisms for exemption and evaluation of need. 

As with any plan, there are trade-offs, but utilization management tools such as step therapy are crucial to achieving balance in Medicare spending, Mathews said. 

“We understand the frustration that some of these utilization management tools can create,” he said. 

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