In mid-January 2018, the Medicare Payment Advisory Commission (MedPAC) met to discuss Medicare payment adequacy and vote on 2019 Medicare payment update recommendations. The recommendations approved during this meeting will appear in the 2018 Report to Congress by the Commission.
One of the recommendations finalized by the Commission involved Medicare Part D, stating that Congress should change Part D’s coverage-gap discount program to require manufacturers of biosimilar products to pay the coverage-gap discount by including biosimilars in the definition of “applicable drugs” and exclude biosimilar manufacturers’ discounts in the coverage gap from enrollees’ true out-of-pocket spending.
Principle Policy Analysts Rachel Schmidt and Shinobu Suzuki reported that of the 58.6 million Medicare beneficiaries in 2017, 42.5 million were enrolled in Part D plans, and the program spent nearly $80 billion last year. They noted the coverage gap for Part D beneficiaries will continue to close over the next few years, but the brand manufacturer discount will remain. The analysts stated that key trends since the start of Part D included enrollment growth of six percent, although that number was higher for non-LIS (Low Income Subsidy) enrollees than LIS, and average monthly premiums were stable at around $31 per month. It was also reported that per capita Medicare reinsurance payments to plans have grown much faster than enrollee premiums at 13 percent since 2010.
Schmidt and Suzuki also stated that altering formulary designs to incorporate trends toward moderate tightening, the use of “price protection” rebates for manufacturers, the use of preferred cost-sharing pharmacies, pharmacy fees, and restrictions against specialty pharmacies were all strategies being used to manage Part D premiums. They said that the growth in brand prices more than offset the impact of generic use by beneficiaries, and nearly all the growth in spending for high-cost enrollees is due to higher prices. Ultimately, they said that the trend of growth of high-cost enrollees and rapid growth in Medicare’s payments for reinsurance will continue due to increasing focus on specialty drugs and biologics in the pipeline. They suggested removing the financial disincentive to use biosimilars to encourage price competition.
MedPAC staff suggested the policy change would remove distortion against biosimilars from plan incentives, and Medicare would pay more of its 74.5 percent subsidy through capitated payments rather than reinsurance. The savings from this policy change would be small initially, but has the potential to generate potentially larger savings over the long-run. The recommended policy is likely to encourage plans to place biosimilars on formularies, and fewer enrollees would reach the out-of-pocket threshold.
Commissioner Jack Hoadley stated that it was important that Congress enact the entire recommendation, as using only pieces of the suggested policy change could do more harm than good. He also suggested going further in future discussions to address pricing strategies of companies where plans are left with little to no leverage as well as rebate games and the overuse of the orphan drug class. Several commissioners agreed that more would need to be done to examine the “food chain” of pharmaceutical development to market, so that the commission could better understand how to tackle ever-rising drug costs.