New Efforts to Curb Drug Prices

October 31, 2018

In the last week, the administration has rolled out two major plans to reduce prescription drug costs in the U.S. On Oct. 25, President Donald Trump outlined a plan to lower prescription drug prices by changing how Medicare Part B pays for certain drugs that are administered by doctors. The proposal, while not yet formally introduced through the rulemaking process, would make a number of changes as part of a larger pilot program to test strategies to lower costs.

The proposal would implement an “international pricing index,” whereby the prices paid by Medicare would be reduced over five years to match international prices for the same drugs. It would allow private sector vendors to negotiate directly with drug makers, which is how drug prices are set in the Medicare Part D program.

Additionally, the proposal calls for revamping the incentives for doctors to prescribe certain drugs by making the fee they receive a flat fee vs. allowing a fee based on the price of the drug which can cause doctors to prescribe more expensive drugs.

CMS is likely to formally propose the rule in spring 2019 with a goal of implementing the program in 2020. While limited in scope—only certain drugs in certain areas would be impacted—the administration announced this week an even bigger plan related to Medicare Part D.

On Monday, Oct. 29, the Office of Management and Budget (OMB) posted an outline of a proposal on Medicare Part D which is expected to be unveiled after the Midterm elections. This proposal is likely to have a bigger impact as Part D accounts for 15 percent of total Medicare costs whereas Part B makes up just three percent of overall costs.

Among the provisions expected to be part of the Part D proposal: at least one-third of the rebates provided to insurers by drug companies would be shared with seniors; co-insurance payments would be phased-out once the out-of-pocket max of $5,000 is met; and the elimination of cost-sharing for low-income participants in Medicare who purchase generic drugs.

According to HHS Secretary Alex Azar, Medicare routinely pays nearly twice as much as countries like France and Japan for the very same drugs. Medicare is responsible for about 30 percent of total U.S. spending on prescription drugs, meaning these changes could have a significant impact on the overall industry’s prices.