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News | Medicare Payment and Reimbursement

Provider Payments Among Drug Costs Targeted by Congress

News | Medicare Payment and Reimbursement

Provider Payments Among Drug Costs Targeted by Congress

Jan. 29—Two provider payment systems were highlighted by members of Congress this week as areas in which policy changes are needed to control drug costs.

Members of Congress predictably clashed on some drug price proposals but found agreement in other areas.


Jan. 29—Two provider payment systems were highlighted by members of Congress this week as areas in which policy changes are needed to control drug costs.

On Jan. 29, both the Senate Finance Committee and the House Oversight and Reform Committee held hearings to identify actions Congress could take to lower drug costs for the public. The 340B discount drug program and the Medicare Part B policy that pays average sales price (ASP) plus 6 percent to providers that order the drugs both drew criticism for contributing to rising drug costs.

For instance, Peter Bach, MD, director of the Memorial Sloan Kettering Center for Health Policy and Outcomes, was one of several witnesses who testified that Congress needed to replace the ASP plus 6 percent payment to physicians for Part B drugs with a flat fee for all drugs.

“Due to the percentage-based markup, profits are larger for those drugs that are more expensive,” Bach said.

Bach cited his recent analysis that concluded the profit potential of various Part B drugs influences prescribing; all else being equal, physicians will prescribe the more profitable drug when they have multiple options.

Similarly, several witnesses named as a drug-cost contributor the 340B discount drug program, which requires drugmakers to sell medications to qualifying providers at a discount, while providers can use the resulting profit to offer patient services.

Douglas Holtz-Eakin, PhD, president of the American Action Forum, described the 340B program as leading to higher drug prices and not well-targeted.

Sen. Debbie Stabenow (D-Mich.) pushed back that the 340B program was “not the primary reason for high drug prices.”

The criticism of provider-focused drug policies echoed the Trump administration’s proposalstargeting both the 340B program and ASP-based payments. The administration issued a request for information for feedback on a variety of 340B changes, including changing the definition of patientsand moving oversight of the program from the Health Resources and Services Administration (HRSA) to the Department of Health and Human Services. Critics of 340B have said HRSA lacks authority to oversee the program.

Hospital Responses

This month, hospital advocates—the American Hospital Association (AHA), the Federation of American Hospitals, and the American Society of Health-System Pharmacists—issued a report that found that continued rising drug prices, as well as shortages for many critical medications, are disrupting patient care and forcing hospitals to delay infrastructure and staffing investments and identify alternative therapies.

The AHA has recommended a range of responses, including stopping brand-name manufacturers' anticompetitive actions by addressing “evergreening” and pay-for-delay practices, speeding up generic drug approvals, and passing the Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act.

Some of the hospital-preferred responses were echoed at the congressional hearings.

For instance, the AHA was critical of efforts to minimize or eliminate competition through product “evergreening,” in which a manufacturer attempts to extend patent and market-exclusivity protections for drugs through new regulatory approvals, such as for extended-release formulations.

“Without important information on the comparative value of the newer drug, many providers and consumers switch to the brand-only ‘evergreened’ product assuming that the newer version is superior,” AHA wrote.

Needed reforms include limiting drugmakers’ monopoly periods, as well as approaches that set drug prices at marginal costs plus a set profit, said Bach.

Also drawing praise were AHA proposals for value-based payment (VBP) models for drug purchasing.

Bach said drugmakers should get higher prices for drugs shown to have greater efficacy, while payers need to ensure that the patient share of the cost of efficacious drugs is lower. Emerging initiatives include outcomes-based contracts developed by Eli Lilly and Anthem.

The Trump administration is developing value-based payment pilots in Medicare to base payments to drug companies on the effectiveness of drugs.

Similarly, the administration’s plans for the Food and Drug Administration to require pharmaceutical companies to state their list prices in direct-to-consumer advertising drew bipartisan praise during the hearings.

Controversial Proposals

Members of Congress also clashed over some initiatives to control drug prices, such as authorizing Medicare to negotiate prices directly with drugmakers.

“We know it works in the [Department of Veterans Affairs], where they pay 40 percent less,” Stabenow said about direct negotiations.

Sen. Ron Wyden (D-Ore.) said the structure of the Medicare Part D program both encourages drug manufacturers to “push list prices sky-high” and leaves pharmacy benefit managers without the leverage to controls costs of sole-source drugs. He too urged that Medicare be authorized to negotiate drug prices.

Republicans were opposed to any direct price negotiations by Medicare over concerns that such an approach would increase the federal government’s role in health care, as well as potentially wipe out funding for research into new medical treatments.

But Mark Miller, PhD, an executive vice president at the Laura and John Arnold Foundation, said the fact that drug companies spend much greater amounts on marketing and other business costs than on research and development indicates Congress could sharply cut payments to companies without affecting the pipeline of new drugs.

Some conservatives also unloaded on the Trump administration’s proposal to create an “International Pricing Index” to bring down prices of some Part B drugs based on prices from 16 other countries.

Holtz-Eakin said he was nervous about the index proposal because it was based on a comparison of U.S. and foreign prices for 24 drugs, but only 11 of them are available in all 16 countries selected for the index.

“You get what you pay for,” Holtz-Eakin said about the decision of drug companies not to sell to low-paying countries.

The AHA proposal to require mandatory, inflation-based rebates to counter fast-increasing prices for Medicare drugs also appeared unpopular. That was due to a general hostility to even the current level of rebates used among various types of healthcare programs.

For instance, Holtz-Eakin said rebates undermine the purpose of insurance by helping drug insurers keep overall premiums low while pushing more costs on beneficiaries who need the drugs.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

About the Authors

Rich Daly
HFMA senior writer/editor

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