Part D Under Attack - Pharmaceutical Executive

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Part D Under Attack


Pharmaceutical Executive


Jill Wechsler
Even though the Medicare prescription drug benefit has provided access to medicines at less-than-anticipated cost to the government—and lower out-of-pocket spending for seniors—Democrats and consumer advocates want to overhaul the program. Critics contend that the federal government can negotiate lower prices with pharmaceutical companies than those obtained by private insurers operating prescription drug plans (PDPs). They charge that the program is too complex and confusing for elderly beneficiaries, particularly those in the infamous "donut hole," which is claiming more Medicare patients than anticipated.

Leading the charge for reform is Rep. Henry Waxman (D-CA). At a July health policy conference sponsored by CBI, Waxman described Part D as "a serious mistake that is not working well." Seniors are happy because they had no drug coverage at all before Part D, Waxman said, but it's been difficult for beneficiaries to shop around for the best plan because they don't know which drugs are covered, and because copays and premiums change each year. And beneficiary enthusiasm may wane as costs go up: The Centers for Medicare & Medicaid Services (CMS) reported in August that the average PDP premium would be $28 a month in 2009—that's up 12 percent from this year.

Windfall Profits

Moreover, pharmaceutical companies are raking in big profits from Part D, Waxman claims, because they no longer have to pay rebates to state Medicaid programs for drugs delivered to low-income seniors now covered by the Medicare drug benefit. As chairman of the House Oversight and Government Reform Committee, Waxman unveiled a study at a July hearing citing a $3.7 billion windfall for pharma in 2006 and 2007 due to higher prices paid for drugs provided to "dual eligible" beneficiaries. Top revenues went to Johnson & Johnson, which Waxman says earned over $500 million in additional profits on its antipsychotic medication Risperdal, and Bristol-Myers Squibb, which gained $400 million in Medicare coverage for its stroke medication Plavix.

Another target for reformers is the coverage gap in the Part D benefit, which hit more than a quarter (26 percent) of Part D enrollees in 2007, according to analysis issued in August by the Kaiser Family Foundation (KFF). This means that about 3.4 million Medicare beneficiaries, largely seniors with chronic health problems, had to pay the full cost of their meds for at least part of the year. A significant number of seniors consequently stopped taking prescribed medications, and some switched to other drugs.

Industry patient assistance programs provide minimal help to low-income seniors struggling to meet Part D premiums and co-pays, according to the Government Accountability Office. A GAO report issued last month finds many PAPs are not open to Part D enrollees, and the programs are diverse and confusing.

At a minimum, Democrats want to repeal the "non-interference" clause governing Part D, which prevents Medicare from negotiating prices and discounts for covered drugs. Opponents of such a move, which include insurers and PBMs (pharmacy benefit managers) as well as pharma companies, claim that centralized price negotiations won't reduce spending and might actually boost prices if manufacturers fear they have to give everyone their deepest discounts.

Nevertheless, both Presidential candidates promise to allow government drug price negotiating, and Congress is likely to support such a move. Few legislators understand the nuances of the policy, commented former Rep. James Greenwood, who is now president of the Biotechnology Industry Organization (BIO). He told reporters at a briefing last month that members of Congress assume that either Medicare negotiates prices, or drug companies charge whatever they want; they fail to realize that every drug under Part D is subject to "very tough negotiations" between the private parties.

Broader Protection


Medicare Goody Bag
Advocates of centralized price negotiations, interestingly enough, also support expansion of certain "protected classes" of drugs that have to be included on all Part D formularies. Medicare requires PDPs to reimburse for "all or substantially all" drugs in six protected classes (antipsychotics, antidepressants, antiretrovirals, immunosuppressants, anticonvulsants, and antineoplastics). And if the Medicare legislation approved by Congress in July is a sign of things to come [see "Medicare Goody Bag"], it will be very difficult for policy makers to deny seniors access to any drug that documents efficacy for at least some patients.

The Medicare legislation codified the status of current protected classes, and established a process for extending this status to additional medications where formulary exclusion could have "major or life-threatening clinical consequences." The Bush administration protested that such a move would "effectively end meaningful price negotiations" between drug plans and manufacturers, and ultimately increase program costs and beneficiary premiums. Here, PBMs and insurers opposed the change, while Democrats and patient advocacy groups praised it as a way to ensure coverage of important medicines for seniors. Pharma companies say they sat this one out, but stand to gain from broader coverage requirements. That could be a short-sighted position if curbs on price negotiating do raise costs and erode private plan participation in Part D—just what program critics would like to see.

Comparing Effectiveness

Any health reform legislation in Congress next year is likely to establish a program to provide comparative information on which drugs and medical procedures are most effective. Senators introduced a bill in July to create an independent entity to conduct research, with an eye to balancing public oversight with the need for independence and minimal political influence on the research agenda.

The proposed Health Care Comparative Effectiveness Research Institute would be a private, nonprofit, non-governmental entity. It would contract with government agencies, such as the Agency for Healthcare Research and Quality and the National Institutes of Health, as well as private research organizations, to conduct literature reviews, observational studies, and possibly controlled clinical trials to obtain evidence on the clinical effectiveness of drugs and treatments.

An "all payer" funding system would tap the Medicare trust funds along with private insurers to support a $300 million annual budget by 2013. Oversight would rest in a large Board of Governors that includes government officials and representatives of private payers, pharmaceutical companies, patients, physicians, and public health agencies. An expert methodology committee would oversee the development of standards and methods for conducting scientifically sound comparative research.

To reduce opposition, the legislation specifies that assessments will not consider costs. But insurers and payers maintain that to be useful to the healthcare system, cost-effectiveness (CE) research should weigh prices and expenditures, and the bill leaves the door open for Congress to authorize CE analysis in the future.

The fear for medical product manufacturers is that such research will steer reimbursement to the least expensive products. Patients are different, emphasized Greenwood of BIO, insisting that it's unfair to those who respond better to drug B than to drug A if a health plan only covers drug A.

Advocates of CE analysis see a model in the UK's National Institute for Clinical Excellence (NICE), which assesses medical technology for the country's National Health Service. However, it's not clear if NICE decisions would enjoy the same kind of acceptance in the US as in the UK. Nor is it all that clear that NICE is the answer in the UK, as its decisions have been the subject of much public scrutiny (see "Open for Debate," page 32). NICE recently made headlines by denying coverage of several therapies for advanced kidney cancer, drawing loud protests from patients, physicians, and researchers. Although NICE agreed that the drugs may extend life by several months, it concluded that the money involved ($142,000 to $340,000 per quality adjusted life year per patient) could be better spent elsewhere.

Jill Wechsler is Pharmaceutical Executive's Washington correspondent. She can be reached at

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