On April 4-5, 2019, the Medicare Payment Advisory Committee (“MedPAC”) held a public meeting in Washington, DC to discuss issues and policy questions. MedPAC is a nonpartisan legislative agency that provides Congress with analysis and policy advice on Medicare. The meeting agenda encompassed a number of topics, including how to increase the affordability of specialty drugs and biologics in the Medicare Part D program.
Shinobu Suzuki and Rachel Schmidt, both MedPAC staffers, presented research and policy options on the specialty drug affordability issue, which has taken on increased importance in recent years as Medicare Part D spending devoted to specialty drugs and biologics has risen rapidly. In fact, specialty drugs and biologics comprised approximately one quarter of Part D spending in 2017. In addition, these specialty drugs typically have high coinsurance payments which may pose a significant financial hurdle for Medicare beneficiaries.
Suzuki and Schmidt presented two mutually exclusive policy options. These two options were developed with respect to the following four goals: reduce barriers to appropriate use, incentivize plans to manage benefit spending, influence manufacturer pricing decisions, and create downward pressure on Medicare premiums and program spending.
The first option would be to apply an out-of-pocket (“OOP”) limit on each specialty tier prescription. Specifically, beneficiaries would be required to pay a maximum coinsurance, for example, the lesser of 33% coinsurance or $200 per 30-day supply. This approach has several disadvantages though. For example, this option may increase the use of inappropriate drugs as well as appropriate drugs, it would result in higher Medicare Part D spending, and it may incentivize manufacturers to increase prices further or to launch new drugs at even higher prices. In addition, all Medicare Part D enrollees would pay higher premiums or coinsurance. Finally, it may make it difficult for plan sponsors to manage spending.
The second policy option would be to restructure the Part D benefit to provide better formulary and pricing incentives. Specifically, the coverage-gap discount would be replaced with a “manufacturer cap discount,” and the catastrophic benefit would be restructured. This new catastrophic benefit would be designed to balance access and affordability with program costs. This approach also has several disadvantages. For example, some behaviors could result in rising benefit and premium costs. This option also may increase the use of inappropriate drugs as well as appropriate drugs. Finally, it may weaken plan incentives to manage high spending.
In the public comment period following the policy presentation there was a lot of discussion about drug pricing issues. For instance, Warner Thomas, MBA, a MedPAC Commissioner, noted that the Medicare Part D treatment of specialty drugs has “pretty much been a windfall for the manufacturers,” as the margins on specialty drugs are likely “very large.” He continued that manufacturers need to be more financially involved and need to be taking risks. We have written extensively about drug pricing issues in recent months. It appears that Medicare Part D specialty drug policy is another salvo in what promises to be a tricky issue for manufacturers to address.