In an attempt to address federal spending and budget concerns, United States Senator Herb Kohl (D-WI) recently introduced legislation seeking a wide range of drug cost cuts, including a proposal to require drug manufacturers to provide Medicare Part B with the same discounts Medicaid receives.
In a letter he sent to Senator Patty Murray (D-WA) and Representative Jeb Hensarling (R-TX), Co-Chairs of the Joint Select Committee on Deficit Reductions, Kohl offered eleven policy proposals, which he claimed “would reduce federal spending by well over $140 billion” to help address the Joint Committee’s mandate to cut $1.5 trillion.
The legislation, known as “The Prescription Drug Cost Reduction Act,” provides a number of opportunities to significantly reduce the cost of health care without pushing those costs onto consumers or limiting access to care,” Kohl said. The bill along with a proposal to close a tax loophole on life settlements transactions are included as recommendations to the Joint Committee from Kohl in his capacity as chairman of the Committee on Aging.
Kohl’s Prescription Drug Cost Reduction Act includes six cost-cutting policies that were considered as part of a Senate Special Committee on Aging hearing in July as well as language that would require drug manufacturers to provide Medicare Part B with the same rebates Medicaid receives.
Under the current law, the Centers for Medicaid and Medicare Services (CMS) Office of the Actuary projects the total cost of Medicare Part B drugs at $170.4 billion over the next 10 years. If a 21 to 26 percent savings was realized for all drugs under Medicare Part B, the resulting rebate savings would total between $36 billion and $44 billion over the next 10 years.
“Cost-Saving Policies”
In addition to the Medicare Part B proposal, Prescription Drug Cost Reduction Act includes six other cost-cutting policies that would:
Get generics to the market sooner by ending pay-for-delay settlements. Kohl pointed to the “bipartisan Preserve Access to Affordable Generic Drugs Act (S. 27), which would combat pay-for-delay settlements used to keep lower-cost generic drugs off pharmacy shelves.” The bill would make such deals illegal and give the Federal Trade Commission (FTC) the authority to challenge them in court.
Allow Medicare to directly negotiate drug prices in Medicare Part D. The Prescription Drug Price Negotiation Act (S. 44) would allow “the negotiation of Medicare Part D prescription Drugs, and would give the Secretary of HHS negotiation authority.
Require prescription drug manufacturers to provide discounted medications to low-income Medicare recipients. The Medicare Drug Savings Act (S. 1206) would increase the discounts Medicare receives on prescription drugs for low-income individuals enrolled in Medicare Part D. Kohl projected this provision would save $112 billion over 10 years.
Require drug manufacturers to pay rebates for Medicare Part B drugs. Kohl noted that an analysis done by Department of Health and Human Services Office of Inspector General (HHS OIG), showed that up to $2.4 billion would have been saved on just the 20 costliest drugs last year if the manufacturers of Medicare Part B drugs had been required to pay the same rebates required under Medicaid. These savings represent up to 26 percent of the $9.2 billion that Medicare and its beneficiaries paid for the 20 drugs in 2010.
Allow Medicare to negotiate drug prices in Medicare Part B when it is the majority purchaser. Current law bars CMS from negotiating the prices for physician-administered drugs within the Medicare Part B program, even when the government is the primary consumer of a specific drug-sometimes over 90 percent of the market share. This policy would allow the federal government to negotiate with a pharmaceutical company when Medicare is the majority purchaser of their drug.
Allow CMS to pay the same price for drugs that are similar. For 15 years, Medicare used an authority called “least costly alternative” (LCA) to ensure that CMS, beneficiaries and taxpayers did not pay more for a drug when a similar, cheaper drug produced the same result. Unfortunately, a recent court decision held that CMS lacked the statutory authority to exercise LCA. This policy would provide CMS with the authority to use the LCA policy for pricing similar drugs in Medicare. A report by the HHS OIG estimated a savings of $40 million per year with the institution of an LCA for just two drugs used to treat prostate cancer – Lupron and Zoladex.
Reduce incentives for doctors to prescribe high cost drugs over safe, effective and cheaper generic drugs. Currently, doctors receive a payment of 6 percent of the price of a drug administered to a patient under Medicare Part B. This provides a strong incentive to use the most expensive, brand name drug available instead of the less expensive generic drug, and raises the cost of drugs for Medicare recipients, taxpayers, and the federal government. This policy would create a more equitable payment structure for the drugs that eliminates the disincentive to prescribe lower-cost, equally efficacious drugs.
Minimize costs by requiring transparency from Pharmacy Benefits Mangers (PBMs). By acting as the middlemen between insurers and drug companies, PBMs manage drug benefits for the federal government and most employers. PBMs negotiate drug prices, formularies and pharmacy payments for health plans. Drug companies often pay PBMs to promote their drugs within formularies and to increase the utilization of a drug – but PBMs are under no obligation to disclose these payments to their clients. These payments can lead to higher drug costs for taxpayers and consumers, and some states have already pursued savings in this arena. This policy would require PBMs to disclose payments received from drug companies to employers or the federal government and would boost transparency and help to minimize costs.
Guard against the unnecessary prescription of dangerous and costly drugs for nursing home residents. This policy would require physicians to complete a written certification form before prescribing atypical antipsychotics for nursing home residents. This policy in response to a report from HHS OIG, which found that nearly 1.4 million Medicare claims for atypical antipsychotic drugs were prescribed off-label for elderly nursing home residents, costing taxpayers hundreds of millions of dollars for these drugs over a six-month period.
Expand a current drug discount program (340B) to long term care programs and safety net hospitals. This policy would allow the federal integrated care program for dually eligible beneficiaries Program of All-Inclusive Care for the Elderly (PACE) to directly purchase pharmaceuticals through the “340B” discount program, which is used by Community Health Centers to purchase drugs. The program provides drugs at a much lower cost than Medicare and, in some cases, at costs lower than Medicaid. This policy is structured so that most of the savings would be realized by Medicare, with a portion available for PACE plans meeting certain requirements.
Discussion
While the policy proposals contained in Kohl’s letter provide a starting point for the government to try to reign in health care costs, a number of these bills are problematic.
First, to give doctors disincentives for prescribing brand name drugs is troublesome for a few reasons. In America, we already prescribe over 75% of generic drugs, so brand name drugs are not the problem. Moreover, the cost of drugs only accounts for 10 cents out of every dollar spent on healthcare, so reducing these 10 cents is also not significant. More importantly however, is the fact that the federal government is now putting external and economic pressure on physicians to choose their prescriptions.
In effect, the government is telling doctors, which drugs to prescribe and not, a mild form of government controlled health care. Doctors who are already facing low reimbursement rates and high costs for insurance and other resources will be forced to choose drugs under a plan that will give them the best reimbursement, which does not necessarily mean they are best for the patient.
Finally, what is problematic about just this proposal is that it could potentially lead to newer treatments and products being delayed. It can take up to a decade for a new drug, device, product or treatment to go from the bench to the bedside and be fully implemented into practice. Education, training, research, journals, and numerous other aspects of a new product must get into practice before a doctor can implement new treatments. This legislation would impose a significant burden on the process of disseminating new information to doctors if those clinicians are faced with a strong economic incentive not to learn or use new treatments. This will slow down the pace of science, medicine and healthcare, and could ultimately lead to greater costs to our system for not adopting the newest and best treatments.
As industry, insurance, and trade organizations begin to analyze these provisions, we will provide updates on the comments and responses to these broad and sweeping proposals.
While it is important to control spending and costs, sacrificing the freedom and ability to have the best treatments and products should not be an option. Doctors need the freedom to do what is best for their patients, without worrying about even more controls on reimbursement and pricing. Patient-centered care must come first. The priority should be how to best improve the health and life of a patient. Controlling the healthcare system through an economic lens will lead to rationed care and a focus on the dollar, not the patient.