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American Patients First: Lowering Out of Pocket Costs


In their latest article summarizing efforts to put each of the “American Patients First” blueprint's four strategies into action, Rick Kelly and Nisha Desai focus on the Lowering Out of Pocket (OOP) Costs strategy.

In the fourth in a series of five articles based on a white paper by Cyan Health-which summarizes efforts to put each of the “American Patients First” blueprint's four strategies into action-Rick Kelly and Nisha Desai focus on the Lowering Out of Pocket (OOP) Costs strategy.

  In the current market, the financial burden on patients is substantial and well documented. Collectively, the policies within the

American Patients First

blueprint strive to accomplish one ultimate goal-to decrease this financial burden. To date, the administration has been successful in implementing several policies aimed at lowering OOP costs on prescriptions. Let’s explore these.   Changed certain OOP amounts for Part D. Under Medicare Part D, beneficiaries are held accountable for a significant portion of the cost share until the catastrophic phase is reached (currently $5,100). In 2019, this led to an average of


total OOP costs per beneficiary. Therefore, several changes have been made, which aim to alleviate some of the drug cost burden from beneficiaries:

  • Closed the “donut hole” a year early. When Part D was first implemented, beneficiaries were required to pay 100% of the cost share for prescription drugs while in the coverage gap-known colloquially as the “donut hole.” However, since then, the donut hole has been slowly closing, decreasing the beneficiaries’ share of cost. As of January 2019, beneficiaries pay only 25% of the cost share for brand prescriptions before and within the coverage gap–a change that was originally slated for 2020.

  • Lowered co-pay for biosimilars for low-income, subsidy-eligible beneficiaries. CMS has established a new, lower maximum co-pay for LIS-eligible beneficiaries that is the same as the co-pay for generic drugs. 

Changed OOP costs for 340B drugs in the hospital outpatient setting.  The HHS has extended the reimbursement rate for 340B drugs (recently decreased from ASP plus 6% to ASP minus 22.5%) for hospital outpatient departments. Since beneficiaries pay a coinsurance rate based on the reimbursed amounts, lowering the payments to hospitals reduces the cost to beneficiaries.    Eliminated “gag clauses.” PBM contracts typically include a requirement- a gag clause-that prevents retail pharmacists from informing patients that paying cash would be less expensive than paying the Medicare Part D co-pay or coinsurance. To lower the financial burden on patients and promote price transparency, two bills were signed into law: The

Know the Lowest Price Act

and the

Patient Right to Know Drug Prices Act

. Together, these bills prohibit gag clauses in both Medicare Part D and commercial payer contracts.   

Proposed policy changes 

The only yet-to-be-implemented proposal in the blueprint aimed at lowering OOP costs is one intended to improve transparency regarding how Part D drug prices impact those costs. Here’s how the proposal breaks down:   Including drug pricing in the Explanation of Benefits (EOB). Currently, Part D plans are required to send beneficiaries an EOB each month describing their total year-to-date expenses relative to the OOP threshold. CMS’s November 2018 Proposed Rule for “Modernization” of Part D would require that two new pieces of information be included in the EOB: the year-to-date percent change to the negotiated price and the availability of lower cost alternatives. CMS plans to implement this rule on January 1, 2021.  

Impact on pharma

As we approach a new drug pricing landscape, pharma companies may have to adjust course. While it’s likely that, in some instances, policies (such as lowering OOPs in the donut hole) may indeed benefit pharma companies by lessening the impact of list price on patient OOP cost, other policies will require pharma to act:  

  • Decreasing OOP costs for 340B drugs in the hospital outpatient setting will decrease the margin for 340B entities, thereby incentivizing them to move away from more expensive products. Pharma companies will need to establish a broader value proposition and implement laser-focused marketing programs and promotional efforts with 340B entities, to maintain formulary status and prescribing patterns.

  • Eliminating gag clauses and including pricing in EOBs will arm patients with more information on lower-cost alternatives in key therapeutic categories. For brands that compete with generic alternatives, pharma companies will need to leverage pull-through support to drive patient demand. For more expensive brands, pharma companies may need to defend against a therapeutic switch by ensuring that patients and physicians understand the scope of the brand’s value.


Proposals under the “lowering OOP costs” strategy in the

American Patients First

blueprint focus primarily on the Part D program and 340B drugs in outpatient settings. There is also a proposal intended to empower patients through greater price transparency. Together, these implemented and proposed policies are game changers for pharma companies, requiring them to re-calibrate their current strategies for the realities of a new era.   

Rick Kelly, RPH, MHA, Cyan Health, and Nisha Desai, MPH, Cyan Health.

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